How to efficiently forecast gold prices in India

Have you been looking at gold rate in Ambala or Kerala expecting that the price is in the right range for you? Well don’t worry we will tell you about some of the essential factors that govern the gold prices so you may be able to forecast these prices better and plan your investments accordingly.

  • Jewellery Market

Indians love their gold jewellery. Be it festivals or birthdays, weddings or any other occasion; gold is an inseparable part of our celebrations. However, Indian consumers are not just restricted to buying gold from domestic sources. The country has a large gold import market as well which makes it one of the largest importers of gold in the world. In fact, India accounts for around 20% of the total global demand for this precious metal.

  • Government Gold Reserves

Central banks of most major countries hold both currency and gold reserves. The gold to currency ratio of most advanced economies is around 10%. Although the ratio has come down from 40% in the past, it is still a significant amount. Also, if a country has a high gold to currency ratio, it implies that investors have faith in the economy of that country. The gold rates move in tandem with the rise or fall in government reserves.

  • Inflation

The demand for gold is often used by central banks as a tool to curb inflation. If the inflation rate increases significantly beyond its benchmark limit, central banks increase their holdings of gold in order to maintain balance. The rise in demand results in an increase in prices as well. Countries that are able to bring down their inflation rate effectively also witness a dip in gold prices as there is no specific need to accumulate gold at that point in time.

  • Trade Deficit

If you thought that trade deficit only affects the currency, then you would be wrong. Trade deficit affects both currency and gold prices. A trade deficit means increased imports and decreased exports for a country. This implies that there is more money flowing out of the country than coming into it. In such cases, people tend to shift from local currency to gold as an investment option. Thus, it is but natural for gold prices to rise in the situation of a trade deficit..

  •  Global Factors

It is important to note that Indian gold rates are highly dependent on international price movements.  Hence for instance indirectly Assam gold rate may be affected by change in gold prices in London. Click this page for more info. This is because major countries around the world have a large influence on both supply and demand of this precious metal. The following are some of the important factors that determine global prices of this yellow metal:

Global investment sentiment: Investors generally move towards safe-haven assets like gold when they think that their investments in other asset classes might not be safe in times of uncertainty. For example, if there is political unrest in a major economy like US or China, then investors tend to buy more gold as they feel that their investments might be at risk if there is a further escalation of unrest.  Moreover, investors also tend to purchase more gold when the equity markets do not perform well.