Although being the second largest importer of gold, the demand of gold in India has seen a drop in last few months due to unexpected rise in prices.
Let's discuss about gold - a timeless investment valued for its stability, cultural significance all across the globe. Not only in Indian market, this precious metal holds an allure since ancient times globally to safeguard wealth amidst market fluctuations. The price of gold has reached an all-time high recently. But, why is this happening?
In this article, we will discuss about the probable reasons behind rise in gold price.
Any business depends on the dynamics between demand and supply. For gold price also, this dynamics is playing a crucial role. The supply chain is solely dependent on mining and production. We all know that natural resources are limited, so, when the demand increases (whatever be the reason), the price increases. As the article starts with drop in gold purchase, so who are buying gold now? The easiest answer is central banks.
Historically, Gold has served as ome of the most reliable safeguard against inflation. Whenever inflation rates increase, conventional investments may struggle to maintain value. This prompts investors to use gold, which is often considered as ‘safe haven’. The intrinsic worth of gold always remains unaltered by currency devaluation. Now, inflation is happening globally, this is a fact!
This is also another reason behind rise in gold price rapidly.
Well, those who don't know, there is an inverse relationship between Gold prices and interest rates. When interest rates decreases, gold rate increases a lot. This opens the door for an alternative to low-yield investments.
This parameter contributes a lot gold price. In majority of places, gold is bought and sold using US Dollar, contributing to the changes in gold price. As US dollar value decreases gold price increases. Currently, due to global economic slowdown, US economy is not in a very stable condition causing a rapid rise in gold price.
This is another key contributor of gold price changes. Due to actions taken by Government, the buying and selling gold reserves influence its price in the market. When there is any large-scale purchases or sales are performed by governments, it leads to ripples in the gold market. In India, Reserve Bank of India or RBI’s gold reserves and transactions also influence price shifts.
When peace prevails, gold price also remains low. However, conflicts between countries often lead to rise in gold price. It's not a new thing that ongoing geopolitical scenario is destabilizing the economic growth. Along with that, 2024 marks the election year for USA and world’s largest democracy India. Financial experts are not ignoring these two factors behind the rise of gold price.
The consequences of rise in gold price are many. This leads to rise in import costs which can impact India's trade balance as well as current account deficit. This impacts gold loan industry as borrowers find it more challenging to repay their loans due to sharp rise in collateral.
Generally, Gold price observes notable shifts on Mondays, Wednesdays, and Fridays. Also, in India, April marks the Beginning of new year in many states accompanied by numerous festivals and marriage. As per industry experts, gold price is expected to rise more in coming days.
Undoubtedly, gold possesses significant inherent value. Since ancient times, societies have utilised it as a medium of exchange. This also represents wealth. The unique properties of gold make it an important industrial applications, including electronics and aerospace. The appeal, scarcity, as well as diverse utility continues to support its value.
