A Simple Guide to Relation Between Gold Price and GDP

The total production in an economy is evaluated by the gross domestic product value. GDP is a quantitative evaluation of an economy. In layman’s terms, GDP explains the country’s economic health. GDP is one of the essential tools of comparative economics. Ranking GDP by country tells us the quantitative competition of economies. 

Gold trade heavily influences a country’s GDP. For importing countries, gold doesn’t reflect a positive effect on the GDP evaluation. In the following article, we will understand what GDP is in economics, how GDP drives the economy and the relationship between GDP and gold trade.  

Gross Domestic Product (or GDP)

Let us deeply understand what GDP is in economics? The GDP is defined as the total number of products produced in an economy within a year. The Gross Domestic Product (GDP) is the value of all services and goods produced within a nation’s boundary in one year. A country’s GDP is calculated by adding the total government spending, total domestic investments, net domestic private consumption, and the gross trade balance.

Important Points about GDP

The following points can be gathered from understanding GDP drive:

1. The growth rate of a country is defined as the percentage change in the GDP value of an economy.
2. A positive growth rate indicates that an economy is adding to its income. However, a negative growth rate shows that the country has less production in comparison to previous years.
3. Therefore, GDP drive is a quantitative concept. The size or evaluation of the GDP of an economy indicates its internal economic strength and stability.
4. However, GDP evaluation does not give any qualitative measure of the economy.
5. In competitive economics, GDP is the most often used measuring tool. The size of countries is compared to GDP by country. 
6. The ranks of countries by GDP are measured by the International Monetary Fund (IMF).
7. India constantly ranks as a top-five country by GDP size.

Gold Prices in India

Gold is one of the most important metals in India. The metal has material value and cultural and traditional significance. For many, purchasing or having gold is a mere status symbol. It is also extensively used in jewellery and various other ornaments. India does not produce enough gold by itself. Therefore, the country has to import gold from various other countries. In fact, India is one of the largest importers of gold in the whole world. However, generally, a heavy import of gold has an adverse impact on a country’s GDP drive.

The following is the top ten list of gold importing countries. The list is arranged w.r.t GDP by country,

• United Kingdom (23.5%)
• Switzerland (23.4%)
• The United States (9.2%)
• Turkey (6.7%)
• India(5.8%)
• Hong Kong (5.0%)
• Singapore (4.4%)
• China (3.0%)
• United Arab Emirates (2.7%)
• Italy (2.6%)

Gold prices in India are decided by the IBJA or Indian Bullion Jewellers Association. It is an association of the biggest gold dealers in India. The association decides on the everyday selling price of gold for all of India.

Relation between Gold Price and GDP

Gold trade and GDP are indirectly interrelated. In a case of a country like India, where gold is in overwhelming demand, the gold is required to be imported from other countries. India imports a large amount of gold from countries like Switzerland, UAE, and South Africa.

The following factors manipulate the GDP numbers through gold trade.

• Most gold in India has been imported into the country from the major gold supplying countries. All the money that a customer spends on purchasing a gold item directly goes to the exporter country at the cost of the Indian rupee.
• This trade disrupts the balance between the flow of money. 
• Directly sending money to a foreign country leads to the depreciation of the Indian rupee in the global markets.
• Large imports of gold increase the country’s trade deficit.
• This causes a major hit on the GDP drive of the country.
• In recent years, attempts have been made to discourage the trade of gold by increasing import duties.
• In the past few years, the gold trade has considerably reduced. However, demand for gold among Indians remains high.

Conclusion

GDP is an essential component of competitive economics. The ranking of GDP by country tells us the country’s economic strength in comparison to its peers.

GDP is referred to as the total production of a country in a certain time (generally one year). Various factors affect the GDP evaluation. The gold trade is one such factor. In countries where gold is an imported item, it does not positively affect the GDP as the trade causes the currency to flow outside the country. The above article explains what GDP is in economics and how the gold trade affects the GDP of a country.