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What affects gold prices in India?

Lisa Pallavi Barbora, Hindustan Times   May 18, 2012
First Published: 22:34 IST(18/5/2012) | Last Updated: 22:36 IST(18/5/2012)

Other than basic jewellery demand, there are two other factors that affect gold prices in India?

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International prices 
Gold works on price parity, which means 10g of gold has the same value all over the world, hence international prices are important.

Hedge: Other than for its ornamental purpose, gold has been used as an investment asset. This is because gold can be used to protect against any depreciation in other financial assets which happens at times of uncertainty. This is why historically gold has been used as currency.

Dollar dynamics: Moreover, gold is used as a hedge against movement in the US dollar, which means typically gold prices move inversely to change in strength or value of dollar.

Exchange-traded funds: Globally, demand for ETFs has increased. Typically, funds are required to maintain the value of ETFs sold in the form of physical gold, driving up overall demand.

Rupee vs dollar
As imported gold is valued in dollars and then converted to a rupee value for consumption, the rupee-dollar exchange rate is important. Thus, even though international gold prices have corrected in the last 2-3 months, domestic gold prices have risen, because the rupee depreciated around 8% against the dollar since February this year.  
 


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