Factors that affect Gold Price in India

Factors that affect Gold Price in India


Posted By: 24 Karat Gold

Factors that affect Gold Price in India

With an annual demand equal to approx 25 percent of the entire global physical demand, India stands as one of the largest gold consumers. Traditionally, when festive and wedding seasons arrive, there gets a surge in the demand of jewellery leading to a spike in gold prices. While the demand for gold plays a critical role in its price, there are numerous other factors that have bearing on it as well. Sell your gold in these seasons can prove to be beneficial for you.

A report of the World Gold Council says, annual data of gold from 1990 to 2015, shown two important factors that impacting gold consumer demand (bar, coin, and jewellery combined) over the long-term. “All else being equal, the demand for gold is driven by, income that is the demand of the precious metal rise with income levels. For a 1 percent increase in income per capita demand of gold rises by 1 percent, and secondly, a gold price level that higher prices put off gold purchases. If there is a 1 percent increase in price, the demand falls by 0.5 percent”.

Here are a few important factors that affect the gold price-

Consumption demand

Demand for gold in India is associated with culture, religion, tradition, the desire for beauty and financial protection. A study done by World Gold Council commissioned by Federation of Indian Chambers of Commerce and Industry and the World Gold Council, Indian gold consumers see gold as an instrument of investment and adornment, both. When they were asked why they purchased gold, almost 77 percent of people cited the safety of investment as a  factor, while more than half of people cited adornment as a  factor as a rationale behind their gold purchase.

Protection against volatility

People want to sell gold or invest in it to protect themselves in odd times from volatility and uncertainty. The preference for physical assets makes Indians see gold as a safe haven, an asset to purchase when other resources are losing value. Underling attraction of gold as an asset for good and bad times, most investors would invest in gold whether the domestic economy is rising or seeing a recession.

Gold and inflation

When inflation aggravates, the value of the currency in that country goes down and therefore people have a tendency to seize money in the form of gold. Therefore, when inflation stays high over a longer period, gold becomes an instrument to hedge against inflationary conditions. This pushes the price of gold higher in inflationary situations or periods.

Impact of the rupee-dollar equation

The equation of rupee-dollar has a role to play in deciding Indian gold rates however it does not influence global gold prices. Gold is imported largely and if the value of rupee falls against the dollar, the price of gold likely to rise in rupee terms. So, a depreciating rupee may cause depression in the demand for gold in the country. Although, remember the fluctuation in rupee-dollar rates makes no impact on gold rates denominated in dollars.

Correlation with other asset classes

Some economists believe that gold is a high efficacious portfolio diversifier due to its low to a negative association with all top asset classes. Still as rule, gold exhibits no statistically important association with conventional asset classes. Although some economists recommend there is evidence that when equities stay under stress, or better say when shares are falling quickly in value, an inverse correlation can create between gold.

Good monsoon

Rural demand always plays a critical role in the demand for gold in the country that primarily depends on monsoons. The annual consumption of gold in India is around 800-850 tonnes and the rural part of India holds 60 percent of gold consumption of the country. As such monsoon plays an important role in gold consumption because if the crop is good, the farmers are likely to purchase gold from their income to create assets. You can also create assets when you sell your gold for cash during deficient monsoon.

24Karat at its cash against gold outlets uses a gold value calculator to ensure the best calculation for a particular piece of jewellery to the customers. We always have a memorable experience for selling your gold at our place. We believe that customers keep coming to sell their adorning elements when they find an outlet trustworthy, transparent, and offer them the best available price.

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