Basics of Stock Market - Beginner

12 Factors that Influence Gold Prices

All over the globe, gold is considered a valuable monetary asset. It is considered a symbol for wealth and status by Indians. Gold is an emotional attachment for Indians because it has been used to symbolize status in marriages and other occasions. It also adds religious sentiments.

India's most preferred investment is gold. It is considered a safe investment and can help you recover from any financial crisis.

You may be asking yourself many questions, such as what factors influence gold prices and what factors can affect it. Let's find out more below.

What factors affect gold prices?

India's demand for gold is intertwined with India's culture, tradition, beauty, and financial protection. India is biggest importer and consumer of Gold.

Factors that affect the Gold Price. Let's take a look at factors those affect gold price:

  1. Demand and supply:

    The price of gold rises when there is more demand. One commodity that is always in demand is gold. Prices of gold are affected by supply and demand.

  2. Inflation

    Indians are more inclined to invest in gold because gold prices react to inflation. Inflation causes currency values to fall. People tend to keep their money in gold. Gold acts as an insurance against inflationary events when inflation is high for a prolonged period. The long-term stability of gold is due to currency's fluctuation.

  3. Central Bank of India

    Due to the volume of transactions, the central bank can make a decision about whether to buy or sell gold.

  4. Rates of interest

    Inverse relationships exist between gold and interest rates. People sell their gold to make high-interest money and then use the increased interest rates to buy more. People buy more gold when interest rates drop, which results in an increase in demand.

  5. Monsoon

    Demand for gold is largely driven by rural demand. The maximum amount of gold purchased in India comes from the rural market. Good monsoons result in good harvest. The money earned can be used to buy gold in the rainy season, as gold in poor monsoon acts as a safety net.

  6. Import duty:

    It is important to consume gold from other countries as it is not made in India. Import duty is a key factor in fluctuating prices.

  7. Indian jewellery market

    Gold is an essential part of every Indian household. Without gold, weddings and festivals would not be complete. This season, the demand for gold increases which leads to an increase in its price.

  8. Government Reserves

    The government has gold reserves. If the RBI purchases more gold than it sells, it will cause an increase in price and vice versa.

  9. Currency fluctuations

    The price of gold fluctuates because it is traded internationally in US dollars. Therefore, Indian rupees are converted into US dollars during import. Importing gold becomes more expensive if the Indian rupee falls.

  10. Protection against volatility and uncertainty

    People want to protect themselves from uncertainty and invest in or buy gold because it is a secure commodity.

  11. Correlation to other assets

    Because of its low correlation with other major asset classes, gold is an excellent choice for portfolio diversification. There is an inverted relationship between gold and equity when shares of companies drop.

  12. Geopolitical factors

    Gold usually performs well in times of geopolitical turmoil. While crises can have negative effects on many asset classes, gold is often a safe haven that allows funds to be stored.

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