Gold vs Dollar: Buying gold is considered very auspicious in India. People buy gold on many occasions. Especially on occasions like weddings and festivals, most of the gold is purchased. No matter how much the price of gold increases, people still buy it for shagun. Not only for shagun but many people also buy gold as investment. But do you know that whenever someone buys gold in India, the dollar weakens in America? You might not know, let us tell you why.

Buying gold affects the economy
Gold is an emotional asset in India, but its hidden funda is that whenever more gold is purchased in India, it not only impacts the jewelery market but also puts pressure on the entire economy. This is because it weakens the dollar. If the dollar weakens, it also affects the Indian economy.

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Why does the dollar weaken?
We all know that gold is not produced in India, rather gold is imported. The gold that India buys from other countries is not paid in Indian rupees but in dollars. From here the real game begins. Because whenever you buy gold from a jeweller, he imports it, in such a situation India has to make payment outside and buy dollars for it.

This means that for India, buying gold is equivalent to spending dollars. When the demand for dollars increases, the rupee starts weakening.

RBI also has a role in this
When there is any kind of pressure on the rupee, then RBI sells dollars from its forex reserves so that the rupee remains stable. This means that the increasing demand for gold also directly affects India’s foreign exchange reserves. This is no small matter, because gold import is a big import for India. Meaning, the more gold is imported, the bigger the trade deficit India has to bear. And increasing trade deficit means that there is going to be pressure on the economy.

Why does the government change gold import duty?
The import duty on gold is changed again and again by the government, do you know why? If you don’t know, then let us tell you. Actually, this is the government’s method because by increasing the import duty, gold becomes expensive, people buy less of it and the outflow of dollars reduces.

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However, high import duty also has a side effect, smuggling. Due to increase in import duty, traders start smuggling. The government has to maintain a balance to avoid this.

Why is gold payment made only in dollars?
This happens because globally, gold prices are based on the dollar system. For this reason, Indians have to settle in USD only if they buy gold from anywhere in the international market.

This clearly means that your gold is not just a personal investment, but it is completely linked to dollar demand, rupee strength, forex reserves and India’s trade. This is not just a cultural habit but is completely linked to the Indian economy. Therefore, whenever the government talks about gold import duty, it talks about the entire Indian economy.