Parameters that Affect Gold Prices in India

Parameters Affect Gold Prices in India

Gold is considered a very precious commodity and that’s why investors always prefer Gold as a commodity trading instrument because it acts as a safe investment.

In India, gold holds a strong place in people’s hearts as Indian citizens believe it’s an auspicious metal that is being worn on every occasion.  Also, Indian citizens feel gold is a symbol of richness and power.

It has been seen that the importance of gold has significantly increased over the years as investors keep this metal as a hedging tool during market volatility and inflation.

The price of gold keeps on fluctuating due to several factors. It is interesting to know that the US dollar affects the gold price to a greater extent.

Gold puts strong value not only on a state’s strong economy, but even on personal investments.

Here are the Factors that affect the Gold Price most:

1) Demand and Supply

Gold prices heavily depend on demand and supply. When there is a huge demand, the price of gold rises or vice versa.

Since Gold is a commodity that is continuously in demand; factors such as demand and supply play an important role in the gold price.

2) Inflation

Whenever inflation is on the rise, the value of currency starts to decrease. As most financial instruments fail to generate better commodity trading returns, gold acts as a strong hedging tool.

3) Government Reserves

The Government of India holds reserves of gold. Here, the price of gold gets affected when RBI purchases more or sells more gold. If you wonder about the gold prices, government reserves could be one of the reasons.

4) Import Duty

Few of us know that India produces less than 1 per cent of global gold production. However, due to the high demand for gold in the country, the government imports a lot of gold from overseas to meet the demand. Hence, import duty plays an important role in increasing gold prices.

How is the Gold Price affected by the US dollar?

In 1944, 44 countries signed the significant Bretton Woods Agreement. The agreement is about international trading, import and export via the US dollar.

A country will sum up its total US dollar reserve at the end of a year. Then, the country goes to the International Monetary Fund (IMF) with that amount of US dollars.

That means the currencies are convertible to gold. Because of this agreement, the USA eventually took profit from all other countries obliged to trade against the US dollar.

How does Inflation affect Gold Prices?

During the pandemic time, Gold prices were increased. Why does this happen?

Because gold is a safe investment, people started investing in gold during the times of COVID to use it as a currency if they were in financial trouble.

Investors hold the gold as compared to currency. As a result, when Inflation in India is high, the gold price also increases and vice versa.

Due to high demand and less supply, gold prices get high, and the people who hold gold during inflation make a lot of profit.

If an RBI imports gold, it does affect the demand and supply of the currency in the country.

To import gold from another country, the RBI needs to print a larger number of notes to pay for it, and due to an excessive amount of currency notes, inflation is caused in the country, and hence the gold price will also be increased.

How does the Festival affect the Gold Price?

In India, many people buy gold in the form of jewellery, and they give gold as a valuable gift to their loved ones.

India depends on the import of gold as our production of gold is less than 1 per cent of the total world production. Because of the high demand in the festival season, we need to import gold from foreign countries.

During festivals like Diwali and Dhanteras, gold prices increase because of high demand and less supply.

India is increasing the production of gold mines to control the gold imports and fulfill our gold requirements.

How does the Indian Currency affect Gold Prices?

The rupee-dollar equation plays a role in Indian gold rates, although it does not impact global gold prices.

India imports gold, and hence if the rupee is getting weaker against the dollar, it directly affects the gold prices.

So, a depreciating rupee may affect the demand for gold in the country. However, the change in rupee-dollar rates has no impact on gold rates denominated in dollars.


As we discussed factors that affect the gold price in India, Gold prices are volatile and considered a safe investment.

Gold is also a portfolio diversifier for stock market trading investors.

When the market falls, people start investing in gold to diversify their portfolios.

Commodity Trading is considered “sensitive” because stock market experts have seen frequent instances of price manipulation in the past 5 years.

Therefore it is suggested to take advice before starting trading in any commodity. Taking help from a reliable stock broking firm will always be helpful as they have strong stock market research reports and an experienced analyst team.

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