Determinants of Gold prices in India

  • Jewellery and Investment Demand

Increase in International and Domestic Gold ETF Holdings and outstanding subscription of Sovereign Gold Bond Holdings gives the estimate of Investment demand. Rise in footfalls at Jewellery Shops and Showrooms or Jewellery bought through online platforms leads to increase in Jewellery demand in India

  • Imports and Scrap Supply

As India fully rely on Gold Imports for its demand, this number is very useful to watch for. India imports around 600-800 tonnes of Gold every year. Monthly Import number gives judgment of the demand and scrap supply tells us about the offloading

  • USDINR Currency Movement

Domestic Gold prices are pegged to London Spot prices with USDINR and Import Duty added in it. So any huge movement in USDINR influences domestic Gold prices

  • Government Policy and Duty

Indian Gold Imports is the huge burden on Current Account Deficit (CAD), so Indian Govt keeps on changing various policies and Import Duty on Gold within regular intervals. Increase in Import Duty leads to increase in landed cost for Gold and leading to rise in domestic price

  • Dollar Index

As Gold is benchmarked and traded in dollars internationally, Dollar Index movement makes significant changes in gold prices internationally. Dollar index has almost 0.60 to 0.80 inverse correlation with gold prices

  • Central Bank Reserves

Gold is reserve asset for majority of central banks around the world. Each central bank diversifies its assets into various currencies, bonds and gold. From last few years, emerging countries central bank including RBI are in buying spree for Gold, which creates more confidence in Gold as a asset class.

  • Geopolitical Factors

Gold is historically considered to be a safe haven asset in uncertain times. When there is Geopolitical uncertainty, gold prices start moving north on safe haven buying.

  • Correlation with other assets

Gold has intermarket relationship with Equities, Commodities, Bonds and Currency. All asset classes are interrelated to each other and no asset class moves in isolation. It is generally seen that Gold has negative relationship with Bond Yields and Currency while positive relationship with other commodities. 

  • US Economic Indicators

Economic Indicators like Inflation, Interest Rate, GDP, Employment Report, etc are very important economic events from US to look for. These monthly numbers drive the Dollar Index and in turn prices of Gold in short-term and long-term both.

  • US Treasury Yields

Gold is considered as hedge against interest rate rise, so US Government Bond Yields are the best leading indicators for future movement of Interest rates in US. 10 Year, 2 Year, 12 Month Treasury Bond yield movement which has negative correlation with gold prices is often looked at.

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