Gold is considered as the most efficient method of saving and investment in India. Investment in Gold is prevalent in India before stock market or mutual funds. Gold is used in every house especially at the time of weddings & festivals and as beauty ornaments. Gold has always been in demand as it is always used as symbol of great wealth or opulence. Gold Prices are fluctuating in nature because its price is driven by a number of factors. This is why everyone who is willing to buy gold always have eye on the gold price because of its fluctuating nature. It’s price depends upon various factors which are discussed as under.
Gold Prices daily changes due to many factors including social, political & economic factors occurring across the globe. One could observe the persistent rise in Gold Prices and then its price got unexpectedly reduced during COVID Pandemic.
Important Factors affecting Gold Prices in India
There are a lot of factors which drive the Gold Price in India and following are the key factors which affect the Gold Price:
Demand & Supply of Gold
The first and foremost factor which affects the Gold price across the globe is the scarcity of gold. Since production of gold is natural and non-consumable product and does not involve human intervention thus all the gold that has even been mined in the world is still available. Therefore, the demand of gold is increasing rapidly but the supply of gold is constant as the quantity of gold mined every year in the world is comparatively low. As we all know price of any scarce product is directly proportional to its demand thus, the price of gold increases as the demand of gold increases.
As the inflation increases, the value of currency decreases but the value of gold remains the same unlike currency. Thus, investors prefer Gold investment over Currency Investment because of steady character of Gold. Conclusively, Investors look for Gold especially during Inflation which ultimately increases the Gold rates. This theory is applicable on both National & International Inflation. Gold Investment is considered as the perfect hedge at the time of inflation as it remains unaffected by any kind of fluctuation in the value of any country’s currency.
Unlike Inflation, Interest Rates have different relationship with Gold Rates. When the Interest Rates on any investment plan decreases then people who want maximum returns opt for Gold Investment as the Gold Prices generally increases day by day subjected to the other market factors. Similarly, when Interest Rates go high then people choose to invest in deposits rather than in Gold.
Conclusively, the Gold price increases as the Interest Rates go down and the Gold Price decreases as the Interest Rates rise.
Gold is considered as the Safe haven of Investment. Thus, every investor compares all the investment plans to choose the best return making Investment. Therefore, if there is any investment plan which gives high return then everyone will invest in that. Similarly, if there is no any other high return making Investment plan then everyone will invest in Gold which will increase the Gold Price. Change in Investment Trends fluctuate the gold prices in India.
5.Indian Jewellery Market
Every Indian look for Gold market during festivals and weddings as gold jewellery is directly linked with religion and customs. Since, the demand for gold increases during wedding seasons and festival time, therefore, the price of gold increases during that period.
6.Gold Reserves of Indian Government
As the Indian Government keeps the Gold Reserves with the Reserve Bank of India so it can sell or buy that gold reserve at any time they need fund or release fund. Conclusively, the rates of Gold changes as the Government sell or buy the Gold Reserves.
7.Import Duty on Gold
Since there is mostly high demand of gold in India therefore, India has to import a lot of gold to meets the high demand. Indian Custom Laws impose a heavy Import duty on Gold; therefore, the Gold Price varies in accordance with the Import Duty Rates. Gold price increases when the import duty & gold demand is high and vice-versa.
8.Change in Currency Value
As we have discussed, India is required to import Gold to meet high demand of Gold. Thus, the gold is traded in US Dollar in International Market and Indian Rupee value also fluctuates in International Market. Eventually, any fluctuation in INR impacts the import price of Gold.
9.Increase in International Gold Price
India is one of the highest importers of Gold in the world. Therefore, when the International price of Gold increases then the Import Price of Gold also increases which conclusively increases the National Gold price.
10.Change in Financial Markets
Condition of Financial Market has direct impact on Gold rates in India. As when the financial market is weak then every investor look for safe haven investment and Gold is the safest investment option as discussed. Therefore, Gold price increases with the weak Financial Market.
Gold is one of the most precious & revered metals in India. Whether it is festival or it is weddings, all big occasions in the country are incomplete without gold. However, lots of Indians look up gold as a reliable entity of Investment, which can be used in financial crisis. Gold Price is always fluctuating as it’s price depends upon a number of factors like demand & supply or International Gold Price and so on as discussed above.