Gold is India's most popular investment option and the country is one of the largest consumers of the metal, contributing around 25 per cent of the global demand.

       Gold is regarded a safe investment, especially during economic and financial crises. Investors use gold as an instrument to shield their portfolio investment. Gold prices fluctuate in financial and political uncertainties as well as changes in interest and exchange rates, government policies and other reasons.

       The coronavirus pandemic upended the gold market in 2020. The temporary closure of refineries and mines affected supplies, while social distancing, curfews and lockdowns measures hurt demand. Demand returned when other investment options looked shaky in the pandemic.

       Here is what shapes gold investment.

       Demand and supply

       According to the World Gold Council, with one per cent rise in income per capita, gold demand rises by one per cent. With one per cent increase in prices, gold demand dips by 0.5 per cent.

       Jewellery demand is rising in India for wedding and festivals, causing an increase in gold prices.

       The amount of gold mined decreases every year, but not demand. Mines and refineries comprise majority of the total gold supply, and jewellery makes up for over half of the total demand. The difference between total demand and total supply is a deficit or surplus (net balance, reflecting the gold price to go rise or dip).

       Currency

       In India, high import duty and the value of Rupee keep gold prices high. When the US dollar dips in value, demand picks up for gold as the metal becomes cheaper than other currencies. A strong US dollar makes commodities like gold expensive to purchase in other currencies, weakening demand for the metal.

       Gold and Rupee are inter-dependent. If the Rupee's value increases (in comparison to the dollar), then gold prices go up.

       The Rupee’s value is linked to India’s exports and imports. If India’s imports exceed exports, the Rupee weakens. If India increases its exports, the Rupee rises. If India exports more gold, then the strength of its currency increases when gold prices increase. If India imports more gold than usual, then the Rupee falls.

       Inflation

       When there is a rise in inflation in the country, the value of rupee goes down and people save money in the form of gold. Therefore, if a high level of inflation sustains over a long period of time, then gold becomes an instrument to hedge against inflationary factors when gold prices go up.

       Basically, a declining dollar and inflation mean rising gold prices. For instance, if you have 70 lakh in your bank account during inflation and your buying capacity subsides, but gold’s purchasing power will remain the same and strong in terms of the dollar.

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       Investors buy gold when the country witnesses high levels of inflation, then the demand for gold surges during the inflationary phase due to its limited supply and fundamental value. The value of this yellow metal remains stable in the long run when the value of the rupee fluctuates.

       Crude oil

       Crude oil is a volatile commodity in world markets. Gold price increases when that of crude oil falls. A volatile US dollar affects gold and crude oil as well. A weak dollar may trigger a volatile boost in the prices of crude oil and gold.

       An expansion of oil revenues improves investment conditions in the gold market. Consequently, price levels of crude oil and gold move upward. Furthermore, a rise in the oil price leads to a surge in the demand and price of gold.

       Since oil and gold are 'dollar-demonstrated assets' so when the value of dollar rises then the price of both oil and gold decreases as investors from other countries find these assets or commodities expensive to buy. When the value of the dollar wavers, both commodities fluctuate simultaneously in opposite direction to the dollar.

       Stocks

       Gold and stocks are inversely proportional. When the price of gold rises, the stock market falls. Gold does well when the stock market is bearish. There is a maximum sale of gold ETFs, gold bars and gold coins when the stock market goes through a rough phase.