Gold Price Surge in India, Key Drivers and its Impact

Table of Contents

Context: Recently, the price of 24-karat gold has touched ₹1,01,350 per 10 grams. This is the first time gold prices in India have breached the ₹1 lakh mark.

Key Drivers Behind the Surge in Gold Price

Weakening U.S. Dollar:
- The US. Dollar Index (DXY) dropped to a three-year low below 98.
Treasury Bond Sell-Offs:
- Investors sold U.S. Treasury bonds, seeking higher returns and safety, moving capital to gold.
India’s Position in the Gold Market:
- India is the second-largest gold consumer globally (after China).
- Around 85% of India’s gold is imported, making domestic prices highly sensitive to international trends.
U.S.-China Trade Tensions:
- Ongoing Tariff war between the US and China. This renewed geopolitical tension triggered safe-haven buying.

Federal Reserve Pressure

US President Donald Trump unveiled plans to overhaul the US Federal Reserve.
Trump’s statements shook investor confidence, contributing to:
- Dollar devaluation & A rise in safe-haven demand for gold.
Strong Central Bank Buying:
- Ongoing purchases by China and other central banks signal: Long-term confidence in gold & Strategic reserve accumulation.

About Dollar Index

Dollar Index (DXY) is a measure of the value of the U.S. dollar relative to a basket of foreign currencies.
Basket of Currencies: DXY compares the U.S. dollar against six major currencies:
- Euro (EUR) – 57.6% (highest weight)
- Japanese Yen (JPY) – 13.6%
- British Pound (GBP) – 11.9%
- Canadian Dollar (CAD) – 9.1%
- Swedish Krona (SEK) – 4.2%
- Swiss Franc (CHF) – 3.6%
Base Year and Calculation: It was established in 1973, shortly after the Bretton Woods Agreement was dissolved, with a base value of 100.

Factors Influencing DXY

Monetary Policy: US. Federal Reserve interest rate changes.
Economic Indicators: GDP growth, employment rates, inflation.
Global Events: Wars, recessions or financial crises impact the index.

Relationship Between Dollar Index and Gold Price

Gold is priced in U.S. dollars on the international market.
When the dollar weakens:
- It takes more dollars to buy the same amount of gold.
- Investors seek gold as a hedge against currency devaluation.
- Global buyers find gold cheaper, boosting demand.
Current Scenario:
- The Dollar Index has fallen below 98 ⏩ Gold a more attractive asset, contributing to the price rise.

India’s Gold Reserves

RBI holds 854.73 metric tonnes of gold, of which 510.46 metric tonnes were held domestically & 324.01 metric tonnes of gold were kept in safe custody with the Bank of England and the Bank for International Settlements (BIS).
As of September 2024, the share of gold in the total foreign exchange reserves is about 9.32%.
Top Gold Reserve Holding Countries:
- United States (8,133.46 tonnes)
- Germany
- Italy
- France
- India (8th)
Top Gold Producers: China, Australia, Russia, Canada, USA.
Karnataka is the largest producer of gold in India.
- Hutti Gold Mines (Karnataka) is the only producer of primary gold in the country