What affects the gold price in India?

retail4
By retail4 May 15, 2018 16:05

What affects the gold price in India?

Gold or yellow metal is one of the most revered metals in India. Be it festivals or weddings, all big occasions in the country are incomplete without gold. Moreover, a lot of Indians look up to gold as a reliable entity of investment, which can be used during financial crisis. While gold has been justifying its standard since years now, in recent years gold has started to lose its worth. Price of gold has been coming down to a downward spiral and as such customers have obtained gold in the hope of getting substantial benefits after its prices goes up again.

India is among the largest consumers of gold and even the slightest movement in its price at the international market has huge impact on its price in India.

Here are some important factors that determine the price of gold:

Inflation

Because of its nearly steady character unlike currency, Gold has higher value and is used to protect oneself from inflation. This is why investors choose to acquire gold instead of currency. As an outcome, when inflation is high, the demand for gold also goes up and vice versa. In such a scenario, price of gold will increase and cause high demand from customers.

Gold reserves of the government

The central banks of a number of countries hold currency as well as gold reserves. Every time the central bank of large countries start holding gold reserves, the price of the metal goes up. It happens because the flow of cash in the market is increased while the supply of gold decreases.

Global movement

Any change in the global movement affects the price of the metal in India. This majorly comes from the fact that India is among the largest importers of gold and when the import prices fluctuate because of any global movement, the same is subsequently reflected in the price of gold in home country. Since, the value of currency and several other financial products may decrease at the time of any political upheaval, gold is often considered as a safe option by investors and moreover the demand and price of gold goes up during political chaos as compared to peaceful times.

Interest rates

Interest rates on financial products and services are closely related with the demand for gold. Current gold prices are considered as reliable indicators of the interest rate trends of any country. With higher rate of interest, customers happen to sell gold in return of cash and a higher supply of gold causes reduced rates of the metal. On the other hand, lower interest rates converts into more cash with the customers and as such higher demand of gold and thereby increased price of the metal.

Jewellery market

Buying gold ornaments during festivals and weddings is a common phenomenon in India. Thus, during wedding season and festivals like Diwali, price of gold goes up because of the increased consumer demand. The demand for gold does not just end at jewelry requirements. This makes the local demand for gold go up so much that India has to time and again import huge quantities of the metal. The industrial demand for gold constitutes for 12 percent of the total demand for gold in the country.

In addition to the above-mentioned factors there are some other factors like production of gold and its production cost that influence the price of this metal. But what needs to be taken a note of is that no matter how many factors affecting gold rate may come up, in the end it all depends on the demand-supply factor.

Courtesy: Times of India/Image: wallpaperstudio10.com

retail4
By retail4 May 15, 2018 16:05
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