India, as a country, has always considered gold as a metal that denotes wealth and success. We have always been one of the largest consumers of this precious metal. Typically, wedding season and festive events are when gold prices see a significant surge in their demand. However, there are other factors at play that drive the demand up and therefore increase the overall price of the metal.
The Economic Times reported in June 2018 that gold consumption has partly increased with increase in incomes and this in turn drives an upward trend in prices. Here, we discuss few factors that could impact the price of gold in its upward incline.
There is a negative correlation between gold and interest rates. As gold is used to offset inflation caused by a strong economy, this means that the price goes up in-line with the demand and if investors begin flocking to gold then the prices will inevitably rise.
Though gold is a good that is not consumed, it is never used in ‘exchange’. It is always stored as a marker of wealth and is there always a tendency to stash it. This ‘store of value’ that gold offers, makes it a thing that people want to keep buying constantly – this ensuring a steady and increasing need for supply, which is a core reason for the rise in its prices.
As the inflation in a country rises, people tend to consider gold as a significant value for money and store it. This makes gold prices higher during inflation periods.
Though global gold prices are not affected by rupee’s relationship with the dollar, it is definitely important in Indian gold prices. If the rupee weakens against the dollar, such as is the trend in the recent past, the price of gold automatically increases.
Gold prices ride when there is geo-political conflict and Korea’s current rocky relationships with other countries has led to an increase in prices of the metal. Though wars have a depreciating effect on other assets, it helps in gold prices.
Future Demand for Gold
Gold demand has been steadily increasing, almost to a point where estimates have said it could be 1000 tonnes more than supply can accommodate, which creates a drastic difference between demand and supply, making recycling of gold necessary and an increase in prices, mandatory.
Economic uncertainty in certain countries in Europe, specifically, have given rise to fear over financial discipline making the US not as aspirational as it once was. As a result of this, the demand for gold has increased as a stable wealth investment that is steady at a time of economic uncertainty. This again, creates a supply for the metal which makes its prices increase.
Though there are other volatile factors at play such as speculation, credit crises, other asset depreciation or increase, these are the primary top-level factors that lead to a rise in gold prices. For now, price increase in gold has created a lot of excitement for investors.
BBA in FinanceCo-created with Jain University4.3 out of 5 by 211 learners2x
MBA in Investment BankingCo-created with Jain University4.5 out of 5 by467 learners2x industry demand
MBA in FintechCo-created with Jain University4.4 out of 5 by 349 learners2x industry demand
Post Graduate Program in Business Management with NMIMSCo-created with NMIMS4.7 out of 5 by 669 learners4x Industry Demand
Post Graduate Program in Banking and Credit Underwriting4.7 out of 5 by 1376 learners12 X industry demand
Post Graduate Program In Finance And AccountingCo-created with Grant Thornton4.9 out of 5 by 238 learners14 X industry demand
Professional Certification in FinTechCo-created with SP Jain School of Global Management4.6 out of 5 by 1421 learners6X industry demand
Credit Risk and Underwriting ProdegreeCo-created with Moody’s Analytics4.6 out of 5 by 1139 learners4X industry demand
Banking And Wealth Management Bootcamp4.6 out of 5 by 1429 learners3X industry demand
Post Graduate Program In Capital Markets4.7 out of 5 by 807 learners3X industry demand
Imarticus Learning is India’s leading professional education institute that offers training in Financial Services, Data Analytics & Technology. We’ve successfully transformed careers of over 35,000+ individuals globally through our Certification, Prodegree, and Post Graduate programs offered in association with leading and renowned global organisations in the Financial Services, Data Analytics & Technology domain.