Why is Gold so Expensive

Understanding the gold market trends in India.
Gold loan
2 mins
28 May 2024

In the Indian context, gold holds immense cultural, religious, and economic significance. Since ancient times, gold has been deeply woven into the fabric of Indian society, symbolising prosperity, purity, and divinity. It is not only a preferred metal for jewellery but also an integral part of religious rituals and ceremonies. Gold ornaments are an essential part of weddings, symbolising wealth and status, and are often passed down as family heirlooms.

India's historical trade routes, such as the Silk Road, facilitated the flow of gold, enhancing its value and significance. The metal has been a driving force in the economic landscape, leading to the establishment of bazaars and contributing to trade and commerce.

Gold's importance is also evident in India's financial practices. It serves as a hedge against inflation and currency fluctuations, making it a reliable investment. Culturally, gold is associated with auspiciousness and prosperity, seen in festivals like Diwali and Akshaya Tritiya, where purchasing gold is considered beneficial.

In summary, gold's value in India is rooted in its historical significance, cultural symbolism, and economic reliability, making it a cherished and revered asset across the nation.

Facts about gold and properties of gold

Gold, represented by Au, is found in mineral veins and alluvial deposits all over India. It's sometimes a by-product of metals like copper and lead, but there are also specific gold mines. Interestingly, finding a single one-ounce nugget is rarer than finding a five-carat diamond.

Gold's appeal lies in its softness to the touch, substantial weight, and remarkable durability. It doesn't corrode or change over time, believed to originate from exploding stars. Gold conducts heat and electricity well and can be stretched into thin wires or hammered into sheets. To make it stronger, gold is often mixed with metals like silver or copper, with purity measured in carats, where 24 means pure gold and 18 means an alloy with 75% gold.

Here's how properties of gold contribute to making it invaluable in the jewellery market:

  1. Durability: Gold's resistance to corrosion and tarnishing ensures that jewellery made from it retains its beauty and luster over time, even with frequent wear and exposure to various elements.
  2. Malleability: Gold's exceptional malleability allows jewellers to shape it into intricate designs and delicate patterns without the risk of it cracking or breaking. This property enables the creation of detailed and elaborate jewellery pieces.
  3. Ductility: Gold's high ductility enables it to be drawn into thin wires or threads, which can be woven, twisted, or braided to create intricate chains, bracelets, and other jewellery components.
  4. Conductivity: While not directly related to aesthetics, gold's excellent conductivity makes it easy to work with during the jewellery-making process. It allows for efficient soldering and welding techniques, ensuring that jewellery pieces are securely assembled.
  5. Lustre: Gold's brilliant lustre adds to the overall beauty and appeal of jewellery. Its reflective surface enhances the sparkle of gemstones and accentuates the intricate details of the design, creating stunning and eye-catching pieces that stand out.

Why is gold more valuable than silver and copper?

Gold is more valuable than copper or silver due to its rarity, unique properties, and historical significance. Unlike copper and silver, gold is much scarcer in the earth's crust, making it inherently more precious. Its exceptional durability and resistance to tarnish and corrosion ensure that gold retains its luster and appeal over time, unlike silver, which can tarnish, or copper, which can corrode.

Culturally and historically, gold has held a significant place as a symbol of wealth, power, and status across civilizations. Its use in currency, jewelry, and religious artifacts has cemented its reputation as a superior metal. Economically, gold serves as a stable investment and a hedge against inflation and economic instability, further enhancing its value.

Additionally, gold's malleability, ductility, and excellent conductivity make it highly desirable for various industrial applications, from electronics to aerospace, contributing to its higher market value compared to copper and silver.

What are the uses of gold?

Gold has diverse uses spanning various industries due to its unique properties:

  • Jewellery: Gold's lustre, malleability, and resistance to tarnish make it ideal for crafting intricate and durable pieces, making it a timeless choice for jewellery.
  • Electronics: Its excellent conductivity is invaluable in the electronics industry, where it is used in connectors, switches, and other critical components.
  • Finance and Investment: Gold is a safe-haven asset, often used to hedge against economic instability and inflation. It is widely traded and held by central banks and investors.
  • Medicine: Gold compounds are employed in treatments for conditions like rheumatoid arthritis, and its biocompatibility makes it suitable for dental implants and medical devices.
  • Aerospace: Gold is used for coating satellite components and spacecraft, reflecting infrared radiation and stabilising temperatures.
  • Gold's aesthetic appeal also finds use in high-end luxury goods, awards, and decorations, symbolising prestige and achievement.

What affects the price of gold?

Numerous factors drive the price of gold, many of which are interconnected. As a safe haven asset, gold is less exposed to market or political factors like foreign exchange or other commodities, making it attractive during periods of market volatility.

Key factors affecting gold prices:

  • Geopolitical events: Trade tensions, conflicts, and government changes can cause investors to seek the safety of gold, driving up its price.
  • US dollar value: A weaker dollar generally results in higher gold prices since gold is traded internationally in dollars.
  • Inflation: Higher inflation often leads to central banks increasing the money supply, making gold a more attractive investment.
  • Interest rates: Lower interest rates make gold more appealing compared to other investments like savings accounts, whereas higher rates can decrease gold's appeal.
  • Supply and demand: Increased buying when prices fall and decreased demand when prices rise also influence gold prices.

These factors feed into broader drivers such as economic data and monetary policy, impacting the gold price's fluctuations. It's important to note that the correlation between gold prices and these drivers isn't always consistent, as the price is swayed by various variables that investors must consider.

Is now a good time to buy gold?

Deciding whether now is a good time to buy gold depends on several factors. If economic uncertainty, inflation, and geopolitical tensions are high, gold can be a safe haven investment, preserving value. Current low interest rates might also make gold more appealing. However, consider the gold price trends and market conditions. If gold prices are at a peak, it might be better to wait for a dip.

In addition to buying gold, you can also consider gold loan as a reliable financing option. Gold loans allow you to leverage your existing gold jewellery to meet financial needs without parting with its ownership.

Understanding the fluctuations in gold rates is crucial for borrowers to maximise their loan amount and make informed decisions about pledging their gold.

Diversifying investments and consulting with financial advisors can provide tailored advice, making gold a wise addition to a diversified portfolio.

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Frequently asked questions

Why is gold so overpriced?
Gold's perceived overpricing stems from its unique status as a safe haven asset, making it a popular hedge against economic uncertainty and inflation. Its limited supply and enduring demand contribute to its high valuation. However, fluctuations in gold prices can also be influenced by speculative trading, geopolitical tensions, and market sentiment, leading to perceptions of overvaluation at times.
What is so special about gold?
Gold holds a unique allure due to its scarcity, durability, and timeless appeal. Its chemical inertness, malleability, and conductivity make it versatile for various industries. Culturally, gold symbolizes wealth, status, and beauty across civilizations. Its ability to preserve value during economic turmoil and serve as a hedge against inflation adds to its intrinsic value, making it truly special.
Why is gold getting costlier?
Gold prices rise due to various factors including economic uncertainty, inflation concerns, geopolitical tensions, and low interest rates. As a safe haven asset, gold becomes more attractive during times of instability, leading to increased demand and higher prices. Additionally, fluctuations in currency values and investor sentiment also influence gold prices, contributing to its rising cost.
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