Explained: How is the price of gold determined? What exactly are the contributing factors? learn more!

Gold and gold ornaments have special importance in our country. Making gold jewelery or buying gold is considered auspicious on every festival, wedding and other special occasions. Dussehra festival is about to come in a few days. On this day also people buy gold in large numbers. Festivals in India are incomplete without gold! Times may have changed, but the importance of gold has not diminished. It is also seen as a form of help in times of crisis. So today every Indian buys gold according to his capacity, even if the cost of a tola of 24 carat gold is above 50,000.

India is the largest consumer of gold. Even a slight increase in its price in the international market has a huge impact on gold prices in India. But have you ever wondered what exactly determines the price of gold or what factors affect the price of gold? Today we are going to know about this in detail.

The value of gold is almost constant and higher than currency. It is used to protect against inflation during difficult times. This is the reason why most investors prefer to buy gold instead of currency. As a result, when inflation rises, so does the demand for gold. In such a situation, the price of gold increases and its demand also increases. Currency and many other financial products can depreciate during any political upheaval, so gold is considered a safe bet by investors, and the demand and price of gold increases during political chaos compared to peaceful times.

Central banks of many countries keep reserves of gold as well as currency. Whenever the central bank of a large country starts keeping gold reserves, its value increases. This is because the flow of cash in the market increases and the supply of gold decreases. Any change in global volatility has a direct impact on gold prices in India. The main reason for this is that India is one of the largest importers of gold. A global phenomenon causes fluctuations in import prices, resulting in changes in prices in India as well.

Interest rates on financial products and services are closely related to the demand for gold. Current gold prices are considered a reliable indicator of interest rate trends in any country. With higher interest rates, consumers sell gold for cash, and a greater supply of gold lowers its rates. On the other hand, lower interest rates translate into more cash with consumers and demand for gold increases, raising its price.

It is a tradition in India to buy gold jewelery during festivals and weddings. Thus, during the wedding season and festivals like Diwali, gold prices tend to rise due to increased consumer demand. Due to high demand, India has to import gold in large quantities from time to time. The industrial demand for gold is 12 per cent of the total gold demand in the country.

Apart from the above factors there are also other factors like production of gold and its cost of production which affect the price of this gold. But no matter how many factors affect the price of gold, ultimately they all depend on the demand-supply factor.

What are the factors that determine the price of gold?

Inflation, government gold reserves, global trends, interest rates and the jewelery market determine the price of gold.

Why is gold so important to the economy?

Gold is an indicator of whether the economy of a country is healthy or not. The country where the price of gold is high, the economy of that country is weak. Conversely, the country in which this price is low, its economy is strong.

How do the government’s gold reserves affect the price of gold?

If the central bank starts backing gold, the price of gold automatically increases, as the supply of gold decreases and cash reserves increase.

Does the global crisis affect the price of gold?

If people show a lack of confidence in the government or the financial markets, gold prices will inevitably rise. That is why gold is also called such a thing which comes to help in times of trouble.

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