Whenever you check the gold price lately, you must be wondering why the prices are rising so frequently. They are rising because of various reasons, which include both macroeconomic and microeconomic factors, Global inflation concerns, geopolitical tensions, central bank buying, currency fluctuations, and rising demand for safe-haven assets continue driving gold prices higher worldwide.
In today’s blog post, we will give you an overview of why the gold prices are increasing in India, and how it affects the Indian economy and jewellery industry.
History of Gold Prices in India
Gold prices started to rise after the COVID period for a number of reasons, including a change in the world economy and a fall in the value of the domestic currency. Although there has been a short-term correction in gold prices, the long-term trend remains upward due to global central banks’ purchases and concerns about inflation. Let’s look at the changes in gold prices over time.
| Year | 24 Karat Gold Price in INR/10 gram | Reason |
|---|---|---|
| 2019 | 35,220 | Because of consistent worldwide demand, the price of gold rises a little during this time. |
| 2020 | 48,651 | Gold prices increased during the COVID-19 pandemic because it was seen as a haven. |
| 2021 | 48,720 | Following the 2020 rally, the gold market slowed down. |
| 2022 | 52,670 | The price of gold increased during this time because of higher inflation, adverse geopolitical conditions and a weak dollar. |
| 2023 | 65,330 | The demand for gold has increased globally, and the price of gold has increased because of investments in safe havens. |
| 2024 | 77,913 | Gold prices increased as a result of the pandemic, rising inflation, macroeconomic uncertainty, and the wedding season. |
| 2025 | 1,36,570 | The combination of rising global gold prices, the falling Indian rupee, and rising demand for gold led the prices of gold to touch a record high last year. |
Reasons Behind the Rising Price of Gold
The key reason behind the rising price of gold in India is as follows:
- Increasing Demand: Gold is considered a haven during unstable economic conditions and geopolitical tensions, which increases the fear of investors and prompts them to consider gold as an investment option.
- Decreasing Interest Rates: When central banks reduce interest rates, other investment options become less attractive, thereby increasing the demand for gold.
- Buying by Central Banks: Numerous central banks across the world are increasing their gold reserves to decrease their dependency on the dollar. It also acts as a major cause of the increasing price of gold.
- Weak Indian Currency: The Indian Rupee is weakening, and India imports around 80% of their gold from other countries, which increases the import cost, eventually increasing the gold prices.
- Seasonal Demand: Gold has key importance in India, and it increases the demand especially during the wedding and festive season.
- Limited Supply: The supply of gold is limited, and any continuous buying increases the price of gold.
Read Also: Historical Trend of Gold Rate – Gold Price History in India
How Increased Price Affects the Jewellery Industry
The increased price of gold can adversely impact the jewellery in the following manner:
- Decline in Demand: The rising price of gold is making jewellery unaffordable for buyers. There may be many buyers who can postpone their purchase, especially those in the middle-income group.
- Margin Pressure: A jewellery manufacturer’s profit margin can be significantly reduced because of the higher price of gold. Also, their sales will decline because of it.
- Alternate Jewellery: The higher prices of gold can increase the demand for alternative options of gold jewellery, such as diamond, gemstone, etc.
- Wedding and Festive Season: The wedding season of India plays a key role in the Indian jewellery industry. A higher gold price will lead to a reduction in purchase volume.
Effect of Gold Price on the Indian Economy
Gold prices play a key role in the Indian Economy because of the following factors:
- Trade Deficit: India primarily imports gold from different countries; hence, an increase in the gold price can significantly increase the trade deficit for India as its import bill increases.
- Inflation: Gold prices can significantly affect inflation indirectly because gold is not directly considered in the Consumer Price Index.
- Consumption: A higher gold price will attract investors, and they might shift their savings towards purchasing gold as an investment option, which will reduce consumer spending on consumer goods.
- Import Duties: Due to an increase in gold prices, the government will raise the import duty to curb the rising gold price.
Will Gold Prices Rise in Future
Yes, gold prices are expected to rise in future; however, there might be some short-term volatility, but the long-term factors remain supportive. There are various ongoing factors, such as economic uncertainties and inflation concerns, which promote gold as a haven. And at the same time, decreasing interest rates by central banks across countries and strong buying by the central bank increase demand. Although market cycles may cause temporary declines, the long-term outlook will be positively strong.
Read Also: Gold Rate Prediction for Next 5 Years in India
Invest In Gold ETF
These are based mainly on 1-year return figures and notable performance trends
| ETFs | Assets Under Management (AUM) | 1 Year Returns (%) | Expense Ratio (%) | Tracking Error (%) |
|---|---|---|---|---|
| Nippon India ETF Gold BeES | ₹39,901 | 84.65 | 0.80 | 0.23 |
| ICICI Prudential Gold ETF | ₹17,769 | 80.03 | 0.50 | 0.21 |
| SBI Gold Exchange Traded Scheme | ₹17,401 | 78.33 | 0.70 | 0.23 |
| Axis Gold Exchange Traded Fund | ₹3,895 | 83.38 | 0.56 | 0.24 |
| UTI Gold Exchange Traded Fund | ₹3,282 | 86.06 | 0.51 | 0.16 |
| Mirae Asset Gold ETF | ₹2,061 | 84.16 | 0.35 | 0.37 |
| LIC MF Gold ETF | ₹1,101 | 85.03 | 0.41 | 0.29 |
| Quantum Gold ETF | ₹573 | 80.91 | 0.56 | 0.17 |
Conclusion
On a concluding note, gold prices are rising in India due to uncertainty among investors regarding the economy’s future, leading to increased gold purchases. Inflation concerns, currency depreciation, etc., are also increasing their demand and price. One can invest in gold for the long term for wealth creation, but in the short run, it might show some volatility. Before making any investment in gold, one can consult their investment advisor.
Invest in Gold ETF, throw pocketful savings regularly and build long-term wealth with stability, safety, and smart diversification.
Frequently Asked Questions (FAQs)
Why are gold prices rising in India?
In India, gold prices are rising because of various factors such as a weakening rupee, inflation, increasing domestic demand, and purchasing by the central governments of different countries.
How do USDINR exchange rates impact the gold prices in India?
India primarily imports gold from different countries; therefore, in India, gold becomes expensive even if global gold prices remain stable.
Will gold prices continue to rise in future?
Yes, based on the various factors such as inflation, currency exchange rate, demand, etc., it is expected that gold prices will still rise in future; however, short-term corrections are expected.
How can we purchase digital gold?
There are various options through which you can invest in digital gold, such as gold ETFs, SGBs, gold mutual funds, etc. To invest in gold ETFs and SGBs, you can open a lifetime free demat account with Pocketful and invest in it. Pocketful also offers free brokerage on delivery trades, and their trading platform is equipped with advanced trading tools.
Which is a better investment mode in gold – digital or physical?
From an investment point of view, digital gold such as Gold ETFs, SGBs, and Gold Mutual Funds is considered a more cost-efficient investment mode.
