Gold price in domestic market rises more steeply as rupee depreciates against the dollar

Between 10^th December and 12^th December gold price in India increased from around Rs 131,085 per 10 grams to Rs 136,095 per 10 grams. This was a steep jump of 3.82% in just two days. In the international mark there was some increase in gold prices in this two-day period. But this increase was not so steep as in the domestic market. Gold prices hovered around the $ 4,280 per ounce in this period in the international market. One ounce is 28.3 grams. Gold price in the international market has increased by 8.8% in the past 1 month.  In the same period gold price in domestic market has also increased by around 8.5%.

Rupee depreciation causing gold prices to increase more

The price rise in the domestic market in this two-day period has therefore a lot to do with the depreciation in rupee against the dollar.  Demand for gold increases because it acts as a hedge against depreciation in the local currency. Inflation risk also increases with the depreciation in rupee. So demand for gold increases because the metal also acts as a hedge against rising inflation.

A depreciated rupee also means the price of imported gold increases in rupee terms. India is among the biggest importers of gold in the world. In FY 25 the country imported 7.57 lakh kilograms of gold. Gold imports have come down in the past decade but they are still high. In FY 25 India had imported 9.15 lakh kilograms of gold.

Due to this high reliance on imported gold, depreciation in rupee against the dollar can have a more significant impact in increasing the price of gold in the domestic market.  The ongoing wedding season has also contributed to the increase in price of gold in the domestic market. Demand for gold and gold jewelry goes up during wedding season.

Negative correlation between price of gold and interest rate

Reserve Bank of India cut down interest rate by 25 basis points earlier this month. Gold prices tend to go up when interest rates are cut. They tend to decrease when interest rates are increased. This correlation has, however, weakened in the past 1 year. Gold prices kept on rising even when interest rates were increased in the past 1 or 2 years.

Rupee has depreciated by 1.9% against the dollar in the last 20 days

The interest rate cut by RBI also put further downward pressure on rupee against the dollar. Rupee is currently trading at around Rs 90.90/ dollar. Since November 27^th, 2025, the rupee has depreciated by around 1.9% against the dollar. That is a sharp depreciation in a period of just 20 days. Further depreciation in rupee may increase gold prices more. It is the year of gold.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: World gold council