What Affects the Price of Gold in the Indian Market?

The demand for physical and digital gold investments is experiencing rapid growth in the Indian market. 

‍

Investors often seek to capitalise on lower gold prices to maximise their investment returns. However, it is crucial to understand the various factors that influence gold prices. 

‍

By staying informed on these factors, investors can make more informed decisions and potentially benefit from fluctuations in the price of gold. Let’s discuss what affects the price of gold.

‍

8 Key Factors That Affect Gold Price

‍

To answer what drives the price of gold, here are the factors that affect gold price for you:

‍

1. Consumption Demand

‍

Consumption demand is one of the factors affecting the price of gold. When demand for gold is high, the price of gold increases significantly. 

On the other hand, when the demand for gold decreases, the price of gold decreases.

In other words, the demand by consumers directly impacts the price fluctuations for gold in the Indian market. 

As a result, it is advisable to purchase gold when the demand is low and the prices decrease.

‍

2. Indian Festivals

‍

India is a country that celebrates multiple festivals. Among all the festivals, Diwali and Akshaya Tritiya record a high demand for gold and gold jewellery in the country. 

During these festivals and cultural events the price of gold increases significantly. 

The country celebrates Diwali in the month of October or November while Akshaya Tritiya is celebrated every year in the month of April. 

To avoid purchasing physical or digital gold at high prices, it is advisable that you consider other seasons in India.

‍

3. Inflation

‍

Inflation is one of the factors that affect gold prices in India. When the country’s inflation rate increases, the price of gold increases significantly.  On the other hand, when the inflation rate in the country decreases, the price of gold decreases. 

Thus, the cost of living or inflation rate is directly associated with the price changes for gold. 

The reason for this fluctuation is that when currency value decreases, people hold their money in the form of gold, thereby leading to price fluctuations.

‍

4. Interest Rates

‍

Interest rates and gold prices have an inverse relationship. When the interest rates increase in the country, the price of gold falls. 

On the other hand, when the interest rates decrease in the country, the price of gold rises. 

The reason for this inverse relationship between interest rates and gold prices is that investors tend to invest in fixed-income instruments when the interest rate rises. 

As a result, gold with price volatility is not a chosen option for the majority of investors when interest rates increase.

‍

5. Monsoon

‍

Monsoon and the amount of precipitation significantly affects the price of gold. When there is high precipitation and the crop yield is good, farmers buy gold leading to high prices. 

On the other hand, when there is low precipitation, and the crop yield is low, the farmers sell their gold holdings, resulting in low prices of gold. 

Thus, you should keep track of the monsoon and precipitation in the country to understand the price fluctuations for gold. 

When the price of gold fluctuates, both the prices of physical gold and digital gold change in the Indian market.

‍

6. Rupee-Dollar Equation

‍

In the Indian market, the rupee-dollar equation significantly affects the price of gold. 

For instance, if the value of the rupee decreases against the dollar, then the price of gold will increase as gold is an imported commodity for India.

On the other hand, if the value of the rupee strengthens against the dollar, the price of gold in India will decrease. 

It is important to note that changes in the rupee-dollar exchange rate do not impact the global market price of gold.

‍

7. Geopolitical Scenario

‍

Geopolitical turmoil such as wars often leads to an increased price of gold. 

Thus, to answer what drives gold prices, the geopolitical scenario is an important factor that one should consider to determine the price of gold. 

For instance, the Ukraine-Russia War and the US-China trade war resulted in an increase in the price of gold in the Indian market. 

On the other hand, in scenarios devoid of geopolitical tension, the price of gold decreases significantly.

‍

8. Government Policies and Regulations

Government policies and regulations play an important role in determining the price of gold. 

For instance, changes in import duties, taxes, or import norms for gold result in price fluctuations. 

As a result, if you plan to invest in gold, you should be aware of the government policies and regulations regarding gold and its imports

‍

Key Takeaway

Now, that you know what drives the price of gold, you can easily consider the factors before making your gold investment decisions. 

This will help you increase your return on investment in the long run and avoid risks of losses in your gold investment. 

‍

Frequently Asked Questions

‍

1. Which is the purest form of gold?

‍

The purest form of gold is 99.99% gold or 24 Karat gold. You can purchase the purest gold in the form of physical gold or digital gold. ‍

‍

2. Do monetary policies affect the price of gold?

‍

Monetary policies in India affect interest rates in the economy. As a result, monetary policies affect the price of gold in the Indian market. ‍

‍

3. What are the three methods to predict gold prices?

‍

The three methods to predict and forecast the price of gold are fundamental, technical, and market sentiment analysis. ‍

‍

4. Where can you start your digital gold investment?

‍

You can start your digital gold investment with one of India’s leading platforms such as the Jar App for a seamless experience. ‍

‍

5. Where are digital gold investments stored?

‍

Digital gold is stored in secure vaults after investors invest and purchase them.