Gold is not only the most valuable metal, but the sentimental value that it holds in Indian culture is its real value. Gold is everywhere. If you go to a party, you will see people wearing gold jewelry. If you go to an auspicious occasion, you will still see something in gold.
Even if you visit a temple, chances are you will see a golden idol. Some temples are made entirely of gold, like the golden temple in Amritsar or the one in Vellore. These things make this metal such a valuable item that most Indians have a very special attachment to this metal.
It’s one of the reasons why many people like to make gold investments in India, either for personal use or use it as an asset. But gold’s price is never steady. Let’s take a look at the 5 factors that influence the gold rate today to give you a better understanding of why it fluctuates.
1. Changes in Global Price
Changes in the global price also affect its price in India, and that’s because India is among the largest importers of gold. So, if the global rate fluctuates, the same will happen in the country. In the event of upheaval or political uprising, the economy could be disrupted, but the value of gold is often considered as a safe investment.
That’s why during such an uprising, people try to turn their cash and valuables into gold, which is easier to carry and should provide a good ROI later. So, a change in prices is bound to happen in such situations. Also, in a global disaster, importing gold may not be possible, which would also drive costs up.
Inflation happens for two reasons: the demand is too high, or the gold reserve is too low. Chances are that there will be gold inflation every once in a while, which could skyrocket its pricing. Just remember, India is among the largest importer of gold in the world, and its demand is equivalent to 25% of all the world’s overall demand for gold.
It’s a perfect opportunity for investors, so many people tend to hold onto their gold rather than their cash. It’s true for every other country globally, not just in India. There’s a famous quote, “Gold acts as a hedge against inflation.”
3. Jewelry Market
Whether it’s a birthday party or a wedding, Indian people love wearing their jewelry. The bigger the festivities, the higher the sales and purchase of jewelry, so its prices subsequently increase. It’s especially true during major festivities such as Diwali. But gold isn’t just limited to the jewelry market.
It’s also used in some electronics chips. Hence if there’s an inflation of gold, the prices of electronics also get affected. Currently, the industrial demand for gold is around 12% of all gold demands in India.
4. Interest Rate Fluctuations
Interest rates of gold are just as volatile as the metal itself. An increased interest rate on gold often leads to people selling off their gold to gain more cash and vice versa when the rate drops.
Alternatively, some try not to sell their gold off when the interest rate increases, hoping they will get more value when the rates return to normal. On the other hand, this may lead to even more demand, thereby increasing the rates back to normal. It’s a very volatile market.
5. Government Gold Bonds
The central government banks of every country also hold gold reserves apart from cash reserves. In India, it’s the Reserve Bank of India, and in the US, it’s the US Federal Reserve.
While these were five significant factors that influence the gold rate today, other minor factors could also have some impact. Minor factors, such as the production of gold and the cost involved in producing gold, also play a key role. But at the end of the game, everything boils down to supply and demand.
Increased demand is one of the leading causes of inflation, so it has a significant impact. But should you invest in gold? Well, considering gold is usually a safe investment, chances are that your gold will be safe in case of any significant event. Hence, it’s probably an excellent choice to make some gold investment in India.