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What impacts India gold price?
Gold demand in the local Indian market, US dollar rate against Indian rupee, fiscal policy of the government of India, production and consumption of gold in the international market, gold price in the international market are some of the major factor that impact India gold price.
Indians do buy a lot of gold which is mainly imported from foreign countries consuming up to 30% of world gold production in a given year though India produces only 0.5% of the total world gold production. High demand of gold in the domestic market but very low production of it from the domestic gold mines makes India one of the largest importer of gold along with China.
As we start importing gold to cater to the demand of the domestic market we spend valuable foreign currency (mainly US Dollar) from our reserves to purchase it from the international market. Large scale gold import triggers the demand for more foreign currency to buy more gold from the international market or to balance the existing foreign currency reserves. This leads to the downfall of Indian rupee against the US dollar due to the dollar demand created. In this condition we end up sending more Indian currency to purchase US dollar than normal which further inflates the price of gold.
Along with India, China is also one of the major importers of gold having a strong domestic demand for gold in their local market. It won't be wrong to say that domestic gold consumption of India and China combined together impacts the price of gold in the international market. More demand of gold from these two countries will surge gold price in the international market and a lesser or weaker buying will pull it down which will further impact gold price in the local market.
While festive season buying, agricultural production, stock market performance, states taxation policies and inflation are some of the key factors that drive demand of gold in the Indian domestic market.
Government of India is taking aggressive steps to discourage consumption of gold in the local Indian market by introducing investment options like gold bonds. An individual investing in these bonds gets back the price of gold as returns and additionally he also earns interest on his investment making it an attractive investment option against to that of purchasing physical gold.
Government schemes or efforts to reduce gold consumption and imports by introducing schemes like gold bonds will definitely have impact in the long run though we need to understand that a lot of black money (or corruption money) is used to buy gold and silver which still creates this demand.
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