Gold prices surge to new highs: How investors can pick the right gold investment route in 2026

Gold premiums in India surged this week to their highest level in more than a decade as investors rushed to buy the metal ahead of the Union Budget, amid fears of a possible import duty hike. Bullion dealers charged premiums of up to $112 per ounce over official domestic prices, the highest since May 2014, compared with discounts of up to $12 per ounce just a week earlier. Domestic gold prices also touched a fresh record, rising to ₹1,59,226 per 10 grams on Friday.

The spike comes on the back of an exceptional rally in 2025, driven by strong safe-haven demand, sustained central bank buying and a weaker US dollar. Globally, spot gold surged beyond $4,500 per ounce during the year and has recently neared the $5,000 mark. In India, 24-carat gold crossed ₹1.30 lakh per 10 grams in 2025 and ended the year at ₹1,37,700. Year-on-year, gold delivered returns of 74.4%.

Investing in gold

Gold’s strong performance has reinforced its appeal as a hedge against inflation and a tool for portfolio diversification. In recent years, returns from the yellow metal have also outpaced traditional fixed-income instruments such as fixed deposits and bonds, combining capital appreciation with perceived safety.

With prices at record highs and investor interest rising, individuals today have multiple avenues to gain exposure to gold. Each option—physical gold, gold exchange-traded funds (ETFs), sovereign gold bonds and digital gold—comes with distinct benefits, costs and risks.

Physical gold

Buying physical gold—jewellery, coins or bars—remains the most traditional investment route. Jewellery purchases are often driven by cultural and social considerations, while coins and bars are typically acquired as a store of value.

However, physical gold is not the most efficient investment option. Jewellery involves high making charges and resale deductions, which erode returns. Coins and bars are relatively more investment-friendly but still require safe storage and insurance, adding to costs. Physical gold is therefore better suited to investors who value ownership and tradition over financial efficiency.

Gold ETFs

Gold ETFs have gained traction as investors increasingly shift towards paper-based assets. Listed on stock exchanges, ETFs track gold prices and can be bought or sold like shares, offering real-time pricing, transparency and liquidity.

They eliminate storage and purity concerns, carry relatively low expense ratios and avoid making charges or resale deductions. Regulated and efficient, gold ETFs are well suited for investors seeking a cost-effective way to add gold to portfolios, provided they have a demat and trading account.

Sovereign gold bonds

Sovereign gold bonds once offered a compelling combination of price appreciation, interest income and tax benefits. However, fresh issuances have been discontinued. While existing investors can hold or redeem bonds as per original terms, new investors in 2026 cannot access this route. Secondary market liquidity remains limited, making SGBs a less viable option today.

Digital gold

Digital gold allows small-ticket investments through apps and fintech platforms, lowering entry barriers. However, it operates in a grey regulatory area, with varying standards on pricing, storage and redemption. As these products are not regulated like ETFs, they carry higher counterparty risk and are better suited for limited allocations.

Taxation of gold investments

Tax treatment varies by instrument and holding period.

For physical gold, including jewellery, coins and bars, gains are taxed based on a 24-month holding period. If sold within 24 months, profits are treated as short-term capital gains (STCG) and taxed according to the investor’s income tax slab. If held for more than 24 months, gains qualify as long-term capital gains (LTCG) and are taxed at a flat 12.5% without indexation. A 3% GST is also levied at the time of purchase, whether the gold is bought physically or digitally. 
Gold ETFs and gold mutual funds follow a shorter holding threshold. Units sold within 12 months attract STCG at slab rates, while those held beyond 12 months are taxed as LTCG at 12.5% without indexation. 

Sovereign Gold Bonds (SGBs) enjoy preferential treatment. The interest earned is taxed as per the income tax slab, but capital gains are fully exempt if the bonds are held until maturity (8 years). If sold before maturity, gains are taxed — STCG within 12 months at slab rates and LTCG beyond 12 months at 12.5%.

In case of gifts and inheritance, gold received from specified relatives or through inheritance is tax-free at receipt. However, if the gold is later sold, capital gains tax applies based on the original owner’s purchase cost and holding period.

Understanding these distinctions is crucial, as post-tax returns can differ significantly across gold investment options.