Gold, a prized asset and a symbol of wealth and prosperity worldwide, has captivated people since time immemorial. In India, in particular, no major festival or wedding is complete without the purchase or exchange of gold and gold ornaments as gifts.

Hailed as the “safe haven” asset, gold has witnessed a remarkable surge in its prices, capturing the attention of investors and financial analysts. This precious metal has long been revered for its intrinsic value and has served as a timeless store of wealth and a hedge against economic uncertainties. The recent spike in gold prices, however, has many wondering why the price of gold is increasing.

Gold is also highly valued as an investment avenue, with every household in India maintaining some proportion of their wealth in gold coins or bullion, besides jewelry.

Beyond its value as an asset, gold is used as an input in electronic and medical devices.

Generally, gold is an expensive metal whose price tends to rise. The price is influenced by several factors, both internal and external. Let us take a detailed look at these causes.

In this blog, we will explore the scenario from when this surge started until now in early 2024. We will also look ahead at the rest of 2024 and try to predict the likely outcome.

Gold Prices in 2024

A crucial factor influencing the gold market in 2024 is the Federal Reserve’s stance on interest rates. The indication of a pause in the high-interest rate cycle, followed by three interest rate cuts in 2024, is expected to sustain the upward momentum of gold prices. The dovish approach of the Fed weakens the dollar, making gold more attractive to investors looking to hedge against currency depreciation.

Inflationary pressures across economies may prompt central banks in major economies to lower interest rates, further driving demand for gold. Additionally, advancements in technology and the increasing demand for green energy solutions contribute to the industrial demand for gold. Its unique properties, such as conductivity and corrosion resistance, make it essential in electronic devices and renewable energy technologies, further boosting gold’s overall demand.

Why Are Gold Prices Increasing in India?

  1. Adjustment to Higher Prices

Consumers are adapting to the new normal of higher gold prices. According to the World Gold Council (WGC), this adjustment is expected to lead to a significant rise in overall demand, potentially exceeding 800 tonnes.

2. Festive Season and Weddings

In India, weddings and festivals are major catalysts for gold purchases. Despite fewer auspicious days in March, pent-up demand from 2023 and the approaching festive seasons could trigger a temporary hike in demand

3. Strong Economic Growth

With the economy on a strong growth trajectory and high gold prices becoming the norm, the demand for gold is anticipated to reach between 800 to 900 tonnes, further driving up prices.

4. Weaker Rupee

A weaker rupee compared to the US dollar can make gold imports more expensive. However, it also makes domestically purchased gold relatively cheaper for those buying with stronger currencies, potentially boosting demand and, consequently, its price.

5. Diversification and Inflation Hedge

Gold remains a favored choice for diversification and as a hedge against inflation, contributing to its price surge in 2024.

These factors collectively fuel the increasing gold prices in India, painting a dynamic picture of this precious metal’s evolving market.

Economic Outlook in 2024

The ongoing geopolitical tensions, recession in developed countries, strained US-China relations, increasing debt burdens in developing nations, and elections around the world are significant events to monitor in 2024. Given this complex scenario, predicting the 2024 economic outlook and its impact on gold rates is challenging. While a global slowdown and persistent inflation might drive gold prices up as a safe haven, countervailing forces like rising interest rates and currency fluctuations also come into play. Ultimately, central bank actions and consumer demand will determine whether gold prices increase or decrease.

Should I Buy Gold Now and Why?

The current economic landscape marked by geopolitical tensions, inflationary pressures, and potential recessions in developed countries, gold continues to shine as a safe-haven asset. Investing in gold now can provide a hedge against economic uncertainty and currency fluctuations. Additionally, with central banks potentially lowering interest rates to combat slowdowns, gold’s appeal as a store of value and investment avenue is likely to remain strong. However, it’s essential to consider your financial goals and market conditions before making a decision.