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What are the different factors affecting Gold rates? - Jar App

Team Jar
October 27, 2022
What are the different factors affecting Gold rates? - Jar App

What affects the rate of gold? What makes gold prices go up? Continue reading to know everything about the gold rates.

Since we were children, thanks to the legends of princesses and pirates, we were taught about the importance of Gold time and again.

Gold has also been an important element in Indian culture since the beginning of time. Throughout history, it has been recognised as a significant monetary item.

We've gotten used to its particular yellow hue and its perceived value as a desirable commodity. That's why, Gold is one of the world's most well-known assets or commodities.

However, if you're considering investing in this precious metal, you should be aware that Gold's monetary value is determined by several factors. Here's what you need to know about Gold before you go ahead with investing in it:

What affects Gold prices?

1. Demand and Supply

It is believed that Gold has been mined and desired for at least 5,000 years. This precious metal is expected to stay valuable even if the price varies frequently. 

If you want to buy Gold, you should know that its price is influenced by manufacturing costs, money supply, financial or geopolitical stability as well as jewellery and industry demand.

To put it another way, Gold is a finite resource, and as global economic conditions make it more appealing, gold demand rises, causing Gold prices to climb. 

In the long run, however, Gold's actual worth remains pretty consistent, and the price may merely represent transitory uncertainty or simple currency changes.

Religious beliefs have a big role to play in Gold demand and cost. Gold demand surges across the country during major festivals like Dhanteras, Diwali, Ganesh Chaturthi, and Akshaya Tritiya.

And it surges more during the wedding season. People consider these important holidays as auspicious, and they spend these days purchasing Gold jewellery or coins, causing prices to rise. 

Discover why people buy Gold on auspicious occasions.

Furthermore, Gold is not just used to make jewellery; it is also used to make electronic equipment. All of these elements work together to cause demand to fluctuate depending on the season and manufacturing capacity. 

2. Inflation

Gold has long been thought to be a worthwhile investment. It can't be printed like money because it is a tangible commodity, and its value is unaffected by government interest rate decisions. Gold can also be used as a form of insurance against economic downturns because it has historically kept its value.

And because Gold prices fluctuate with inflation, Indians prefer to invest and save their money in it. The value of a currency falls as inflation rises. When Gold remains high for an extended period of time, it acts as a hedge against inflation and is considered constant in the long run.

As a result, rising inflation might theoretically be argued to be driving increasing demand for Gold, resulting in higher Gold prices.

In easy words, a falling rupee and rising inflation mean higher Gold prices. For example, if you have 70 lakhs in your bank account and inflation reduces your purchasing power, Gold's purchasing power will remain constant and strong in rupee terms.

Read in-depth about the effect of inflation on your investments here

3. Interest rates

Interest rates and Gold have an adverse connection. The current Gold prices are a reliable indicator of the country's interest-rate trends.

When the rate of interest rises, clients are more likely to sell Gold in order to acquire monetary value, increasing the supply of Gold and lowering its price.

Furthermore, buying and selling Gold on the internet has never been easier. People have more cash on hand when interest rates are low, which could lead to increased demand for the precious metal, resulting in a price hike.

4. Monsoon

Demand for Gold is influenced by rural demand, with rural markets accounting for the majority of Gold purchases in India. Rural India consumes 60% of the annual Gold consumption, which is estimated to be 800-850 tons.

When the monsoon is good, and the harvest is good, money generated is invested in Gold, which is used throughout the rainy season as a safe haven when the monsoon is bad.

5. Import Duty

Because Gold is not produced in India, it must be imported, therefore import duty has a significant effect on price changes.

Gold is imported from other countries because it is not produced in India, and import tariffs have a substantial impact on price fluctuations.

The central bank's decision to buy or sell Gold might have an impact on the market due to the vast number of transactions.

6. Currency fluctuations 

The value of exchange rates, or price of one currency in terms of another, can fluctuate over time and be rather volatile at times. The price of Gold tends to fall in US dollar terms as the dollar's value rises in relation to other currencies throughout the world.

This is the case because Gold is more expensive in other currencies. Gold, on the other hand, tends to climb as the US dollar's value declines and it becomes cheaper in other currencies. This is why many Gold investors pay close attention to the US dollar and currency exchange rates.

7. Correlation with other assets

There is an inverse relationship between the Sensex and Gold prices. When investors detect a bullish trend in the stock market, they want to increase their stock investments in order to benefit from rising stock prices in the future. With this shift in desire, Gold demand falls, decreasing Gold prices.

When the stock market falls and investors believe the bearish trend will continue for some time, they choose to put their extra funds in safe haven assets like Gold, which causes Gold demand and prices to climb. 

8. Crude oil prices 

Crude oil is a very volatile commodity on international markets. When the price of crude oil declines, the price of Gold rises. Gold and crude oil are both affected by a fluctuating US dollar. A weak dollar could lead to a dramatic rise in crude oil and Gold prices.

Gold demand is intertwined with culture, tradition, a desire for beauty, and financial security in our country. It is a popular investment choice, long been regarded as the ultimate reward. Like, the honour attached with the Gold medal.

Or finding a Gold-tag on the majority of high-end credit cards. For many people, the capacity to buy Gold, maintain it, and pass it down through generations is also regarded as the pinnacle of achievement. And of-course, how can we forget about weddings? 

Think about the factors above and make sure your assets are in line with your risk tolerance and investing strategy. Make sure you have a comprehensive understanding of the Gold situation before you invest.

If you want to start small, go with Digital Gold. Over the last few years, customers have been progressively going for Digital Gold due to the convenience of access, cost and security, which is underlined by the growing trust in digital payment platforms. You can easily buy 24K Gold with a single click.

You even have the option to automate your investment, if you don't want to go through the hassle of opening the apps and investing money every time - On the Jar app. 

Jar app automatically invests your saved change from online transactions into Digital Gold, helping you accumulate Digital Gold for a secure future. You can set an amount to be deducted from your account and invest everyday. 

Add Digital Gold in your investment portfolio to give it stability among the other high risk instruments. Download the Jar app.