Money Matters And Gold Glitters
How is the price of gold decided?
What are the factors on which the price of Gold in India depends?
You know that the price of Gold is basically quoted in USD (US Dollars) in the international market. This price depends on many factors, but as mentioned above, the main thing driving Gold’s price is the economic environment.
This international price is then converted into INR (India Rupees) using the prevailing exchange rate. So if the price of Gold internationally is $1,800/oz (per ounce), and the exchange rate is Rs. 45 to a US Dollar, the price of Gold in India would be about Rs. 28,572 for 10g.
How is this relevant? This is extremely relevant, because it tells us that the price of Gold in India depends heavily on the USD / INR exchange rate!
For a prolonged time, the value of the Indian Rupee against US Dollar was going down. So, even if the price of Gold internationally remained the same, the price in India would go up just because the Rupee became weaker!
Hoever, if there is a reversal in trend. With India growing at the second fastest rate in the world, and with most other major economies still struggling with the economic crisis, these is a good possibility that the Rupee would become stronger. And this would have a negative impact on the price of Gold in India.
Example
At $1,800 per ounce and a USD / INR exchange rate of Rs. 45, Gold is Rs. 28,572 per 10g. If the rate of Gold goes up to $1,850 and the exchange rate moves to Rs. 42, Gold would be Rs. 29,060 per 10g! So, there is a real possibility that the price of Gold in India would actually go down even if it goes up internationally!
How is the price of gold decided?
What are the factors on which the price of Gold in India depends?
You know that the price of Gold is basically quoted in USD (US Dollars) in the international market. This price depends on many factors, but as mentioned above, the main thing driving Gold’s price is the economic environment.
This international price is then converted into INR (India Rupees) using the prevailing exchange rate. So if the price of Gold internationally is $1,800/oz (per ounce), and the exchange rate is Rs. 45 to a US Dollar, the price of Gold in India would be about Rs. 28,572 for 10g.
How is this relevant? This is extremely relevant, because it tells us that the price of Gold in India depends heavily on the USD / INR exchange rate!
For a prolonged time, the value of the Indian Rupee against US Dollar was going down. So, even if the price of Gold internationally remained the same, the price in India would go up just because the Rupee became weaker!
Hoever, if there is a reversal in trend. With India growing at the second fastest rate in the world, and with most other major economies still struggling with the economic crisis, these is a good possibility that the Rupee would become stronger. And this would have a negative impact on the price of Gold in India.
Example
At $1,800 per ounce and a USD / INR exchange rate of Rs. 45, Gold is Rs. 28,572 per 10g. If the rate of Gold goes up to $1,850 and the exchange rate moves to Rs. 42, Gold would be Rs. 29,060 per 10g! So, there is a real possibility that the price of Gold in India would actually go down even if it goes up internationally!
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