India is one of the largest importers of gold in the world. The lustrous metal is considered to be sacred by the masses. While watching the everyday news and updates of the prices of gold, many might wonder how the price of gold is decided in the country. Read ahead to find out.
International factors
Most of the gold in India is imported. In fact, it is the second most imported commodity in the country. Let’s try to understand the determination of gold price through its journey till reaching the customers.
The most important factor for the price determination of gold is the “spot price” which is the per ounce value of 24K gold set at the London bullion market on any given day. Following this, import cost is added to the total. The import cost includes the transportation cost, transactional charges, etc.
Note that this “metal value” is converted from the American dollar to the Indian rupee as per the current exchange rate. Thus the market value of the rupee is a contributing factor to the calculation of the price.
In addition to this, custom duty is levied when the gold enters the country. The importing entity (which are mostly banks) then adds its fee and margin while selling the gold to dealers, adding further to the cost.
National factors
The domestic market and governmental regulations then contribute to the fluctuations in the price of gold in the national market. The Indian Bullion Jewellers Association (IBJA) plays a pivotal role in deciding the prices in the Indian market.
The determinants also include inflation and demand and supply conditions. Before the gold reaches the final consumer VAT, local taxes, and other charges depending on the demographic location are added.
On the other hand, the futures price of gold is also an important concept for investors. The futures price is the price of gold derivatives i.e. gold contracts that are signed to buy gold at a predetermined price in the future.
The Multi Commodity Exchange of India Ltd. and the National Commodities and Derivatives Exchange Limited (NCDEX) indicate the everyday prices of gold derivatives in India.
Hitherto we have understood how the price of gold is determined in the country. The gold you buy costs higher than the price reflected in the market depending on the form of gold you invest in.
