Gold is one of the most trusted and revered investment avenues in India. It is one of the most auspicious metals considered imperative for festivals, weddings, and other occasions. Temples in the country are famous for their golden idols guarded against thefts while most Indians view gold as a form of future security and safety against financial emergencies. Gold has lived up to its high reputation for several decades now although there are periods when it starts losing some sheen. Prices of gold have often gone downwards and customers have bought gold in higher quantities with the hope of earning higher dividends when prices start rising once again.
Here are some of the key factors influencing the prices or rates of gold in India throughout the year. The prices of gold are substantially impacted by developments in global markets as well. India is one of the world’s biggest consumers of precious yellow metal and any movements in prices globally will naturally have a direct impact on prices in the country too.
Major Factors Driving Gold rates in India
Here are the factors worth noting in this regard:
- Inflation- Gold has considerable value owing to its steady nature in comparison to currency and is deployed for hedging against inflation as a result. Be it purchasing online gold or physical gold, investors prefer holding onto gold in place of currency for the future. Hence, demand for gold goes up with rising inflation and vice versa. The prices of gold increase owing to huge demand from Indian customers. This is also applicable to global inflation.
- Global Shifts- Global shifts in gold prices will naturally impact gold rates here in India as well. This happens since India is one of the world’s biggest gold importers. Global movements are thus reflected through gold prices in the domestic market. Gold is often subject to higher demand in times of turmoil since people see this as a safe haven than currency or other financial products. Gold buying usually goes up when the confidence of people comes down considerably in the Government and financial markets. It is thus often called the crisis commodity.
- Gold Reserves of the Government– Central banks of almost all top countries hold onto gold and currency reserves alike. The Reserve Bank of India and also the U.S. Federal Reserve are two such examples. Whenever central banks in big countries start holding their gold reserves and acquiring even more gold, prices of the yellow metal naturally go upwards. This is because cash flow in the market is higher while the supply of gold comes down as a result.
- Jewelry Market Trends– Indians have a special fascination and liking for yellow metal. Right from birthdays and festivals to weddings, gold jewelry is revered in most households in India. Prices of gold go up during festivals like Diwali and also during the wedding season in the country. This is because of higher consumer demand and a mismatch between supply and demand of gold, i.e. higher customer demand vis a vis lower supply of the commodity in question. Gold is also used in smaller quantities by various manufacturers of electronics for devices such as computers, televisions, GPS devices, and more. Gold is used for gifting in India along with jewelry and ornaments and also to hedge against future inflation. These contribute towards increasing domestic demand sizably for gold periodically and India has to then import sizable quantities of gold as well. Industrial demand for gold comprises roughly 12% of overall gold demand in India.
- Rates of Interest– Interest rates levied on financial services and products are linked closely towards gold demand in India. Gold prices presently are excellent indicators for rates of interest in the country and their current trends. With higher rates of interest, customers usually tend to sell off gold for getting more cash in hand and an increased supply of gold will naturally lead to lower rates for the precious metal. At the same time, lower rates of interest will mean that there is more cash in the hands of customers and higher demand for gold will be witnessed likewise. This will lead to higher prices of the precious metal subsequently.
On a closing note
There are several other factors at play when it comes to influencing gold prices or rates. There are numerous aspects influencing gold production and future costs of production, thereby impacting prices directly. Yet, the core takeaway here is that in spite of multiple factors behind gold rates, it ultimately comes down to the relationship between demand and supply. The basic mismatch between these two factors is one of the key reasons behind the movements or shifts in prices of the precious metal. This mismatch may however take place owing to diverse scenarios which can be observed in a variety of market conditions.
Danis Woods in Businessman, investment banker and stock exchange traders. On the same time he loves writing financial blogs to shed lights on different aspects that new and existing businessman are not aware of.