Why gold price is increasing in india

Gold prices in India have been on a remarkable ascent, reaching unprecedented levels in past few months. This rise has captured the attention of investors, and consumers, leading to a closer examination of the factors driving this trend and its implications for the Indian economy.

Trends in Gold Prices

As of March 2025, domestic gold prices in India have soared to record highs, surpassing ₹9029 per 10 grams. This marks an increase of over 15% since the beginning of the year and a more than 32% rise since the government reduced import duties in July 2024.

Factors affecting the Price Surge

Several key factors have contributed to the escalating gold prices in India:

1. Global Economic Uncertainty: Ongoing geopolitical tensions and fears of a global trade war have heightened investor interest in safe-haven assets like gold. This increased demand has driven international gold prices upward, influencing domestic prices in India.

2. Central Bank Purchases: Emerging market central banks, including those of Russia, China, and India, have significantly increased their gold reserves. This strategic move aims to reduce reliance on the U.S. dollar and hedge against economic instability, further propelling global gold prices.

3. Currency Depreciation: Fluctuations in the value of the Indian rupee against the U.S. dollar have made gold more expensive domestically, as gold is primarily traded in dollars on the international market.

4. Inflationary Pressures: Concerns over rising inflation have led investors to seek assets that traditionally retain value, such as gold, thereby increasing demand and pushing prices higher.

Impact on Consumer Demand

The sharp rise in gold prices has notably affected consumer behavior in India:

– Reduced Jewellery Purchases: High prices have dampened jewellery demand, especially during the wedding season. Many consumers are opting to exchange old jewellery for new pieces to mitigate costs, leading to a decrease in overall jewellery sales.

– Increased Scrap Sales: The record prices have prompted individuals to sell old jewellery and coins, resulting in a surge of scrap gold entering the market. This trend could potentially reduce the need for imports and moderate the price rally.

Economic Implications

The soaring gold prices have broader economic consequences:

– Gold Loans: There has been a significant increase in gold-backed loans, with growth of 68% in the first nine months of the fiscal year. While this provides liquidity to borrowers, it raises concerns about potential defaults, especially if gold prices were to decline.

– Trade Balance: Elevated gold prices may lead to a reduction in imports as consumers sell existing gold holdings, potentially improving India’s trade deficit.

Future Outlook

Looking ahead, the trajectory of gold prices in India will depend on various factors, including global economic conditions, central bank policies, and currency fluctuations. While investment demand for gold remains robust, continued high prices may further suppress jewellery consumption.

Investors and consumers should stay informed about these dynamics to navigate the evolving gold market effectively.

Content source – reuters & financial times.