Explained: How is the price of gold determined? What exactly are the contributing factors? Learn more!
Gold and gold ornaments have a unique importance in our country. It is considered auspicious to make gold ornaments or buy gold on every festival, wedding and other special occasions. Dussehra festival is coming in few days. People buy gold in large numbers on this day also. Festivals in India are incomplete without gold! Although times have changed, the importance of gold has not diminished. It is also seen as a help in times of crisis. That’s why today every Indian buys gold according to his capacity, even if the price of one tola of 24 carat gold is above 50,000.
India is the largest consumer of gold. Even a slight increase in its price in the international market has a huge impact on gold prices in India. But have you ever wondered what exactly determines the price of gold or what are the factors that influence the price of gold? Today we are going to know detailed information about this.
The value of gold is almost constant and more than the currency. It is used to protect against inflation during difficult times. This is why most investors tend to buy gold rather than currency. The result is that when inflation increases, the demand for gold also increases. In such a situation, the price of gold increases and so does its demand. Currency and many other financial products can depreciate during any political upheaval, so gold is considered a safe bet by investors, and the demand and price of gold increases during political chaos as compared to peaceful times.
Central banks of many countries hold currency as well as gold reserves. Whenever a major country’s central bank starts holding gold reserves, its value rises. This is because, the flow of cash in the market increases and the supply of gold decreases. Any change in global movements has a direct impact on gold prices in India. The main reason for this is that India is one of the largest importers of gold. A global event causes fluctuations in the prices of imports, resulting in a change in the prices in India as well.
Interest rates on financial products and services are closely related to the demand for gold. Current gold prices are considered a reliable indicator of interest rate trends in any country. With high interest rates, consumers sell gold for cash, and oversupply of gold lowers its rates. On the other hand, lower interest rates translate into more cash with consumers and the demand for gold increases, thereby increasing its price.
Buying gold jewelery during festivals and weddings is a tradition in India. Thus, during the wedding season and festivals like Diwali, gold prices increase due to increased consumer demand. Due to high demand, India has to import large quantities of gold from time to time. Industrial demand for gold accounts for 12 percent of the total gold demand in the country.
Apart from the above mentioned factors there are other factors like production of gold and its production cost which affect the price of this gold. But no matter how many factors come into play that affect the price of gold, ultimately they all depend on the demand-supply factor.
What are the factors that determine the price of gold?
Inflation, government gold reserves, global trends, interest rates and the jewelery market determine the price of gold.
Why is gold so important for the economy?
Gold is an indicator of whether a country’s economy is healthy or not. A country where the price of gold is high, the economy is weak. Conversely, a country where this price is low has a strong economy.
How does the government’s gold reserves affect the price of gold?
If the central bank starts supporting gold, the price of gold automatically increases, as the supply of gold decreases and cash reserves increase.
Does the global crisis affect the price of gold?
If people show a lack of confidence in the government or financial markets, gold prices will inevitably rise. That is why gold is also referred to as a thing that comes to help in times of trouble.