Gold is amongst the most revered metals of the Indian values. From birthdays to weddings, to festivals, no fortunate occasion goes without using gold. Indian temples are well-known for their new and earliest gold idols that are protected against all kinds of robberies or thefts. Selling gold and silver rate has been drawing a downward spring and as some customers have acquired this metal with the objective of reaping considerable advantages when the prices of this metal increase again. Let’s go through some most important factors which determine the pricing of gold.
Because of its steady character compared to other currencies, gold holds substantial value and it is used to fight against inflation. That’s why investors favor having gold rather than any currency. So, when inflation gets high, gold’s demand increases and vice versa. Then the old gold price today will shoot up because of high demands from customers. It is true for both local as well as international inflation.
Any global movements in the pricing of gold affect the pricing of the yellow metal. This mainly happens because India is among the biggest importers of gold so whenever the import prices alter because of global movements in prices, the same gets consequently reflected in the pricing of gold. As the currency value and different financial products might fall during the political disturbances, gold is known as a safer option by the investors and therefore, the demand and second-hand gold prices increase during the political chaos compared to quiet times.
Government’s Gold Reserves
Central banks of the majority of countries possess both currency and gold reserves, for example, Reserve Bank of India. When the central bank of a large country start holding the gold reserves and procures more gold, then the pricing of gold increases. That is because the cash flow in the market gets increased whereas the supply of the gold comes down.
In India, the gold is used to make jewellery as gifting articles, to show off wealth and also an as strong protection against the rising inflation. All these make the local demands for gold increase so much that the Indian government has to import the yellow metal in huge quantities. The manufacturing demand for the gold holds 12% of the gold’s total demand for gold in India.
Interest Rate Movements
Interest rates for financial services and products get tied strongly with the demands for gold. Selling gold rate today are usually good indicators of the trends of the interest rate of any country. Because of amplified rates of interest, the customers want to sell gold to get cash and an amplified supply of gold results in the reduced old gold exchange rate in Delhi. On the other hand, low-interest rates convert to extra cash in customers’ hands and more demand for gold increases the price of this metal. The interest in purchasing gold increases in the consumers when the confidence in government, as well as markets, get weaken and that’s why the gold is called ‘The Crisis Commodity’.
The fundamental demand-supply mismatch is among the main reasons which drive the pricing of gold. However, this mismatch may be created because of different situations and some of them have been discussed here in this article.