Driving Factors Behind Gold Price Upsurge

Gold has always been considered a precious metal; the golden glow roots deeply in India's cultural, economic, and social fabric for centuries. In recent years, gold price in India has reached all-time highs, creating a significant turbulent atmosphere filled with uncertainties. Gold is considered a valuable asset and a mark of luxury since ancient times, and increased prices are likely to be a matter of concern.

The gold price is skyrocketing, reaching an all-time high of RS 60,000 per 10 grams amid rising inflation. In the previous year, gold's price ascended by 13.7%. This is not the first time that gold has given a better CAGR return, but in the last 15 years, gold has outperformed the Nifty. The rise in gold price is not natural and has several attributing factors, including banking turmoil, geopolitical crises, inflation, and shrinkage in gold availability. The current rate of gold for 22 carats (K) gold is increased by INR 20, whereas 24 carats (k) gold is increased by INR 22 per gram.

Here’s Everything You need to Know About the Gold Prices Upsurge

Gold prices crossed the Rs 60,000 mark per 10 grams for the first time on Multi-Commodity Exchange (MCX). There are multiple factors behind the rising gold prices, such as the rise in US inflation against Rupee, Increased export duty on gold and silver, Betterment in US employment rates, and the banking crisis in USA and Europe. Gold's future prices are already visible, and they are anticipated to be around Rs 61000 to Rs 62000 per 10 grams, denoting a slower growth rate and lowered interest rates.

Rise in Inflation:

Gold is generally dollar-dominated; dollar-dominated refers to assets, securities, and transactions priced in US dollars. The US economy has been facing banking turmoil constantly, and to fight against the worst banking turmoil since 2008, it has decided to hike interest rates from 4.75% to 5%, causing the US dollar to elevate more than other countries. However, this inflation has adversely affected gold prices in India. The US Economy and European Bank turmoil weather is still turbulent, making the yellow metal’s prices volatile.

Worldwide Jewelry and Industrial Demand

Finite Supply, High-demand, and worldwide accepted currency make gold the most valuable asset. All these factors are co-related and affect gold prices. Nearly one-fifth of all the gold ever mined is held by central banks; amid volatile and turbulent times, investors preferably chose gold (fixed asset)to shelter against the recession.

Interest Rate

For decades the US DOLLAR has dominated global trade and capital inflow, and the US economy is constantly facing rising inflation issues disrupting global trade and asset prices, to minimize inflation US Federal Reserve has increased the rate of interest by .5%, which has driven the gold price figures to ascend.

Government Reserves

The Reserve Bank of India (RBI) is the largest buyer of gold in the list of Central Bank's gold buyers; thus it owns the most extensive portion of Indian gold and manages the regulations associated with gold. For instance, earlier this fiscal year, the Indian government increased the import duty to 12.5 percent and 11.85 percent on gold bars and gold Dore, consequently which caused jewelry gold prices to elevate.

Similar to Central Bank, In India, RBI holds a substantial amount of gold, thus it regulates all the precious metal-associated regulations. For India's treasury rise in gold prices is beneficial as this will hedge India against inflation.

Gold Crises

The global production of gold also affects the prices of gold; gold mine production in 2021 was roughly 3,000 metric tons per year in 2020 and 2021, down from a peak of around 3,300 metric tons per year in the previous two years.

One of the reasons for the decrease in the figures is that gold available at the surface level has already been excavated; consequently, miners now have to dig deep to get access to the gold. Another factor is as the mines are growing deeper and deeper several hazards and environmental issues are also heightening, in a nutshell, mining is expensive.

Pandemic

Before the pandemic, mines, refineries, and airlines worldwide had no options but to shut down, upending the system usually used to move gold across the Atlantic and stabilize prices. But when the pandemic hit, it created a sense of fear among investors that there wouldn't be a way to move gold physically in the market. The pandemic caused physical gold purchases to soar, leading to a severe shortage that drove up future prices. During the pandemic, investors were looking for a fixed asset, which caused a surge in demand for gold. In times of recession, investors tend to relocate their investments to fixed assets, using them as a hedge against severe losses.

Recession

The US dollar index has softened from its high of 114 level witnessed in September to 102 levels; this caused consistency of gold prices in 2021 to 2022, but in recent days US Fed Reserve has increased the hike by 0.25% to endure the wound of rising inflation. Consequently, this has caused a rise in gold prices.

De-Dollarization movement

Rising gold prices have strengthened the De-Dollarization movement to increase the independency of countries. It is anticipated that BRICS nations might introduce their currency to trade as their belief in the US Dollar currency is fading.

What do Experts have to say about it?

According to some experts, Gold purchase is one of the safest havens during a recession or crisis as it is a worldwide accepted commodity. Some experts recommended investors allocate 10 percent of their portfolio to gold, via Sovereign Gold Bonds and ETFs. Experts have also recommended staying invested as the gold price will hike again until the economic uncertainties prevail. Although it is the right time to invest, diversify and accommodate yellow metal in your portfolio, as the dollar would remain under pressure maximizing the chances of gold prices strengthening again, and more gains are anticipated ahead.