Why is the Gold Price Increasing in India? Reasons Behind the Rise

In recent years, the price of gold in India has surged sharply, driven by global market trends, currency movements, and shifting investor sentiment. In fact, as of 2025, gold touched ₹1 Lakh per 10 grams. But what's the reason?  Let’s understand why the gold rate is increasing in India and the impact of this surge. Keep reading to explore the reasons behind the rising gold rate in India and its impact.

Why is the Gold Price Increasing in India?

Gold prices in India are rising due to a combination of global and local factors. Here’s a breakdown of the same:

Global Uncertainty and Geopolitical Tensions

Geopolitical events, trade wars, and diplomatic tensions create market anxiety, pushing investors to seek refuge in precious metals. As reported early this August, the price of gold increased as a result of the US President imposing an additional 25% tariff on Indian imports.

Weakening Indian Rupee Against the US Dollar

When the Indian rupee depreciates against the US dollar, gold becomes more expensive for Indian buyers. Since gold is priced in dollars internationally, a weaker rupee increases the cost of importing gold, directly translating to higher domestic gold prices.

Demand for a Hedge

The imposition of tariffs has increased trade tensions between the USA and India, and emphasised the relevance of gold as a safe-haven investment in times of economic crisis. A similar trend is also seen when inflation rises and erodes the purchasing power of traditional investments, though inflation is not currently a cause behind the rising rates.

Strong Domestic Demand

India’s large population views gold as an essential part of celebrations and religious ceremonies, and as a traditional store of wealth. Whether festival time or wedding season, there’s a natural rise in demand, which can increase the price in return. In April 2025, gold hit ₹1 Lakh/10 grams ahead of Akshaya Tritiya, an auspicious day for purchasing gold in India.

Central Bank Gold Purchases

The Reserve Bank of India and other global central banks sometimes accumulate gold reserves to diversify their holdings away from traditional currencies. The World Gold Council (WGC) reported that in 2024, over 1,000 tonnes of gold were collectively purchased by central banks for the third consecutive year in a row. These large-scale institutional purchases create significant demand in the global gold market, supporting higher prices.

Import-Related Expenses and Duties

India imports approximately 70-80% of its gold consumption, making it heavily dependent on international markets and import costs. In the fiscal year April-March 2024-25, inbound shipments increased by 27.27%, reaching a total of $58 billion.

Import duties, customs charges, and logistics expenses add significant premiums to the base gold price. Any increase in import tariffs or changes in government policy regarding gold imports directly impact domestic pricing.

Also Read: Understanding the Impact of Gold Loan on Your CIBIL Score

Why is Gold So Valuable?

Here are some reasons why Gold is so valuable in India:

• Cultural Importance

Gold for most Indian families is not simply an investment; it carries value as a cherished asset and is considered a mark of a family’s social stature. It’s an integral part of Indian culture to give gold during weddings and festivals, and this drives the demand.

• Scarcity and Tangibility

Gold, unlike currency, cannot be produced at will. The extraction of gold is costly, which contributes to its rarity. Its physical nature and universal recognition as a store of value make it a trusted asset across countries and cultures.

• Liquidity and Collateral Value

Gold’s liquidity makes it easy to sell or pledge for a loan throughout India, making it both a secure and flexible asset. This is the reason why NBFCs provide gold-backed loans to serve diverse financial requirements.

• Safe Haven in Uncertainty

Gold is an asset that investors turn to during economic or political turmoil. It tends to retain or even appreciate its value when conventional assets (like stocks) falter.

Also Read: How to Use a Gold Loan for a Medical Emergency: A Simple Guide

Effect of Gold Prices on the Indian Economy

The surge in gold prices has implications that affect both the Indian economy and personal finances. These are some of them:

• Current Account Deficit: India imports almost all its gold. So, a rise in the price of gold inflates the country’s import bill, which further widens the current account deficit.

• Shifting Savings Patterns: Indian families have considered gold as a safe store of value for generations. A surge in these gold prices may divert savings from other financial markets to more physical gold, limiting broader economic development.

• Boost to Gold Loan Market: Higher gold valuations mean individuals can access larger loans against the same quantity of gold. NBFCs experience increased demand for gold loans when prices are high, benefiting both lenders and borrowers seeking quick liquidity.

• Inflation and Retail Pricing: As gold is of essential value in Indian households, the cost of the jewellery production and sale keeps rising. This further contributes to inflation in consumer goods, especially around festival and wedding seasons.

Also Read: How Raw Gold is Turned into Pure Gold: 5 Simple Steps

To Conclude

A combination of factors influences gold prices in India, and knowing these factors enables you to make more assured decisions, regardless of whether you see gold as a cultural custom, a safety net for your finances, or collateral for a loan. Being informed is essential, particularly if you are thinking about taking out a Gold Loan, investing in gold, or purchasing it. A Gold Loan from Poonawalla Fincorp offers you 75% of the gold value, quick approval, flexible repayment tenure, and safety and security of your gold, so that you have a stress-free borrowing.

Frequently Asked Questions

Why are gold prices rising in India even when global prices do not change?

Gold prices in India reflect international rates plus more. Thus, depreciation of the Rupee, import duties being pushed higher, or sudden rises in local demand can elevate the prices here when the outside world maintains a steady position.

How does gold hedge against inflation?

When inflation occurs, it causes the erosion of an asset’s purchasing power. Gold, on the other hand, remains capable of either retaining its nominal value or gaining it. This is how it hedges against inflation.

Do changes in government policy affect gold prices?

Yes, higher import duty, GST changes, or import restrictions on gold will instantly drive up gold prices in India, irrespective of any international trends.

How do international occurrences work on gold prices in India?

Events like war, economic crisis, or pandemic create global uncertainty. This creates a higher demand for gold and drives up prices in India.

Does a surge in the gold price bring greater attraction to gold loans?

Yes, rising gold prices mean a higher loan amount can be obtained for the same gold jewellery, thereby making gold loans an attractive and logical option for funding.

Is gold a sound investment at current prices?

Depending on the current scenarios, gold remains a safe option for portfolio diversification and an inflation hedge. Yet, one must assess one’s financial objectives thoroughly, opting for a trusty expert’s opinion before proceeding with a buy decision

Can festival demand drive gold prices up?

Yes, certain periods and festivals, such as Diwali or prior to peak wedding season, see huge demand and usually translate to a short-term hike in retail gold prices.