Among the countries around the world, India is the largest consumer of gold. Being on the top of the list, India’s gold jewelry demand is around 36%, which is the largest share in the world. The country also consumes around 22% of the world’s total coin and bar investments. In 2010 alone approximately 958 tonnes of gold was imported by India. The demand of gold jewelry increases during festivals, which are considered auspicious periods for buying gold. The sale of gold and the gold rate also goes up during the wedding season.
One of the key factors that influence the price of gold is because of the production cost, determined by gold producers in order to maintain profitability. The volatility in the gold price occurs due to the following reasons:
Gold Import Restraints
Gold, in India, is preferred as an investment option. However, with the government and RBI taking stringent measures to restrain the import of gold has slowed down the demand of investing in this precious metal.
Higher domestic gold inventories
According to 2014 reports, India was voted the top consumer of gold in 2014. Also in the first quarter of 2015, it became the second biggest consumer of gold, after China. Higher domestic inventories have also impacted the pricing of gold, leading to fluctuations.
Monsoon also impacted the price of the bullion. With India being an agricultural country, farmers play a key role in the demand for gold. With no formal banking system to access two-thirds of the country’s population, which hails from rural areas relies on gold as their investment option and wealth store. With monsoons being sluggish this year and crops growing less, the demand has come down.
Massive dumping in China
With China selling a large amount of gold in the market, the prices slipped further. The Shanghai spot market sold approximately 33 tonnes of the precious metal. The gold reserves in China were lesser than the expected level, which added pressure on selling the precious metal, as investors sought other avenues.
Stronger US dollar
With the dollar rates hitting a high and other currencies dropping made commodities denominated by the dollar more expensive. Gold priced with dollar became expensive in the market lowering the demand of the metal. Indian gold prices witnessed a downsizing in recent times, because of the high rates of the US dollar.
Hike in US Fed Rates
With the dollar gaining the higher rate in the market, the US economy is expected to expand. The rise in interest rates for higher returns will attract investors, driving up the value of gold.
With the dizzying rise and fall of the gold prices, the conflict whether to invest in gold continues. Whether, the current prices will plummet further or rise, only time will tell.