Gold is one of the most favoured forms of investment in India. The gold price doesn’t reflect the demand and supply alone; there are many factors that determine the price of gold and these factors also make it difficult to predict the price of gold at any given time.
Globally, some of the factors that influence the cost of gold are inflation, supply, economic conditions, and the bank’s decision to buy or sell gold.
Most of these factors dictate the price of gold in India as well, but in addition, there are some local peculiarities that affect offline as well as online gold price in India.
1. Inflation: When Indian economy faces inflation, local currencies weaken and people prefer investing in gold. This increases demand and the price of gold increases.
2. The Reserve Bank of India’s Decision: Reserve bank holds a significant amount of gold which it sells off when the economy is booming. The gold is sold in the market and this leads to slide in the gold price. Similarly, transaction done by gold trusts and gold share also impacts the price of gold.
3. Interest Rates: Gold price and Interest rates are said to be inversely related to each other. When interest rate increases, people sell off their gold to earn high interest. However, there has been rise in gold price when the interest rate had increased.
4. The Jewellery Market: Indians buy gold during weddings and festivals. This leads to rise in demand during that season. India ends up importing gold during such times to meet the demand.
5. The Monsoon: Unlike urban India that invests in stock market and real estate, rural India gravitates towards investing in gold. It is really interesting to note that nearly 60% of the demand for gold in India comes from rural market. During good monsoons with bountiful crops, earning is more and then there is investment in gold.
6. Rupee Strength: Major portion of India’s gold demand is met through imports. Weak rupee reduces the purchasing power and there is fall in import with a subsequent rise in demand. This is characteristic of only India in deciding the gold price as the global market is not affected by domestic currencies.
7. Portfolio Diversification: Most conventional assets are associated with stress and risks. One’s penchant for buying gold depends on the volatility or the stability of other assets.
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