Gold has traditionally been a revered metal in India and is widely regarded as an auspicious investment during festivals and celebrations. Despite its price, gold has always had an alluring charm and has always found investors. In fact, India is the leading consumer of gold in the world followed by China and United States. Average gold prices in India have risen steadily over the last decade, reinforcing its importance in the economic progress of the country.

But recent figures paint a different picture. Here, we take a look at different gold price fluctuation factors and check to see if it still is a good investment.

The Current Status of Gold as an Investment

Currently, gold prices have dipped below INR 25,000 for 10gm. What this means is that consumers can afford to spend some serious money on gold. This also means it is a rough tide for investors who are inundated by global liquidation worries. It is also unlikely that gold prices will rise anytime soon owing to numerous economic factors.

A Look at the Reasons for Falling Gold Prices

Gold prices have plunged as much as 4%, the lowest in 5 years. Let us analyse why gold prices are going down in India.

  1. The U.S Economy

    International gold is traded in U.S dollars, the world’s reserve currency. So when the dollar value goes down or deteriorates, gold prices peak. The U.S economy is slowly recovering from a recession and this recovery has hit a 3-month high, lowering the price of commodities including gold.

  2. Rate Hikes by the U.S Federal Reserve

    The need for economic expansion has prompted the U.S Federal Reserve to raise interest rates that will attract investors and improve the value of the dollar. This further lowers the price of gold.

  3. China

    China is India’s biggest competitor when it comes to gold consumption. It recently offloaded a huge amount of gold on the market to stave off an economic crisis. And when the market is flooded, demand goes down, which in turn reduces commodity prices.

  4. Control on Gold Imports

    The Reserve Bank of India and the Central Government are undertaking stringent measures to restrict the import of gold. Equities are gaining a stronghold in the economic market, which has put the yellow metal on the back burner.

  5. Unseasonal and Unpredictable Monsoons

    India’s massive rural market still considers jewellery a healthy investment due to the lack of a formal and structured banking system. Rural areas alone account for two-thirds of the country’s gold demand. And an unfavourable monsoon and lower prices for crops have contributed to the reasons for gold price fluctuation.

  6. International Market Reports

    The Greek Debt Crisis and the Iran Nuclear Deal along with other political and economic developments in the international market are affecting global commodity markets, particularly gold.

While the reasons gold prices are falling, may drastically affect you as an investor, as a consumer you must also consider the benefits of the falling price and buy wisely. The fall in gold prices will stabilize the economy and boost growth by reducing direct taxes and enabling households to spend more. The demand for gold as a consumer in India never declines as it is a great hedge against inflation.