Since the dawn of time, gold has played a central role in Indian culture. Gold has traditionally been regarded as a valuable monetary asset all throughout the world. It is seen as a symbol of prosperity and status among Indians. They have an emotional attachment to gold since it has long been employed as a status symbol in weddings and other special occasions, and it also carries religious connotations.
Gold is one of the most popular investment options in India. Gold has long been seen as a secure investment that will aid in the recovery of any financial crisis.
Gold is regarded by the majority of Indians as a valuable investment that can be utilized in times of financial difficulty. Gold prices have been on a downward trend, and as a result, individuals have purchased the metal in the hopes of reaping significant profits when the metal's price rises again.
Here are few reasons why gold prices rise and fall in India;
Impact of demand and supply on gold price
Increased demand for gold is invariably accompanied by a rise in the yellow metal price. The economic rise of China and India over the last decade has fueled demand for gold, driving up prices. This demand has slowed in recent years, as the country's economy has stabilized.
Religious practices have an impact on a variety of aspects of Indian culture, including gold pricing and demand. During significant festivals such as Dhanteras, Diwali, Ganesh Chaturthi, and Akshaya Tritiya, gold demand spikes across the country. Religious people consider these major festivals to be auspicious, and they spend these days buying gold jewelry or coins which increases the prices to some extent. When demand for gold increases, so does the price, and vice versa. Gold is a commodity that is always in high demand. Gold pricing is heavily influenced by demand and supply.
Impact of inflation on gold price
Indians prefer to invest in gold because gold prices react to inflation. When inflation rises, the value of a currency falls. As a result, many choose to save their money in the form of gold. Gold functions as a hedging measure against inflationary conditions when it remains high for an extended length of time. Gold's value is regarded as constant in the long run because the value of the currency fluctuates.
Gold has long been regarded as a store of value. Because it is a tangible commodity, it cannot be printed like money, and its value is unaffected by government interest rate decisions. Because gold has historically held its value, it can be used as a type of insurance against economic downturns.
As a result, growing inflation might hypothetically be said to drive increased demand for gold, which in turn drives higher gold prices.
Impact of stocks on gold price
Between the Sensex and gold prices, there is an inverse link. When investors sense a bullish trend in the stock market, they prefer to invest more in stocks in order to gain from future higher stock prices. The demand for gold diminishes as a result of this shift in preference, lowering gold prices. When the stock market falls and investors believe the bearish trend will continue for some time, they choose to invest their excess funds in safe haven assets such as gold, causing gold demand to rise and gold prices to rise. It means that gold prices and the Sensex have an inverse connection.
Impact of currency on gold price
The price of a country's currency in terms of another currency is called an exchange rate. To put it another way, it's the rate at which one currency can be converted into another. However, that value can change over time, and it can be quite volatile at times. When the dollar's value rises in relation to other currencies throughout the world, the price of gold tends to decline in US dollar terms. The reason for this is that gold gets more expensive in other currencies. Gold, on the other hand, tends to rise as the value of the US dollar falls, as it becomes cheaper in other currencies.
The price of gold tends to be inversely proportional to the value of the US dollar. Gold prices tend to fall as the US dollar's strength grows. This is why many gold investors keep an eye on the US dollar and currency exchange rates.
Impact of Crude oil prices on gold
Because the two have such a close direct relationship, crude oil prices can be utilized as a trustworthy proxy for gold price changes. Gold prices tend to rise and fall in lockstep with crude oil prices throughout time. This is due to the fact that gold, like oil, is extracted from the earth and is standardized and interchangeable. 15 Because energy is the primary cost of production for gold, changes in long-term oil prices have a direct correlation with gold price swings. Furthermore, rising crude oil prices result in inflation, which is a sign of an expanding economy.
Impact of import duty on gold price
Due to the fact that gold is not produced in India, it is imported from other nations, and import tariff plays a significant impact in price variations. Because of the large number of transactions, the central bank's choice to buy or sell gold can have an impact on the price.
Other factors that influence gold prices in India include geopolitical considerations, government reserves, favorable monsoon rains, and the jewellery market. The price of gold in India is influenced by a variety of internal and external variables. It's also impossible to ignore the role of India's growing population in driving up gold demand.
Consider the above principles and make sure your investments are in line with your investing strategy and risk tolerance. While gold is a smart investment during these times, it comes with its own set of concerns. Before you invest, be sure you have a complete understanding of the situation.