Gold prices in India have fallen more than 20% from January 2014 to January 2016. Which of the following may be the reason(s) for falling gold prices in India?

  1. Depreciation of Indian rupee
  2. Prices of crude oil have decreased globally
  3. Frequent drought conditions and adverse monsoon

Select the correct option from codes given below:

Answer: [D] 1, 2 & 3

First statement is correct because depreciation of INR or strengthening of US Dollar against Indian Rupee will make gold imports more costly and hence it will reduce its commercial as well as substantial demand in India. Second statement is correct because India imports about 80% of its crude oil from Middle East countries, and with OPEC (Organization of the Petroleum Exporting Companies) decision to not cut oil production, it has increased the supply of crude oil in international market; thus lowering its prices globally. This has increased the gold"s capacity to purchase crude oil. This increases gold"s capacity to purchase crude oil and affecting its demand negatively. Third statement is also correct because incidentally, rural India contributes 60% to the country"s gold consumption of 950-1,000 tonne annually. “Rural India has not been able to invest heavily in gold within last few years, as continuous and frequent drought conditions in India has resulted in lower yield of income to farmers and hence, less investment in gold.

This question is a part of GKToday's Integrated IAS General Studies Module