Gold is the most important and precious financial asset for Indians and worldwide. It is also considered a symbol of wealth and prosperity among Indians because their emotional sentiments are connected with this.
People think that gold is the best investment form to deal with Inflation and they can convert it to cash in case of emergency need of money, it also helps people to take as a Mortgage loan.
But while investing in gold so many points come in our mind that what are the factors which influence the prices of gold? So, below are some important factors which affect gold prices:
Factors Affecting Gold Prices In India:
Demand & Supply:
As it’s very clear for anything which is traded that demand and supply play a vital role in influencing the price of those instruments. Similarly, the demand and supply of Gold play an important role in determining its price. Although gold is not a consumable commodity like Oil, Copper, etc. Historically, Gold mined till date from mines is still available in the world. Also, the production of the gold from the mines is not too high and if in this situation demand will increase so definitely it will increase the prices of the gold. Due to COVID-19 gold mines were impacted all over the world due to lockdown. Mining production fell almost 3% in the first quarter of 2020 from 2015.
Central Bank’s Gold Reserve:
Central banks of the major economies (like US, China, India, UK, Australia) hold Gold & currency as a part of their reserves for managing trade war and cash flows in their countries. In this kind of situation due to sheer volume either buying or sell by banks may derive the price of gold up or downside.
Since the contribution of India in world gold production is less than 1 percent, but it’s the second-largest consumer of gold after China. So, it imports a huge amount of gold to fulfil demand. Therefore, Import Duty plays a crucial role to derive the gold price in India.
Interest rate relations:
There is an inverse relation between gold prices and interest rates. If the interest goes up then people start selling gold to get it to liquidate and they take more cash in their hand on the other hand if the interest rate goes down so people start buying gold due to having more cash in their hand to get a good price appreciation of the yellow metals.
Currency Exchange Fluctuation:
As gold is traded in US Dollar in the international market, therefore, when we import gold so all transactions are done in USD then there is a need to convert USD to INR, which fluctuates gold prices in India. If the INR starts depreciating it will make gold costlier and vice versa.