Why Gold Price is Increasing?
Gold is one of the most favourite and traditional forms of investment in India. India is the world’s second-largest gold consumer after China. In recent months, gold prices have been increasing and hit Rs 50,000 per 10 grams on Wednesday in India.
Why is the yellow metal continuing its dream run at a time when Covid-19 pandemic has pushed the global economy into a contraction mode?
There are some factors that affect the gold price. Let’s have a look at it.
Demand and Supply: The demand and supply of gold remain an important factor in determining its price.
Inflation: When the inflation rates rise, the value of the currency decreases gold is a perfect hedge as it is not affected by fluctuations in the value of the currency. So most people start investing in gold.
Interest Rates: When the interest rates fall, people tend to buy gold as it is safer than deposits which increase the price and demand of the yellow metal. When the interest rates rise, people sell their gold and invest in deposits to earn high interest leading to a drop in demand and price.
Indian Jewellery Market: gold jewellery is an integral part of Indian lifestyle especially weddings. During festivals and wedding seasons, the demand for gold increases which leads to an increase in the price.
Government Reserves: The Government of India buy or sell gold through the Reserve Bank of India (RBI).The price of gold can be influenced depending on whether it buys or sells more.
Why is gold going up and up?
Gold has performed significantly in the first half of 2020, and increased by around 25 per cent from its low in March and remarkably outperforming all other major asset classes. Gold futures prices jumped to a nine-year high of $ 1,856.60 per troy ounce in London on Wednesday, reaching closer to their record high of $1,920 an ounce hit in September of 2011. One troy ounce is equivalent to 31.1034768 grams. Uncertainty surrounding the Covid-19 pandemic and low or negative interest rates are the main reason behind the rise in the price.
The turmoil caused by a pandemic is one of the significant reason to increase the price of gold. Businesses were shut and imports and exports were cancelled during the lockdown. Economic disruption made the investors to move away from risky assets and to start investing gold as gold is considered to be a perfect hedge against inflation and economic turmoil.
The Indian Rupee has fallen sharply since the lockdown. Currently, it is around 75 against the US dollar. As India is the second-largest importer of gold, such exchange rate fluctuations influence gold prices.
The Government have declared a lot of economic packages to pump liquidity into the markets. Stock markets were highly volatile and interest rates were falling. Investors start investing in gold that is known to be a safe investment during such times.
The rising number of coronavirus cases, increasing US-China tensions, and overall economic slowdowns have led to a constant rise in gold prices around the world which leads to an increase in gold price India.