Gold Rise Explained: 7 key factors that tend to push rates higher

Gold prices in India have surged to fresh record highs, with October futures on the Multi Commodity Exchange (MCX) touching Rs 1,10,698 per 10 grams on September 22 and the December contract climbing to Rs 1,11,820. The rally comes amid global uncertainties, investor bets on further rate cuts by the US Federal Reserve and consistent demand from households and central banks.

But what are the broader factors that usually drive gold higher?

We have discussed seven key factors that generally tend to drive gold prices higher, though not all of them may be in play at the same time.  

1. Geopolitical tensions

Wars, conflicts and political instability create fear in markets. At such times, gold’s reputation as a stable store of value strengthens. That is why prices often jump whenever there are flare-ups in global tensions.

2. Financial instability

Whenever the global economy hits turbulence – be it a recession scare, a banking crisis or slowing growth – investors instinctively move towards gold. Unlike equities, it does not swing wildly with market sentiment, which makes it the fallback option. That rush of demand usually pushes prices higher.

3. Inflation hedge

Inflation eats into the value of money, but gold does not depreciate in the same way. For households and investors alike, the metal becomes a way of protecting savings. It is why periods of high inflation often coincide with spikes in gold buying.

4. Currency depreciation

India relies heavily on imports for its gold. A weakening rupee makes those imports more expensive, even if international prices do not change much. This has been one of the reasons domestic rates are hitting new highs.

5. Central bank policies

Policy shifts by central banks can change the equation quickly. Lower interest rates, or more liquidity in the system, reduce the cost of holding gold. The Federal Reserve’s quarter-point cut this month has been read by many traders as a green light to pile into the metal.

6. Global demand

India and China together account for the bulk of consumer gold demand, thanks to weddings and festivals that keep buying steady through the year. Central banks have also been adding to their reserves, lending further strength to global prices.

7. Technology and industrial use

Gold is not just an investment or jewellery metal. It is widely used in electronics because of its conductivity and durability. That demand, though smaller than investment demand, still helps keep prices supported.

For India, the world’s second-largest consumer of gold, the surge has both benefits and costs. A stronger import bill weakens the rupee and widens the trade deficit, while rural buyers – who traditionally see gold as savings – struggle with shrinking affordability. 

Jewellery industry under pressure

Jewellers are among the first to feel the heat when prices rise. Consumers cut back, choosing lighter ornaments or lower-carat pieces, which hurts sales volumes. Big retailers say demand tends to soften in such periods, though cultural occasions and festivals often provide a short-term boost.

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Digital gold surges with UPI

Alongside physical purchases, digital gold has seen explosive growth. Between April 2024 and August 2025, UPI-based digital gold transactions rose 377 per cent to 99.77 million, with transaction value more than doubling from Rs 550 crore to Rs 1,184 crore.

Fractional investment options and the convenience of platforms such as PayTM, Google Pay and PhonePe have made digital gold one of the fastest-growing categories on UPI, according to NPCI. Sellers including MMTC PAMP, Augmont Goldtech, Tanishq and Senco now offer redeemable digital certificates backed by secure vault storage.