What exactly are the factors that influence the value of gold
Do you know that within the entire world, India is really one amongst the biggest consumers of gold?
The demand for gold in India accounts for nearly 25% of the worldwide demand. In India, every auspicious occasion is complemented with either buying or gifting of gold items to close and dear ones. Additionally, to all this, gold makes for a superb investment too. It’s one amongst the most traditional and safest types of investments that may bail one out of a financial crisis.
Important occasions like Diwali or the marriage season see an upsurge in gold prices each year. However, gold has maintained its standard throughout throughout history and even now. The rising demand for gold is the most significant contributing factor in its high price. Also, international markets have an excellent impact on gold prices in India.
Here’s a compilation of the factors that determine the changing value of gold in India-
DEMAND AS WELL AS SUPPLY
As is actually the case with any other trading commodity, demand and supply play a significant role in determining the gold price. The supply of gold is comparatively scarce as compared to its demand. Therefore, if the demand increases, the costs of gold take an upswing.
INFLATION
It is a widely known proven fact that during inflation the worth of the currency goes down. Other types of investment such as the fixed deposits and stock markets also fail to deliver when the inflation rates rise. During such testing times, gold acts as a hedge because its value isn’t affected by fluctuations in currency.
RATE OF INTEREST
Rate of interest and costs of gold have an inverse relationship. Whenever the rates of interest fall, people don’t get enough profit on their deposits. At this point, people usually break their deposits and buy gold thus causing a rise in demand and eventually in its price.
CENTRAL BANK
The Indian Government has its own currency and gold reserves as well. According to the policies, it can either buy or sell gold through RBI. Depending upon whether it buys more or sells more, the value of the gold gets impacted. If it holds more gold, the supply goes down causing the gold prices to increase quite a lot.
JEWELLERY MARKET IN INDIA
Indians like to purchase gold jewellery during festivals and weddings. For this particular reason, the demand for gold increases quite a bit during these occasions, therefore increasing its price.
IMPORT DUTY
We know that India is actually the second largest consumer of gold globally. However, it contributes even less than 1% to the worldwide gold production. Therefore, India needs to import lots of gold to fulfill its demand. For this reason, the import duty has a vital role to play when making a decision regarding the gold price.
CURRENCY FLUCTUATIONS
Gold trading takes place in USD internationally. During import, USD gets converted into INR. Any fluctuations in USD or INR directly impact the import price and the selling price of the precious gold.
OTHER FACTORS
Geopolitical and economic stability are other essential factors that determine the worth of gold. During a Geopolitical crisis like wars, the value of gold usually goes up because the demand for gold rises during these times.
These are some of the most common factors that influence the value of gold. Though prices of gold are catching the attention of all investors, it’s best to first consider the above-mentioned aspects before jumping on the bandwagon.
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