In an unprecedented move, the prime minister of India caused gold to shoot to $2800 overnight.
He declared all Rs.500 and Rs.1000 notes no longer legal tender. New Rs.500 and Rs.2000 notes can be obtained by first proving that you have paid all your taxes. If, and only if, the government determines that you have paid all your taxes will you be allowed to exchange the old notes for the new ones. Supposedly, this was done in a drastic attempt to discourage terrorism and black money (Black money refers to cash used to pay for goods and services on the black market).
Since 97% of India’s economy is a cash-based, it becomes very difficult for Indian citizens to prove that they have paid all their taxes.
This created huge panic among the Indian citizens, resulting in long lines forming at ATMs of hundreds of people. These lines, combined with the panic, resulted in large amounts of violence and hostility.
This also caused people to buy gold, If they could get it.
This is a perfect example of how Fiat currency can impact the price of gold.