Why Gold Prices are Rising in India?:

This year has a lot to learn from.

Taking Gold into the consideration then it is most traditional form of making the investment.

When people don’t know about making the investment in the mutual funds, stock market or any kind of security then also they are making the investment in Gold.

In India, people have been using gold as a Symbol of status and also used this more often in wedding.

In the recent times, the prices of gold was kept rising, it also crossed Rs 50,000 and booked the new high in the market.

From this article, that is on “Why Gold Prices are rising?” will give you the idea that why the prices are fluctuating and what are the factors behind it.

I know you are also curious to know about the factors that affect the pricing of gold.

So, let’s start with the component that affects the pricing of Gold.

Factors Affecting the Pricing of Gold:

While a lot has been said about factors that affect the stock markets, many investors are oblivious to what causes gold prices to rise or fall.

Here are some of the common factors that will cause a change in gold price:

1. Demand and Supply

As this holds true that any of the traded commodities and their prices are affected by the demand and supply of gold which plays a vital role in recognizing its price.

All the gold that has ever been mined is still obtainable in the world.

Every year whenever the gold is mined, the ratio of the amount of gold is not high.

And so, if the demand for gold increases, the price increases since the supply is relatively in short supply.

2. Inflation

When the inflation rate arises, the value of the currency falls down.

Also, like most of the other investment avenues fail to deliver inflation-beating returns.

Hence, most people start investing in gold.

Even if there are high rates of inflation last for an extended period, gold acts as a perfect hedge since it is not affected by the fluctuations in the value of the currency.

3. Interest Rates

Everybody knows that gold prices and interest rates have an inverse relationship.

When the interest rates are down then, people don’t get good returns on their deposits.

Hence, in this scenario, the individuals tend to break their deposits and are forced to buy gold to make an impact by increasing the demand and so the price.

On the other hand, when the interest rates arise, people sell their gold and invest in the deposits to earn high interest that leads to a drop in demand and price.

4. Indian Jewelry Market

In India, gold jewelry has been an integral to most religious festivals and weddings.

That’s the factor behind that during the festivals and the wedding seasons, the demand for gold arises and ends in boosting the price.

5. Government Reserves

The Government of India holds gold reserves.

Based on their policies, they can buy or sell gold through the Reserve Bank of India (RBI).

The price of the gold can get impacted that depends on whether it buys or sells more.

6. Import Duty

India contributes less than 1 percent of global gold production.

However, it is the 2ndlargest consumer of the precious metal.

India imports a lot of gold to meet the high demand. Therefore, import duty plays an important role in calculating the pricing of gold.

7. Currency Fluctuations

In the international markets, the gold is traded in USD.

While importing USD is converted into INR. So, by the time of fluctuations in the USD or INR, it can affect the import price of gold and hence the selling price.

These are some of the common factors that will affect the price of gold.

With the reference of this understanding, let’s a lookout and find the reason why gold prices have been increasing in recent weeks.

Why Gold Prices are Rising?

Most of the investors are concerned with the sudden arises in gold prices.

Why is gold rising?

Is this normal?

Is it recommended to invest in gold at such a high price?

Or, is this a bubble that will shatter soon?

To help you with finding the answers to such questions, we have gathered the factors that may have contributed to the increment in the gold rates in recent weeks.

 The economic slowdown is the cause for the investors to look for safer ways.

Since March 2020, to reduce the spread of COVID-19, most of the countries have implemented nationwide lockdowns.

While this year has brought the spread of the disease under a reasonable amount of control, it also caused a lot of economic disruption since all the businesses were shut and imports and exports were canceled.

While the government had announced several economic packages to support the individuals during these tough times, interest rates have fallen down and many investors had started to move away from risky assets.

This increased the safer path appeal of gold.

But, the lockdowns had started in March.

Why have gold prices started increasing now?

Initially, investors hoped that the economy would recover quickly as the lockdowns were lifted and companies resumed operations.

And so many investors have started to buy the undervalued, high-quality stocks.

However, with time, the hopes of a near-term recovery got dampened and investors started looking at safer paths for their funds. 

Since the old times, gold is consider  to be a perfect hedge against inflation and economic trouble, the demand for gold surged.

I. High Liquidity 

The RBI allowed all the borrowers to avail of the entire moratorium on loan repayments till August 31, 2020.

The Government also declared a lot of economic stimulus packages to pump liquidity into the markets.

So now, we had a situation where investors had money to invest but the stock markets were highly volatile and interest rates were falling.

Hence, they started making their investment in gold that is known to be a safe investment during such times.

II. Reduced Gold Mining

The primary factor that affects the gold rates is majorly the demand and supply equation.

While the demand has increased, the gold mining activities were severely impacted due to lockdowns in various countries.

This has impacted the supply causing the prices have risen further.

III. Exchange Rate

The INR has fallen sharply since the lockdown. Currently, it is around 74 against the US dollar.

Since India is the 2ndlargest importer of gold, such changes will impact the exchange rate fluctuations and will cause changes in the gold prices.

IV. Rise in International Gold Prices

The price of gold in India is affected by the international price.

Over the last few weeks, rising number of corona virus cases, increasing US-China tensions, and overall economic slowdowns have led to a constant rise in gold prices around the world. 

Once the investor loses hope of the markets recovering in the short-term, they tend to change their mind towards safer roads like gold.

All the above mentioned points are all self-explanatory and easy to understand to know why gold prices are hiking.

About Us

From this article, “Why Gold Prices are Rising in India?” I hope you understand the factors and economic reason behind the hiking of the Gold Prices.

Now, it depends on the investor to the investor to decide how to make an investment in this kind of situation.

Trading Fuel focuses mainly to spread the education to the learners of the stock market with our research team we are possibly doing great to spread various information about the stock market. Just read more and learn more and use this quarantine time usefully. Happy Learning.

Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.