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7 Possible Factors that Influences Gold Rates

Posted by Art Of Legend India [dot] Com On 12:42 AM

7 Possible Factors that Influences Gold Rates
Gold is an asset. It has fascinated the world with its qualities and importance for many years and this probably is the biggest reason why its relevance has not faded out with time. In countries such as India and China, the metal is an epitome of growth and prosperity. The metal is also considered as a great investment option especially for Indians. Since the metal has been around for many years and is now a strong part of our economy, it is natural for people to know more about it. One of the things that people majorly wonder about gold is that why does its rates fluctuate. Well, gold is just like any other product in the market and therefore, its rates can fluctuate over the time and at times unpredictably. There are several factors that influence gold rates. Some of them are listed as follows:

1.      Central Bank Polices and Actions

Gold is used as a hedge against turbulent times, which is why each nation has its own gold reserve. The reserve is managed and regulated by central banks of the respective countries. The gold reserve in India is managed by RBI (Reserve Bank of India). Decisions or policies made by central bank regarding their reserved gold can impact gold rates. So if RBI revises its gold reserve policy, it can have a direct impact on the gold rate. For instance, China's decision to put some of its reserved gold in the market led to a huge fall in gold prices. Gold rates also rise when central banks start buying more gold than they sell it to diversify their monetary reserves.

2.      Government Policies and Actions

Policies and actions of major economic players can too have a direct or indirect impact on gold prices across the globe.Especially any change in the import or export policies of major gold producers or purchasers can greatly influence gold rates across continents.

3.      Currency Variations

Gold rate in India is dependent on the value of its currency with respect to the value of other countries’ (gold trading countries) currencies such as US. If the value of Indian currency (Indian Rupee, INR) falls with respect to the value of the currencies of other countries, say US Dollar, the gold rate in India will increase. This is because the value of US Dollar will be more than the value of INR, therefore, increasing the cost of gold import. Changes in other currencies too can impact gold rates in India, though the affect may be negligible.

4.      Demand and Supply

The world economics runs on demand and supply chain. Since gold is a natural resource and found in scarce locations, therefore, its production is limited to its availability. The demand of gold all over the world is largely limited to domestic purposes in the form of ornaments. Across the globe, the demand for gold ornaments is huge especially in India and China. According to World Gold Council, in 2010, ornaments alone accounted for around 54 percent of gold demand. Besides being used as ornaments, the metal is also used for various industrial applications such as in electronic devices. With the demand for gold ornaments or electronic devices such as computers is on rise, the gold rate can ascend.

5.      Investment Trends

Gold has often been considered as a safe investment option but with the incoming of new investment opportunities, people have started to experiment. Gold does not always offer extremely high returns or results. There is various other investment opportunities in the market that offers high volatility, which lures a lot of investors thus making them turn away from gold investment. Such fluctuations in demand and supply, in turn affects gold rates. The ever-changing investment needs can result in fluctuating gold prices.

6.      International Relations

International relations too play a vital role in influencing gold rates in India. The yellow metal has often been referred to as ‘crisis metal’ due to its capability to preserve its importance even during wars and geo-political crisis. Speculation of strain or actual stress in international relations especially if it includes major nations can push gold prices higher.

7.      Gold Production

The world’s gold production also influences the cost of all gold globally. Everyone knows that gold is a scarcely found natural resource. The amount of gold produced in a year is lesser than the amount of gold supplied in a year. One of the prime reasons of this is that all the “easy gold” has already been mined. To fulfil the world’s gold demand, miners have to now dig deeper and in very specific parts to get the quality gold reserves. Since gold is now even more challenging to access, a lot of money will be spent to take out a small amount of gold. When the gold production costs rises, miners sell gold at higher rates to preserve their profits.

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Art of Legend India has the distinction of being one of the best in the Indian Handicraft Industry. We are about 75 years old handicrafts manufacturer & exporter. We are having team of more than 500 craftsman.

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