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People have been fascinated by gold for centuries in every part of the world. Rich in sheen and soft, it is suitable for making jewellery and fine arts. Moreover, once in a blue moon, the precious metal can be found or seen in the town; hence, most people use it as a way out, something they can depend upon in times of financial hardships.

Gold plays an important role in Indian culture. Consequently, wedding rings are exchanged during ceremonies, while other special occasions call for ornaments made from this metal because they are seen as lucky charms that bring success and high standards. In the section below, we’ll discuss why gold price is increasing.

Why Gold price is Increasing

The prices of gold are increasing due to multiple reasons including economic factors, geopolitical factors, and demand supply. Inflation and mining supply greatly contribute to this rise in price.

Here are the factors behind why gold rate is increasing:

Economic Factors

• Inflation Concerns: Historically, gold has been an effective hedge against inflation. When inflation rises, gold prices tend to increase as well. Concerns over rising inflation can lead to higher demand for gold as an asset that holds its value.

• Currency Fluctuations: Since gold is dollar-denominated globally, fluctuations in currency exchange rates influence gold prices in local currencies. A weaker Indian rupee tends to push gold rates higher in India.

• Interest Rates: Gold prices are inversely related to interest rates. If rates fall, investors tend to move money into gold, lifting its value.

Geopolitical Factors

• Global Uncertainty: Gold is considered a haven asset. Investors flock to gold during geopolitical tensions, such as trade wars or real wars, driving rates upwards.

• Central Bank Policies: Shifts in monetary policies and gold reserve management by central banks worldwide impact the relative supply and demand for gold.

Demand and Supply

• Jewellery Buying: Gold jewellery is in significant demand in India. Fluctuations are in demand during festival seasons and weddings impact rates.

• Investment Demand: Demand for gold coins, bars, gold-based funds, and securities adds to demand pressures.

• Mining Supply: Gold mining production and supply levels also determine global gold prices to some extent. Supply crunches tend to push gold rates higher.

Impact of COVID-19 on Gold Prices

The economic fallout after the outbreak of the COVID-19 pandemic has been one of the most significant factors causing gold rates in India to surge over the last two years. Here’s a look at how the pandemic influenced gold price trends:

• Economic Contraction: GDP slowdowns and recessions in India and globally sparked safe-haven buying of gold.

• Policy Responses: As central banks worldwide slashed interest rates and introduced massive stimulus packages, gold became more attractive.

• Lockdowns Impact: Temporary closure of gold mines and refineries during lockdowns produced some supply-side constraints.

• Import Restrictions: Import restrictions in India during lockdowns also contributed to domestic gold shortages and higher prices.

• Rupee Depreciation: As economic uncertainties prompted investors to move towards dollar assets, the rupee depreciated against the dollar, pushing domestic gold rates upwards.

The combination of extended economic weakness and massive policy responses has sustained investor interest in gold, keeping gold prices elevated despite economies reopening.

Historical Trends in Gold Prices

Looking back at longer-term price charts, we can single out key inflexion points that drove significant upswings or downswings in domestic gold rates in India:

• 1970s Oil and Inflation Crises: Gold prices quadrupled in the 1970s amidst oil shocks and worrying inflation.

• 1980 Peak: Prices crossed $800/ounce before aggressive rate hikes ended gold’s rally.

• 2001 Recession: The dot com bubble and recession prompted gold investments as stock markets declined.

• 2005-11 Bull Run: Indian gold prices surged from Rs.6000/10 grams to over Rs.28,000/10 grams between 2005 and 2012.

• 2020 COVID-19 Crisis: The global pandemic triggered fresh safe-haven demand, lifting gold to new highs.

Overall, gold price movements over the longer term reflect broader economic trends and black swan events that impact market stability.

Comparison with Other Precious Metals

It is also helpful to compare gold price performance with other popular precious metals. Gold, silver, and platinum are three metals that investors see as precious investments. Over the past decade, the price of gold has increased significantly more in percentage terms compared to silver and platinum:

• Gold Prices in India – Up by 162% since 2010

• Silver Prices in India – Up by 95% since 2010

• Platinum Prices in India – Up by 32% since 2010

The divergent performance can be attributed to gold's stronger safe-haven credentials. Also, factors like stagnating industrial demand have weighed on silver and platinum, compared to steady jewellery and investment offtake supporting gold prices.

Predictions for Future Gold Prices

Experts predict that rates could go up to around ?75,000 per 10 grams by 2024. A few big things impact such predictions, such as some economic and political happenings globally that could drive prices upward. Geopolitical tensions simmering that lead to instability and uncertainty, and those usually nudge investors toward gold as a safer bet.

Based on current conditions and forecast models, analysts expect prices of gold and gold jewellery to continue increasing in value over the next few years.

Investment Opportunities in the Gold Market

For investors looking to capitalise on gold’s upside potential or hedge their portfolios, here are some of the ways to invest in gold:

Investment Opportunities in the Gold Market

For investors looking to capitalise on gold’s upside potential or hedge their portfolios, here are some of the ways to invest in gold:

• Physical Gold: Investors can buy gold coins and bars from jewellery stores, banks, mints, etc. This allows them actually to own gold.

• Digital Gold: Newer platforms allow paperless investment in 24K gold stored securely in insured vaults. Units start from as low as Rs.100.

• Sovereign Gold Bonds: These government-issued bonds denominated in grams of gold pay an annual interest rate of 2.5% while providing sovereign backing.

• Gold ETFs: Exchange-traded funds that replicate gold prices are liquid and convenient options to gain exposure.

• Gold Mutual Funds: Gold funds mainly invest in gold ETFs and can be accessed through SIP investments.

Conclusion: Should You Invest in Gold?

Given its deeply entrenched socio-economic affinity, gold still retains merit as a satellite asset class in investor portfolios, especially in markets like India. Gold can help balance risks and smooth volatility when valuations of risk assets get over-extended.

It can also hedge against currency debasement and inflation threats over the long run. However, higher gold prices also come with potential opportunity costs of missing out on rallies in productive assets like equities. We hope you’ve got your answers to why increase in gold price.