In the times of economic uncertainty or geopolitical tensions, gold and silver is always considered a safe haven to invest your money. Though investing in these precious metals can give you low returns compared to various financial instruments but it could be a better investment option for low-risk investors.
However, over the last few years, Gold prices have skyrocketed, giving good returns to the investors who put their money in this yellow metal timely.
However, Gold and Silver prices also get affected due to various factors that might be macroeconomic factors or global events. These events have significant impact on the prices of these precious metals. So, let’s find out the top events or global factors that influence the price of these metals.
Why Global Events Affects Gold & Silver Prices in India?
One of the biggest reason that affects Gold and silver prices in India is because a major portion or you can say most of the demand of these precious metals in the domestic market is fulfilled by importing from overseas markets. Hence, any event at the global level can affect the prices.
In 2023-24, India has imported gold from around 48 countries and different countries have their own geopolitical condition including different currency prices and duties and taxes imposed on the export of gold or silver to other countries. The trade relations with these countries also influence the price of various commodities including gold or silver imported from other countries.
However, apart from the demand and supply gap in the market, there are various factors that affect the gold and silver prices in India. Any kind of favourable or unfavourable economic conditions in these countries will have an adverse impact on the demand, supply and price of these precious metals in the international market. We need to find out what are the global factors that can affect Indian gold and silver prices.
Global Events Affecting Gold and Silver Prices in India
Global events are categorized into different types of events, like political events, economic events, and geopolitical events. Further, there are various factors that come into these events, let discuss about these events and how they can affect the gold and silver prices.
Economic Events
Economic Activities: When economic activity slows, concerns about political economic crises or recession often lead investors to shift their sentiment, moving investments from riskier assets such as stocks and toward more stable options like Gold and Silver. Slow GDP growth, high inflation, high interest rates and weak job data in the US and global market led to an increase in the price of gold globally.
Currency Fluctuation: Globally, most of the trades take place in foreign currency mainly in the US Dollars, and when there is fluctuation in the currency value, it also affects the price of various commodities traded in the international market. When the US dollar weakens against Indian rupees, it attracts investors as the import of Gold becomes cheaper also affecting the price in the domestic market.
Demand and Supply: The demand and supply of Gold in the International market also affects its price for importing countries. As per the World Gold Council (WGC), mining accounts for 75% of the global gold supply, while recycled gold accounting for the remaining 25%.
Demand for gold comes from various segments like Fabrication accounts for 45%, bars and coins accounts for 24%, 23% comes from ETFs and similar products, and the remaining 7% by the central bank. As per the demand from different sections of the economy and availability of Gold from various countries, the price of Gold keeps fluctuating in the domestic markets of other countries including India.
Central Banks Reserves: The central banks of most countries in the world keep a certain amount of Gold reserve to keep this metal as a safe asset in the time of crises. The accumulation of Gold by the developed nations affects its prices internationally, and in India, RBI also keeps buying Gold to stockpile the ample amount of yellow metals in their holdings that can also lead to price change of this commodity.
Geopolitical Events
Wars and Conflicts: During wars or conflicts between the neighbouring countries or trade partners, investors start capitalizing their money into safer assets like Gold. Russia and Ukraine war in 2022, pushed the Gold prices to nearly 10%. Another reason is that wars or conflicts can disrupt trade between two nations leading to the imposition of duties and taxes aimed at discouraging import and export activities.
Tariff War or Dispute: The trade disputes between two or multiple countries can bring them into a tariff war resulting higher duties and taxes imposed to discourage trade with other countries. This kind of dispute or tariff war affects the price of Gold in the international market as well as in the Indian market.
Political Events
Political Instability: The change in the government or leadership in any country, mainly major Gold exporting countries also has an impact on gold and silver prices. This could be in anticipation of new monetary policies, fiscal policies and reforms in the export or import of such commodities.
Policy Changes: The change in the policy towards the exports of commodities mainly Gold and Silver will also have an adverse impact on the price of such commodities in importing countries like India. Apart from that reform in the existing policies towards mining, and processing of such metals also leads to price change.
Regulatory Actions: Apart from central government policies, the regulatory actions by the various countries including the US, Gold Council Members and Gold producing nations also affect its price. Regulatory actions can be taken to control the demand and supply of Gold and Silver or curb the price of such commodities.
Environmental Factors
Natural Calamities: Natural disasters like earthquakes, floods, tsunamis and other natural calamities also have a significant impact on the price of Gold. Major earthquakes in Japan and Taiwan have impacted the price of Gold and if such a disaster comes in the producing countries, it can badly affect its prices.
Pandemic: The epidemic – COVID-19 in 2019 not only affected the entire world economy but also badly impacted the price of various assets and commodities including Gold and Silver. During the COVID-19 pandemic, the price of the Gold surged by about 30% from January to August 2020.
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Summing-up
The price of Gold and Silver in the international markets can be affected by political, geopolitical, economic events or natural factors like disasters or pandemics. In India, the major demand for Gold and Silver is fulfilled by importing from other countries. Any kind of political instability, policy changes and changes in the value of currencies also have an adverse impact on the price of Gold for importing countries like India.
However, the Gold and Silver prices also get affected due to changes in the sentiment of the investors. Being considered a safe haven, investors keep shifting their investment from equities to Gold and other stable and safer securities. As per the change in the price of Gold in the commodity market, the sentiment of investors also keeps changing which also has an impact on the Gold price trades in India.
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