Analysing the Factors that Affect the Gold Price

Factors that affect the gold price

From ancient times to contemporary times, gold has always been the world's choice. Investors mainly buy gold so that it serves as a barrier against inflation and political unrest. A lot of investment advisors propose an ideal portfolio allocation in commodities such as gold.  This lowers the portfolio risk across the board.

Looking at the Gold price in India there are umpteen opportunities for gold investment including gold bars and coins, gold bullion, mutual funds, jewellery, and mining companies. Today gold price in India highly recommend investing in bullion and so many other forms of investments that are directly related to gold. Gold price today in India favours mutual funds and ETFs and all kinds of physical gold to be purchased as an investment.

A lot of factors infer the gold price in India. Fluctuations in the world market result in the gold price changing. Let us have a look at 5 such factors that affect the price of gold.


The best part about gold is it has a steady value. It is much steadier in comparison to its other counterparts. This is a major reason why investors rely on gold as an investment and not on other currencies. With an increase in inflation, the demand for gold also increases. When inflation is relatively low, the demand seems to subside. The same rule applies to even global inflation, thus making it one of the factors that determine the gold price today in India.

Monsoon’s Effects on the Gold Price

One more factor that affects the gold price in India is the farmers' demand. This demand majorly depends on monsoons. The rural part of India carries around a 60% share of the consumption of gold annually. This is around 800 to 850 tonnes. Farmers buy more gold since it helps them enhance their assets and this is only possible if the crop has turned good. On the flip side if the monsoon season has not been favourable to the farmers it leads to less purchase thereby affecting the price.

The Value of the Dollar

Gold and the dollar are inversely proportional. The dollar monopolizes international gold and when currency dips down the gold price in India shoots up and it is the other way round. This is mainly because when investors commence looking for other available options, they choose gold. When the US dollar goes down, the price of gold goes up. This results in lesser people buying it which leads to less demand for gold.

The demand is associated with the rate of interest on services and financial products. The gold price today in India is a pointer to the trends of interest rates in the country. When the interest rate increases, customers sell the gold to make money out of it. This in turn increases the gold supply resulting in a reduction of the gold price.

Besides, buying and selling gold online has become very easy. When the rate of interest is low, the customers are not short of cash and this leads to more demand for gold which in turn results in an increased price. This is one of the reasons why a money lender was referred to as a gold hoarder in India. With the accumulation of interest, it was easy to buy gold along with other things.

The Jewellery Market

The jewellery market in India is dependent majorly on festive seasons. With the festival's arrival, the demand for the precious metal increases which leads to an increased gold price. When there are weddings the price of gold increases even more. An increased demand results in an increase in the gold price in India.

All such factors together result in the fluctuating demand for gold. It mostly depends on the capacity to manufacture and any seasonal surge.

What is Meant by Gold Bullion?

Gold bullion is assumed to be a large gold bar. This is the best form of owning gold directly.  However, pure gold in any shape or structure that has a certificate of purity and weight is known as gold bullion. It is inclusive of coins and bars of all sizes. Usually, there is a unique serial number that is attached to these for security and safety purposes.

Enormously large gold bars are hard to liquidate. They are also expensive to purchase and sell. When you want little money out of it there is no way you can slice a part of the bullion bar and liquidate it to make money out of it. On the flip side, if you hold bullion in small bars and perhaps coins it is easier to liquidate when the need arises. These are very common with a majority of gold owners.

What are Gold Coins?

Coins are purchased by investors commonly from any private dealer. They come with a dividend of around 1% to 5 % over the underlying value of gold. However, this jumped to a whopping 10 per cent by March 2020. Gold coins are issued in large volumes by independent governments across the globe.

  • The price of gold coins is available very conveniently across all financial publications in the world.
  • Gold coins have always been minted in small sizes. This makes them relatively more convenient to invest in than large bars.
  • Reputed dealers are found easily by a quick search as they can be easily located in every city.

Caution should be exercised when buying gold coins. Rare and old gold coins have collectors' value attached to them. This value is beyond and above the real gold value. If you are serious about investing in gold, you must focus on coins that are circulated widely. The rare coins are best for collectors.

Do We Have Mutual Funds and ETFs for Gold?

You have an option to invest gold bullion in ETFs that are gold-based. Each share of an ETF exemplifies a fixed gold amount. These funds can be bought and sold like stocks. This is easier than owning bars. It is more cost-effective too. This is more applicable when it comes to small investors.

Similarly, a lot of mutual funds possess gold organizations and gold bullion as an aspect of their regular portfolios. However, investors must be familiar with the fact that just some of the mutual funds have their sole emphasis on gold investment. Most of them also have other commodities included.

Listed below are a few major benefits of mutual funds that are gold only.

  • Minimum investment and low cost is required
  • There is diversification between different companies
  • They are easy to own
  • There is no need for company research

A Few funds and their investment into mining companies. Others are often tied to gold prices directly and some are actively managed. Reading their prospectus can give you detailed information about the same. Conventional mutual funds are actively managed however ETFs hold to a more passive strategy of index tracking. This helps them lower their expense ratios. For an average investor, ETFs and mutual funds are the safest and the easiest way of investing in gold.

Can I invest in Gold Mining Organizations?

Organizations that work in refining and mining usually profit from the increasing gold price in India. Investing with these companies can prove to be a practical and productive way of profiting from gold. These carry a relatively lower risk compared to other methods of investing.

The biggest gold mining organizations swell substantial and widespread global operations. Business factors that are common to such large organizations render huge success to these investments. Cold mining organizations provide a safe way of investing in gold than owning billions. Having said that, it requires investors to choose companies with due industriousness and perseverance. This is not feasible for a lot of customers as it is a time-consuming effort.

Gold Jewellery as an Investment?

Purchasing gold jewellery at retail involves a significant markup. Nonetheless, jewellery is a great and desirable way of owning gold. Although it is not the most profitable way from the perspective of investment. When you look at gold as an art it is beautiful and impressive however from the investment standpoint it is mediocre at least when you are not a jeweller.

Approximately 49% of gold production across the world is used for making jewellery. With the growing global population and the growing annual wealth, the demand for jewellery production is expected to soar over time. When you buy gold jewellery you are also a bit price sensitive. So when the prices soar the buyers buy less.

  • Deciding to add gold to your investment portfolio is the right thing to do
  • If you are looking to directly own gold you can buy it in the form of physical gold. You must exercise precaution in keeping it safe and secure
  • Mutual funds and ETFs are popular too. If you have a brokerage account, you have a way into the derivative market, gold futures are an option for you.
  • Getting gold indirectly is possible through making investments in mining stocks. These organizations share prices. They don't track the gold value well in the longer run.

Gold is a popular option for investment. It has been considered a prize for many many years. It is a status symbol, a valuable possession, and a  teacher of the auspicious time. That is why it is such an honour to get a gold medal.

The buying ability of gold and saving it to pass on to generations is looked at as an accomplishment. Buying gold online has become very popular in recent times and there are clearly no charges that are hidden from the customers. The buying and selling process is hassle-free and smooth. For instance, you can buy gold online that is 24kt and its purest form available and it is free of any third party or other additional charges. This is quite a relief for people who want to cut some costs on their next gold purchase.

Learn More: Is It Strange to Buy Gold Coins as an investment?


Is it a good time to buy gold?

The price of gold is expected to rise due to some favourable conditions according to analysts. So it is a good time to purchase gold now. In fact, there is never a bad time to buy gold owing to the guaranteed returns and the ease of liquidity it has to offer.

Why gold was cheap in the year 2000?

The financial market was under the impression that the slow and sluggish growth would last for years. That made them strengthen the US dollar and technology stocks. This led to really cheap gold prices in India.

Which country in the world has the lowest gold price?

Hong Kong has the lowest gold price in the world. So walking into a bank and buying gold coins with a low premium is possible and it will cost you way less in comparison to buying them in any other country.

How does inflation affect the gold price?

When inflation goes high, it helps the gold price go high too. Gold acts as a hedge to inflation.

What affects the price of gold?

The theory of demand and supply affects gold prices. When the demand for electronics and jewellery increases, it increases the price of gold too.