Demand for Gold
How is the demand for gold calculated?
To calculate the demand for gold, the price return of gold over the past 2 weeks is compared with the return of Nifty over the same period. If the return of gold is increasing relative to the Nifty, it indicates that investors are moving away from equities towards safer assets like gold. And vice versa.
Is gold demand directly related to the price of gold?
The demand for gold has a direct correlation with the price of gold. As a commodity, the price of gold is determined by the mechanism of demand and supply. When the demand for gold is high, the price of gold goes up. Conversely, the price goes down when the demand is low.
What are the factors that influence the price of gold?
Apart from demand and supply, there are other factors that also influence the price of gold. Apart from being a commodity, gold is also used as an investment. People tend to park their money in gold for the long-term, especially for goals like the wedding of their children. The shift towards an asset class like gold happens when other asset classes like equities turn volatile. When investors move away from equities, they invest a higher amount in gold. This shift also influences the price of gold.
Gold prices are also influenced by economic conditions around the world. By and large, gold is considered to be a safe asset to park your money in. When developed economies go through periods of recession, investors around the world turn cautious about the stock markets and move towards gold. Again, the demand for gold would go up and drive up the price as well.
Finally, gold is an important part of Indian customs and traditions. Gold jewellery is used a lot in weddings. Hence, during the wedding seasons, the demand for gold rises as well. This is a seasonal influence on the price of gold.
How does the demand for gold affect MMI?
Higher demand for gold means that investors are shifting away from equities. This would take the Market Mood Index (MMI) into the fear zones. On the other hand, lower demand for gold would mean investors going for equities, taking MMI into the greed zones.