Government Reserves

In addition to money, the government generally keeps gold reserves. The price of gold rises as a
result of the government beginning to acquire more gold since the market's supply of the gold has
become limited.

US & Germany have highest gold reserves, India at 9 th position with 785 tonnes.

Rupee-Dollar Impact on Gold

Since the vast majority of actual gold is imported, the price of gold and the rupee-to-dollar exchange
rate are related.

Given a steady dollar price for gold, INR prices of gold rise when the INR falls and fall when the INR
rises. As a result, the price of gold in INR tends to have an inverse relationship with INR when the
price of gold on the international market remains constant.

Prevention from Uncertainty

As a safe haven asset, the price of gold rises with the presence of factors which drive economic
uncertainties, such as the COVID-19 pandemic. Gold prices fluctuate upwards during periods of
volatility due to growing investor demands – investors are able to minimise portfolio risks by
investing in gold as opposed to equities or bonds.

Import Duty

When gold is imported in India customs duty is levied on the shipment. So, when a change in
government regulations causes a rise in customs duty, the market price of gold is directly affected.
Besides this, VAT, local taxes, and distribution costs depending on the demographic location add to
the rate of gold. Accordingly, an increase in any of these factors pushes the price in an upward drift.

On July 1, past year, the government announced an increase in gold customs duty from 7.5% to
12.5%. Gold is also subject to a 2.5% agriculture infrastructure development cess (AIDC), bringing the
total import duty to 15%. According to the administration, the efforts were made to restrict gold
imports and the rising current account deficit.

Geo-Political Factors

Because India is one of the greatest users of gold, any fluctuation in the price of gold globally
influences its price in India. Furthermore, during times of political instability or geopolitical turmoil,
the demand increases and, as a result, price. While other asset types often lose value during such
crises, gold's demand surges, making it a crisis commodity for depositing funds.

Personal Disposable Income (PDI)

Disposable Income is the amount of money that households have available for spending and saving
after income taxes have been accounted for. It is often monitored as one of the many key economic
indicators used to gauge the overall state of the economy. According to a report by the World Gold
Council, annual data from 1990 to 2015, revealed two significant factors affecting gold consumer
demand (jewellery, and bar and coin combined) over the long-term. "All else being equal, gold
demand is driven firstly by, income i.e. gold demand is seen to rise with income levels. For a 1
percent increase in income per capita gold demand rises by 1 percent and secondly, gold price level
i.e. higher prices deter gold purchases. For a 1 percent increase in prices, the demand for gold by 0.5
percent.
Therefore, we can conclude that higher income implies higher savings and gold, being a safe
investment bet, will always be a top choice for the Indian public, thus a higher demand will drive up
gold prices by a higher margin.