Factor Influencing the Gold Prices: An Empirical Investigation in the Indian Context

In 2022, economic growth and the impact of pent-up demand for gold are likely to presage a period of robust demand, although any future outbreaks of coronavirus could create further uncertainties. According to the safe-haven channel hypothesis, GDP measures a country’s economic health, whereas gold represents a vote of no confidence in the US economy. As a result, there should be a negative relationship between GDP growth and gold prices.

In India, demand for gold increases massively during the wedding and festive seasons and this is when the prices are considered to go up dramatically. Gold is considered to be a safe asset and is used as a hedge against inflation. It is not a market-linked instrument and hence works differently. People invest in gold because data shows that the worth of gold is maintained even during the worst of slowdowns.

Gold Rate Over Time

There is a little correlation between the price of gold and the amount of gold that people are willing to buy. There are several studies that have investigated the relationship between gold prices and the stock indices. The causal relationship between gold prices and stock index (S & P CNXNIFTY) of NSE of India was studied [16] .

International or geopolitical relations among nations also have a big role in gold prices. It has been always witnessed that gold rates soar whenever tensions spike between global powerhouses. As such, gold prices can be affected by the basic theory of supply and demand. This means that as demand for consumer goods (like jewelry and electronics increases), the cost of gold can rise. Among the various commodities, Gold and Silver have an important role in the history of money and monetary policy. Traditionally there are considered as a medium of exchange with a unit of value [5] .

Gold Rate In India Today: August 8, 2023

The World Gold Council estimates that 75% of India’s gold demand over the previous decade has been in the form of jewellery. When a consumer’s buying power rises, the price of gold rises. Several macroeconomic factors are examined in this research to see how they relate to gold’s price and what effect that has. The research used gold demand, the nifty, the foreign exchange rate, inflation, the GDP domestic product, and the price of crude oil as independent factors and the price of gold as a dependent variable. The researchers used correlation and a multiple regression model as research methods the gold price is highly correlated with inflation, GDP, the nifty index, crude oil prices, and the foreign exchange rate.

• However, the current forecasting algorithm offers poor precision in solutions for non-linear problems.
• The purity of gold is predefined and the gold can be sold and bought any time and from anywhere through these mobile applications.
• Gold is a timeless asset that maintains its worth even when other assets lose their value.

Cultural affinity, long-held tradition and festive gifting clearly play a significant role. But these qualitative factors are complemented by quantitative factors, which offer additional and important insights. At the lowest level, gold mining has been happening in India since time immemorial. Gold mining can contribute significantly to India’s long-term socio-economic growth. Furthermore, mining contributes to infrastructure funding in a region and the establishment and support of adjacent service sectors. Here is looking at major reasons that determine the price of gold in India.

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Impact of Gold on Exports

Gold is purchased in India primarily as ornaments and jewellery. Further, it is also traded as a commodity on exchanges like the National Commodity and Derivatives Exchange (NCDEX), the Multi Commodity Exchange (MCX) and the National Spot Exchange (NSEL). In general, total
demand for gold depends on the speed of the world’s economic development. In
the field of microelectronics, for example, gold is increasingly used as
protection.

As a result, the market’s liquidity conditions will improve, and the markets will become more predictable. Gold is a commodity that may be used for both consumption and investment. Gold prices reflect the rate of growth and the state of the economy. Gold can be utilized as an anti-inflationary tool Nemavathi & Nedunchezhian (2013).

After a downtick in central bank gold purchases in 2020, the pace picked up again in 2021 and surpassed the 50-year record again in 2022. The top gold buyer in 2022 was the central bank of Türkiye, followed by Uzbekistan, India, and Qatar. As the model’s R2 was close to 60%, this model can further be used for data analysis and predicting the prices of the gold in the spot market.

The study provides a comprehensive analysis of the independent factors that affect the value of Gold and a best fit model is also achieved. This model has been proven to be applied to the pragmatic world. The various tools used to identify the variables and analyze a best fit regression model are SPSS and SAS, and a linear regression analysis was conducted so as to find out a predictive model. The Scatter diagram of Gold Price and S&P 500 indicates that the relationship between gold price and this independent variable is negative and the degree of relationship is low which is also evident from the scatter plot. The Bombay Stock Exchange (BSE) is the first and largest securities market in India. It helped in the development of capital markets of the country which includes retail debt market and also helped in the growth of the Indian corporate sector.

Digital Gold

27Microfinance companies are the financial institutions that offer small-scale financial services especially to the poor in rural, semi-urban and urban areas. Payments banks are a new model of banks conceptualised by the Reserve Bank of India. These banks can accept a restricted deposit but cannot issue loans or credit cards.

The World Gold Council report in 2017 states that Indian households own a gold stock of about to metric tons. According to another report, India’s Gems and Jewellery industry contributes to around 7% of its GDP and constitutes 13.30% of total merchandising exports. Indian consumption and fabrication of gold is the primary factor that drives countries’ gold market. Both factors impact the Indian economy by adding economic value, increasing employment, growing foreign exchange earnings and trade balance.

It is an investment that offers diversification opportunities. When it comes to diversification, there is no better tool than Gold. If you are an investor who wants to place only some of his eggs in one box, this is the investment you should consider.

Strength of the U.S. Dollar

It would help if you always remembered the fact that India is a leading importer of gold. Thus, the investors tend to buy the yellow metal when the global prices are less. On the other hand, during a political or economic crisis, the amount of gold can elevate dramatically.

For example, during the third USD crisis after World War II, the U.S. was
experiencing severe international payment deficit, resulting in increased USD
held by many countries. Consequently, the market’s confidence in the value of
USD weakened, hence, investors rushed to purchase gold, which directly led to
bankruptcy of the Bretton Woods System. In 1987, the U.S. was having huger
deficit and the Middle East was in turbulence, all together resulting in a huge
increase of gold price in the international market. In the gold market, almost every great down is related to
hedging fund companies borrowing short-term gold, dumping on the spot gold
market, and causing a short position in the COMEX. In July 1999 when the gold
price reached the new low in 20 years, information published by the U.S.

Chart 8: Average monthly inflows into Systematic Investment Plans (SIPs) have been steadily increasing

GDP is detailed information on the overall economic condition of a country. It is the actual value of all finished goods and services in terms of money. Therefore, even the slightest change in the gold economic value growth makes a huge difference. The return on gold investment has tracked the rate of inflation throughout time. For example, the gold to GDP ratio by country will do nicely if the equities markets begin to fall.

In the case of global inflation, too, the price of gold can fluctuate a lot that directly creates an impact over the gold price in the country. This simply implies that increased levels of inflation will most likely lead to higher prices of gold because the value of the currency will be dropping. For example, the gold rate gold price depends on which factors in india in Mysore at the beginning of 2022 was around ₹49,800 while today gold rate in Mysore has gone up to ₹53,700 which is quite a hefty rise. Further research has shown mixed results, according to a literature review. Some studies discovered a link between gold’s price and macroeconomic variables, while others found none.

Remember that providing hallmarked gold jewelry can help you acquire more principal amount when you seek a gold loan. Apart from keeping the determinants of the price of gold in mind, it would help if you also went through the terms of the gold loan lending company. Throughout history,
gold has been the best means of hedging.