In the eyes of Indians, gold is one of the safest investment options which they can liquefy anytime they need. It is the investment option they can always look up to during the times of financial crisis. But, that’s not all! Gold has some sentimental value in our culture. It is used in festivals, weddings, birthdays, and many auspicious occasions go without using this commodity. In our culture, gold is used in making gold jewelry which leads to a rally in the price of gold. While gold has been living up to its standard until now. Now, gold does not hold the same value it once before. People are switching to other precious metals and seeking other investment options that are as good as gold investments. The prices are soaring. The demand for gold plays a major role in its soaring price but not the only one. There are other factors that are affecting the gold prices in India.
Here, in this article, we’re going to mention the important factors that are affecting the gold prices in India.
Jewelry the market plays a major role in affecting the gold prices. Like we said earlier, gold jewelry uses in making gold ornaments. During festive or wedding season, the gold prices go up as in increased consumer demand. The mismatch of demand-supply could lead to raised prices. And not just that gold also demands in the manufacturing of devices like television, computer, and GPS, etc. As a result, the demand for gold rises and the country often ends up importing especially in wedding season.
Inflation is another important factor that influences the gold prices very much. During the inflation period, the domestic currency weakens, and when that happens, the people start investing in gold, which automatically raises its demands.
It is also the reason why gold considered one of the safest investment options. Inflation reduces the purchasing power of people so when one is careful in spending, one becomes extremely careful in investing. Therefore, during the inflation period, the demand for gold increases, results, affecting its price.
MOVEMENT IN GLOBAL PRICES
As we mentioned earlier, India is the largest importer of gold so any movement in the global gold prices affects the price of gold at home. Any change in global supply or change in demand could lead to change in the gold prices. And since the import gold price is linked to international gold prices, any change in the international market could affect the domestic gold prices.
CENTRAL BANK GOLD RESERVES
The Central banks of the respective nations hold both currency and gold reserves. For example, the US Federal Reserve of the United States and Reserve Bank of India holds a significant amount of gold reserves which they must sell off when the economy is booming. And when they hold on the gold, the price goes up. It is because the cash in the market increased and the supply of gold goes down.
Gold and interest rates are inversely proportional to each other. When the interest rate rises, people often sell their gold in order to use the money to earn high interest-rates however when the interest rate decreases, it becomes suitable for them to buy gold and this increasing in demand. When that demands increase, the prices automatically increase. But, don’t forget it is a short-term relation between gold and interest rates. In the long-term, both have shown a positive correlation.
So, we can say that the prices of gold go up and down and there are a lot of reasons that can make it do so.