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Why Is The Price Of Gold Increasing?

Rising gold prices are influenced by a number of factors. Understanding how these factors impact gold prices can give us insight into why gold prices are rising while the world is struggling to beat and survive the pandemic.
April 18, 2024

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India is one of the largest gold consumer markets in the world, second only to China. 2020 saw gold prices cross Rs. 50,000 per 10 g and it has been slightly fluctuating since. 

The reason why gold prices are increasing is that investors use it as a hedge against inflation. As demand increases, gold prices also start rising. Further on, we look at various factors that influence gold prices and what exactly is causing the prices to rise currently.

Important: This blog is meant to educate readers and the information furnished here is not to be construed as investment advice from Cube Wealth. 


Key Factors That Influence Gold Prices

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. 

This is one of the key reasons why gold is considered extremely valuable around the world. In India, it holds cultural and religious importance as well and therefore, is a part of most Indian weddings and ceremonies. 

Investors are now also considering digital gold as an option. To find out if digital gold investments suit your current portfolio, you can speak to a Cube Wealth Coach. If you wish to invest, you can buy Digital Gold by Safegold using Cube Wealth.  

Irrespective of the form of investments, gold price is fluctuating in nature. It is influenced by a range of factors; the most important ones being:

Factor #1: Demand 

One of the primary factors that impact gold prices is demand. While the supply of gold is controlled, the demand surges due to a number of reasons. 

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. 

Factor #2: Inflation

Gold is a timeless asset that maintains its worth even when other assets lose their value. As the rate of inflation increases, the currency dips and gold is used as a hedge; and thus the demand goes up.

Factor #3: Exchange Rate 

The US Dollar has been the strongest currency against the Indian Rupee for the longest period of time. At present, the exchange rate stands at an average of INR 75 against 1 USD. 

Since the US dollar is the primary currency for international trading, it directly impacts the price of gold India imports and causes it to escalate as the INR further weakens in comparison to the USD.

Factor #4: Import Duty 

India is one of the largest importers of gold and thus pays a huge amount of money as import duty. This also adds to the rise in gold prices. Any change in import duty impacts gold price directly.

Factor #5: Interest Rate 

In any economy, the rate of interest in fixed-income investments is inversely related to the gold price. When gold prices rise, if interest rates are good, people prefer to invest in fixed return investments. 

When interest rates go down, demand for gold increases leading to a surge in price.

Factor #6: Uncertainty 

Another very important factor that impacts the price of gold is any kind of uncertainty. Whether it is due to geopolitical or socioeconomic factors, people tend to stock gold to secure their future and this leads to an increase in the price of gold.  

Why Are Gold Prices Rising?

The increase in gold prices has been triggered by the impact of COVID-19 on economies, stock markets and growing insecurities of investors and the public at large. 

Investors want to buy an asset that gives them surety and security in times of uncertainty. To understand why gold rates are increasing, it would help to look at how: 

  • The effect of increased demand leads to increasing gold prices 
  • The impact of different variables that determine the price of gold internationally as well as in India

Let’s look at these factors in greater detail. 

1. Economic Slowdown

There was a time when economists believed that as soon as the lockdowns will be lifted, things will start getting back to normal and the economies will revive. 

However that has not been the case, and to mitigate risk on investments, investors are now looking at putting their money in gold.

2. Continued Uncertainty 

Even though COVID-19 cases have been going down, the new strain has added to the uncertainty around the global economy getting back to normal anytime soon. 

This is leading people to invest in whatever quantities of gold that they can buy and create a secure asset.

3. Volatile Stock Markets 

As a result of the dwindling global economy and continued uncertainty, the stock market has witnessed quite a few unexpected movements, which is why investors are moving away from the stock market. 

During such a time, investors may prefer to invest in an asset like gold or digital gold by Safegold on Cube Wealth.

4. Depreciating Value Of INR 

The value of INR against USD has been slipping since the lockdown was imposed in March 2020. It is a sharp depreciation and has greatly contributed to the increase in gold prices.

5. Reduced Supply 

COVID-19 has majorly hindered gold mining, leading to insufficient supply. The demand, on the other, continues to increase sharply, causing the prices to rise.

Should You Invest In Gold Now?

Many analysts believe that gold prices are going to rise further in the coming months. Primary reason for this surge will be the impact of the lockdown on economies around the world. 

The lockdown may lower interest rates on other forms of investment and increase demand for gold, causing gold prices to shoot up. Until people feel that the world is returning to normal, gold will be in high demand and the prices may not come down.

So if you wish to invest in gold now, it will largely depend on several factors including your existing portfolio, investment goals, and risk appetite.

Should I invest in gold now? Should I buy gold now? Wealth coaches are adept at dealing with such questions from investors every day. If you have questions about Physical or Digital Gold, speak to a wealth coach today.

How Can Cube Help You Invest In Digital Gold?

Gold prices may increase due to a number of reasons, most of which are rooted in the economy. Even though gold may be a good asset to beat inflation and distribute risk, you need to weigh several factors before deciding. 

It is advisable to speak to a Cube Wealth Coach to understand if you should invest in physical or digital gold. A wealth coach will help you invest in assets based on your goals and risk profile. 

Since digital gold offers better benefits than physical gold, you can download the Cube Wealth app to know more about investing in Digital Gold by Safegold. 

Note: All facts, figures & data mentioned here are from publicly available sources. It is strongly recommended that you consult a Cube Wealth Coach prior to making any investment decisions.

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Bhavna Sharma
Bhavna is a Business Economics graduate with over 10 years of writing experience. She writes on a variety of topics for Cube Wealth and helps simplify investment-related concepts with both short & long-form content.

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