What are the reasons behind the rise in gold prices?
Typically, when stocks perform well and deliver positive returns, gold prices tend to remain subdued. However, currently, both the stock market and the price of gold are at record highs. Not only in India but also globally, the price of gold is on the rise. In the US, gold prices have reached an all-time high, surpassing $2,250. In Indian currency, this is equivalent to ₹1,87,733.59.
The price of gold has increased by 38% since its last low point in 2022. Even in India, as the new financial year began, the price of gold has crossed the milestone of Rs 70,000 per 10 grams in some regions. In this article, we aim to explore the reasons behind the surge in gold prices and its potential overall impact.
History of gold prices in India
Before we delve into the specifics of why gold prices are rising, let's take a glance at how gold prices have changed in India over the past few decades.
This overview will provide insight into the gradual price increase and what we might anticipate from gold in the future.
Why are gold prices increasing in India?
Here are some reasons for the increase in gold prices:
Reason 1. Economic Uncertainty: One of the primary reasons behind the surge in gold prices is economic uncertainty. During periods of instability or economic downturns, investors tend to flock towards assets that are considered safe havens, and gold is often one of their top choices. With concerns about inflation, global trade tensions, and the impact of the COVID-19 pandemic, many investors are turning to gold to safeguard their wealth.
Reason 2. Global Market Trends: The price of gold is influenced by global market trends, including fluctuations in currency values and geopolitical tensions. Factors such as changes in interest rates, shifts in investor sentiment, and the performance of major economies all play a role in determining the price of gold. As a result, events happening on the global stage can have a significant impact on gold prices in India.
Reason 3. The Chinese Demand
Gold demand in China has been on the rise in recent quarters. The Chinese central bank has been adding substantial quantity of gold to its reserves which is leading to the increase in the gold price in the US and also in India. Not only this, as per reports, a new trend has emerged in China where gold buying is becoming popular among young Chinese.
Impact of Rising Gold Prices on the Indian Economy
Here's how an increase in gold prices affects the Indian economy:
1. Current Account Deficit (CAD): India buys a lot of gold from other countries. So, when gold prices go up, India spends more on gold imports, which makes the current account deficit wider. This puts pressure on the country's money balance and might make our currency worth less.
2. Import Bill: With higher gold prices, India has to pay more for importing gold. This makes our trade balance worse because we're spending more money on imports. It also puts pressure on our foreign money reserves and can make our economy less stable.
3. Government Revenue: The Indian government makes money by taxing gold imports. So, when gold prices rise and we import more expensive gold, the government earns more revenue from taxes on gold imports.
4. Gold Loan Market: In India, many people borrow money by keeping their gold as collateral. When gold prices rise, these loans become more valuable. This can increase the amount of money in circulation in the economy, but it also raises the risk of people not being able to pay back their loans.
5. Jewelry Industry: Indian jewelers use a lot of gold in making jewelry. When gold prices go up, it costs more for jewelers to make jewelry. This can affect their profits and may make people prefer other materials for jewelry.
Before you go
Gold prices are going up and might continue to rise. But it's important to remember that gold prices can change a lot because of many different things happening in the world. So, it's hard to predict exactly what will happen to gold prices in the future.