Why are Gold Prices Rising?

For generations, gold has been a valuable possession in India. Indians have considered gold as a safeguard against unstable economic conditions and a symbol of riches. India's gold market saw significant swings in March 2024. So, this indicates a changing environment driven by several variables. This article talks about the recent increase in gold prices in India, with special attention to pure gold (24K) and standard gold (22K), so read till the end.  

How is gold expected to perform  

For gold prices to rise, two main variables need to change: external and internal influences. The trajectory of gold is largely determined internally by variables, including government policies, currency exchange rates, and domestic demand. For example, a spike in demand for gold during cultural celebrations or a depreciating national currency might drive up prices.  

The price of gold is influenced externally by world events, geopolitical conflicts, and the state of the economy of key economies. Conflicts, shifts in the world's monetary policy, and economic crises are examples of events that might cause a rush to safe-haven investments like gold, driving up its price.  

Why are gold prices rising in India?  

Gold prices have increased by 9% since the beginning of 2024 in terms of rupees. The price of 10 grams of yellow gold is Rs 71,000. This is a 69% increase in rupees since the Covid-19 pandemic began in March 2020. When one subtracts the month-long decline in March 2020 from this, the Sensex has increased by 43%. This makes it evident why Indian families view gold as a hedge against inflation and currency fluctuations. Gold would have performed even better in terms of dollars because the rupee has lost 12 percent of its value since the pandemic began.  

The main reasons for the current increase in gold prices are the growing geopolitical unrest in the Middle East (Gaza) and Ukraine. Another reason is the investors' perception of gold as a hedge against inflation. Because of excessive printing and the lowering of US interest rates, there is also anticipation that a country's foreign exchange reserves may not be best served by the dollar. While the latter could result in a short-term decline in the value of the dollar, the former would have long-term effects on it. 

What does this mean for Indian imports? 

At an average of Rs 63,000 per 10 kilos, the price of gold remained relatively steady between April and December of 2023. Then, strong demand, as a result, saw a 26.7 percent increase in imports to $36 billion during this time. Although data for the first three months of 2024 has not yet been made public, a Reuters article states that demand for gold is predicted to decline by 90% in March due to a 10% increase in pricing. Though demand might not reach the 900 tonnes that the World Gold Council had predicted earlier this year, India is expected to continue as the second-largest consumer of gold.  

India savers and gold 

Indian people have always viewed gold and real estate as savings tools due to their underdeveloped capital markets. This is still the case, and the emergence of venues for fractional ownership has made it simpler to save even just Rs. 10 in gold. Jar is one such app people can use. The CEO of this company, Nishchay Ag, notes that Indian retail savers are not as likely as stock investors to check the value of their holdings. Rather, they make sporadic investments and are more likely to increase their stake as the price rises. Investments in the Jar app are secured by a corresponding amount of real gold. 

Final thoughts 

In short, several variables, such as the ongoing conflict in the Israel-Hamas region, rising crude oil prices, and prospective rifts in India's economic links with Israel, can be ascribed to the increase in gold prices in India. This shows how the gold market is dynamic and how important it is to closely monitor local and international developments when considering making gold investments in India.