India, a country with a rich history of gold and silver mines, has always been a large consumer of gold. This is mainly due to the importance that Indian culture places on this precious metal. Gold is used in an array of ceremonies and rituals in India—from weddings to religious celebrations to festivals like Diwali. Its use as an investment option is also quite prevalent, with many families using gold as a safe haven during times of financial crisis. As such, changes in global gold rates can have an immediate impact on gold price today in Coimbatore.
1. GEO-POLITICAL EVENTS:
Gold rates are also influenced by major economic events, both domestic and international. The price movement of gold rises as a result of any global event that causes fear in the minds of investors and consumers, such as terrorist attacks or natural disasters. In such instances where there is a global panic and uncertainty, investors tend to buy gold in order to safeguard their money.
2. GOVERNMENT ACTIONS AND POLICIES:
The rate at which the precious metal gold is traded in the world is highly influenced by government policies and actions of major economic players such as China and U.S. A change in their import-export policies can significantly impact gold rates across continents. For instance, India introduced Sovereign Gold Bonds and Gold Monetization Scheme as a substitute to physical gold to discourage investors in buying physical gold. As the demand for physical gold decreases and supply remains constant, the gold rates are expected to witness a decline.
3. CHANGE IN CURRENCY VALUE:
The value of Indian currency with respect to the value of gold exporting countries’ currencies influences gold rates in India. In case the value of Indian Rupee (INR) drops with respect to the value of let’s say US Dollar, the price of importing gold into the country increases. This in turn will increase the gold rate in India.
4. GOLD RESERVES:
Gold reserves play an important role in the economy of a country. A nation that uses gold for monetary or other purposes, needs to acquire it from other nations. Gold is also used as collateral for national borrowing. For example, India raised $405 million by pledging 46.91 tetra ounces of gold to avoid defaulting on payments in 1991.
The Indian economy is dominated by physical gold demand. As it is considered an effective hedge against inflation, when inflation hits, the demand for gold goes up in the market. This leads to further increase in gold jewellery rate, which means that the price of 1 gram of gold will increase.
6. DEMAND AND SUPPLY:
The demand for gold in India, the second largest consumer of gold in the world, is largely driven by its use in the form of ornaments. As per reports published by WGC, in 2010 jewelry accounted for over 54 per cent of total global demand. Besides ornaments, the metal is also used as a constituent of currency and can be used as a hedge against inflation, economic turbulence and other economic uncertainties.