Gold became cheaper as soon as the peace agreement between Iran and America was signed. Prices fell to Rs 15 thousand in India. People are asking the question that why does gold become cheaper or expensive in India due to the Iran-America war? Let us understand this issue in simple words. Whenever there is war in the world, gold prices often increase. This is not a coincidence. Gold is not just jewellery. It is also a matter of trust. When fear increases in the world, people turn to gold.
Investors also do the same. For this reason, gold becomes expensive in times of war, stress and crisis. World events have a direct impact on the price of gold in India. India is a big consumer of gold. Here gold is bought for weddings, festivals and investments. India buys most of its gold requirement from outside, hence the movement of international market, dollar and rupee changes the price of gold in India.
Why does gold shine in war?
During war, people worry about the future. Stock markets fall. The business of companies is affected. Oil becomes expensive. Inflation increases. In such an environment people want safe investment. Gold has long been considered a safe investment. When risk increases, investors move money out of stocks, bonds or other assets and invest it in gold. Demand increases. As demand increases the price also increases. This is the reason why whether there is Russia-Ukraine war, tension in West Asia or conflict between any big country, gold prices seem to go up rapidly.
The price of gold in India does not change only due to international reasons.
What is the connection of India’s gold with Iran?
India and Iran do not have a direct relationship with gold. India does not buy most of its gold from Iran. The real connection is made in another way. This path passes through oil, dollar, rupee and fear of the market. Iran is an important country of West Asia. This area is very important for the world oil trade. If tensions related to Iran increase, the price of crude oil starts increasing. India buys a major part of its crude oil requirement from outside. Therefore, when oil becomes expensive, India’s import expenditure increases. When India has to spend more dollars to buy oil, the rupee comes under pressure. When the rupee weakens, gold becomes expensive in India. Because gold is sold in dollars in the international market.
What is the role of dollar and rupee?
The price of gold in India depends a lot on two things. First, the price of gold in the international market. Second, the value of the rupee against the dollar. Suppose gold did not become expensive in the world but the rupee became weak against the dollar. Even then gold can become expensive in India. Because India will have to pay more money to buy gold. The dollar can also become stronger in times of war. Investors also consider the dollar safe. In such a situation, if the dollar becomes expensive and the rupee becomes weak, then the price of gold in India increases further.
American dollar. (symbolic picture)
Crude oil also has an effect
Oil is very important for a country like India. Petrol, diesel, gas, transport and industry all are affected by oil. If tensions related to Iran increase, then fears regarding oil supply increase. Due to this, crude oil can become expensive. If oil becomes expensive, India’s import bill will increase. This may increase trade deficit. There may be pressure on the rupee. Inflation may also increase. In this environment, people consider gold as a means of protection from inflation, that is, if oil becomes expensive, the demand for gold can also increase and gold can become expensive.
What is the relationship between inflation and gold?
Gold is considered a hedge against inflation. When people feel that things will become expensive in the coming time, they like to buy gold. They feel that the value of cash rupees may decrease, but the value of gold may remain the same. War, oil crisis and supply chain problems can increase inflation. Due to this fear gold becomes expensive.
Gold is not always expensive, in many circumstances gold can also be cheap. Photo: Pexels
What is the effect of interest rates?
There is no interest on gold. Therefore, when banks or bonds get high interest, some investors withdraw money from gold and invest it in interest-bearing things. Whenever this happens on a large scale, gold becomes cheap. But when interest rates are low, or people think that interest rates will fall, then gold becomes attractive. At such times gold can become expensive. America’s central bank policy also affects gold. If interest rates in America are expected to decrease, then gold prices get support.
Central banks’ purchases also contribute
Central banks of many countries of the world buy gold. They keep gold in their foreign exchange reserves. Its purpose is to reduce risk. When tension increases in the world, many countries buy gold to reduce their dependence on the dollar and increase their security. Large purchases by central banks increase demand in the international market. Its effect is seen even in India.
Demand for weddings and festivals in India
The price of gold in India does not change only due to international reasons. Domestic demand is also very important. Be it wedding season, Dhanteras, Akshaya Tritiya or Diwali, the purchase of gold increases. If prices are rising in the international market these days, then gold may appear more expensive in India. At the same time, when the price increases too much, common customers reduce purchases. Due to this the demand weakens a bit.
Import duties and taxes also make gold expensive
There are also import duties and taxes on gold in India. If the government increases the import duty, gold becomes expensive. If the duty decreases, there may be relief in price. The final price of gold includes international price, dollar-rupee rate, import duty, GST and jeweler’s making charge. Therefore, the price the customer sees at the shop is not just the global price.
There is also a relationship between stock market and gold
When the stock market does well, people are ready to take risks. They invest money in shares and mutual funds. In such times the demand for gold may decrease. But when the stock market falls, investors look for safer options. Then gold becomes in demand. Market fluctuations often increase during times of war.
When can gold become cheap?
Gold is not always expensive. In many circumstances gold can also be cheap. If hope for the end of the war increases, fear decreases. Investors then return to riskier markets. This reduces the demand for gold. Even if the dollar is strong and interest rates in America remain high, there is pressure on gold. If the rupee strengthens, gold may appear cheaper in India. Even if domestic demand is weak, prices may soften.
In simple words, gold becomes expensive during war because fear increases. People want safe investments. Investors turn to gold. Demand increases and prices rise. India’s gold connection with Iran is made through oil and rupee. Oil becomes expensive due to tension in Iran. In such a situation, India’s expenses increase. When the rupee weakens, gold becomes expensive in India. Therefore, to understand the price of gold, it is important to look at war, oil, dollar, rupee, inflation, interest rates and domestic demand. Gold is not just a metal, it is also a mirror of fear, trust and the global economy.
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