Why Gold Price is Increasing?

07 August 2023
4 min read
Why Gold Price is Increasing?
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Welcome to the world of gold - a timeless investment cherished for its stability and cultural significance, especially in India's jewellery market. This precious metal has held an allure for generations seeking to safeguard wealth and heritage amidst market fluctuations. 

It acts as a hero in the tale of investments -  a reliable hedge against uncertainty.

But unlike in King Midas’ story, its value continues to rise perpetually. Curious as to why this happens? Let’s delve into why so that you can consider this investment avenue!

Factors that Influence Gold Prices

Several factors explain why gold price increase or decrease. These may include - 

  • Demand and Supply Dynamics

The balance between the demand and supply of gold is a key determinant of its price.

Gold is unique as it retains its value over time, and its scarcity contributes to its attractiveness.

The supply of gold mainly depends on the mining production of the same. An increase in demand for gold, driven by factors such as economic uncertainty or geopolitical tensions, can lead to a rise in its price, reflecting its limited availability.

  • Inflation Hedge

Gold has historically served as a reliable hedge against inflation.

When inflation rates rise, traditional investments may struggle to maintain value, prompting investors to turn to gold as a safeguard. Its intrinsic worth remains unaffected by currency devaluation, making it an attractive option during periods of economic uncertainty.

  • Interest Rate Influences

Gold prices and interest rates share an inverse relationship. Lower interest rates tend to make gold more appealing since it offers an alternative to low-yield investments. 

Conversely, higher interest rates can reduce gold's attractiveness as other investments become more profitable, potentially causing a decline in its demand and price.

  • Cultural and Seasonal Trends

You might have often wondered why gold price is increasing rapidly during festivals.

It is because gold holds cultural significance in India, especially during festivals and wedding seasons. The heightened demand for gold jewellery during these times can lead to price surges.

Cultural preferences and festivities contribute to fluctuations in demand, impacting the overall price of gold.

  • Government Actions and Reserves

Government policies, including the buying and selling gold reserves, can influence its price. Large-scale purchases or sales by governments can create ripples in the gold market.

The Indian government's decisions regarding gold reserves and transactions through the Reserve Bank of India (RBI) can influence price shifts.

  • US Dollar Value 

Because gold is often bought and sold using USD everywhere, the dollar's value changes affect how much gold costs. When the dollar strengthens, gold prices tend to decrease, as it becomes relatively more expensive in other currencies.

Conversely, a weaker dollar often leads to higher gold prices due to increased demand from investors seeking a hedge against inflation and economic uncertainty.

Why is Gold So Valuable?

Now that you know the factors affecting gold prices, it's time to discover why gold is considered so valuable.

Well, gold possesses inherent value due to its scarcity and historical significance.

Throughout history, societies have esteemed gold for its aesthetic appeal and rarity, utilising it as a medium of exchange and a representation of wealth.

The gold standard prevailed until the 20th century and substantiates its monetary importance as a backing for currencies. Today, gold maintains its significance as a global store of value and a hedge against economic volatility. Its unique properties also make it essential in various industrial applications, such as electronics and aerospace.

The appeal of gold, combined with its scarcity and diverse utility, continues to support its value.

You may also want to know the Best Ways to Invest in Gold

Significant Gold Price Rises

Here are some of the most significant peaks in gold prices in recent years -

  • May 2023 - Gold prices hit an all-time high of Rs 62,720 per 10 gm owing to an increase in US Federal interest rates. 
  • March 2022 - The highest price of gold in 2022 reached around Rs 55,000, caused by market uncertainty due to the Russia-Ukraine conflict and rumours of inflation.
  • August 2020 - Gold reached its peak price of Rs 56,191, fueled by global monetary policy shifts, low-interest rates, liquidity, and pandemic-induced uncertainties favouring safe-haven investments.
  • September 2019 - Driven by global economic concerns and trade tensions, gold prices touched Rs 40,000 per 10 grams.
  • September 2011 - This was one of the highest increases in gold prices caused by global financial uncertainty and the US debt downgrade. Gold prices were at a peak of  Rs 32,000 per 10 grams.

Conclusion 

Amidst shifting times, gold stands as a timeless champion for financial security.

It symbolises stability and heritage, providing a safe haven from market ups and downs. Its value is shaped by demand, inflation, interest rates, culture, and global factors. As an anchor, it offers value for generations to come, making gold an exceptional choice in the world of investments.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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