The importance of gold in Indian culture is undeniable. It is used in festivals, birthdays, weddings or any other auspicious occasion you can possibly think of. However, the use of gold in India is not recent in fact it goes back centuries. You just need to look at some of the famous temples and the gold idols inside these temples to understand how gold is deeply entrenched in our culture.
In modern times, however, in addition to the use of gold for religious purposes, it has also become extremely crucial for investment purposes. In fact, most of us have at some point looked up metrics such as gold rate today in Karnataka or Mumbai to see if the price is right for investing. While it is has been considered one of the infallible investments due to its ability to hold value lately it is not such a viable option for everyone. The main reason for this is the consistent increase in gold prices. While the goal was always expensive, the recent increase has made its purchase unaffordable for many. To understand why the price of gold in India has been consistently increasing we need to understand some of the crucial factors that affect gold prices. Some of these factors are new that have recently started affecting the gold and some have always had an effect on gold prices. So let’s understand these factors and how they impact gold prices in India:
In comparison to the currency of the country, gold is much better at holding its value. This is why it is often used as a hedge against inflation more so than the currency. Hence when inflation is high people naturally flock towards buying gold which in turn increases the demand for the gold and its price. Similarly when inflation is low the demand for gold falls. Hence if and when there is an inflationary period in the Indian economy you can rest assured that if you look up metrics like today’s gold rate you will find that it is increasing. Inflation need not always happen only in India even if there is a global level of inflation it will affect the gold markets of India by increasing its price and vice versa
- Government gold reserves
In modern times the central bank of any country is responsible for holding both currency and gold reserves. In the United States, it is the responsibility of the US Federal reserve whereas in India the Reserve Bank of India is responsible for it. Any time the central banks start increasing their gold reserves by procuring more gold from the market the supply of gold in the market shrinks and the cash in the market increases. This, in turn, leads to increased demand for gold and Under such circumstances the prices of gold shoot up.
- Interest rate
The interest rates that are applied to financial products or services have a lot of impact on the demand for gold. If you check today’s gold price you will find that it is closely linked to the interest rate offered by financial institutions of the country. If these financial institutions start offering increased rates of interest people will naturally want to acquire more cash and for that, they start selling gold. With this increased supply of gold price of the precious metal starts falling. However, if the interest rates start to fall then customers will naturally have more cash in their hands and they would want to invest in gold which would again, in turn, lead to an increase in demand for gold and therefore increase its prices. You can confirm this impact of interest rates on gold prices for yourself. Next time there is a major announcement by the RBI regarding changes in interest rates see for yourself how the gold price today in Varanasi or anywhere else changes rapidly.