The gold rate in the Indian market is decided by the International market. Ideally, gold rates should remain the same across the country. However, gold rates in Indian cities differ from each other. Gold price in Mumbai is different than in Delhi or Chennai. Some cities offer gold at a lower rate compared to others. Reasons for why the Gold Rate in Indian cities is different is given below.
Reason for Gold Rate Difference –
Transportation Cost –
Transportation cost plays an important role in determining the gold price. Physical movement of gold from one place to another place requires suitable security arrangement. Spending on this will increase a price of gold.
Volume Play –
Big volume players in the big cities can offer a discount on bulk buying. This could lead to price variation. It is sometimes observed that price of gold in Mumbai is lower compared to other cities. This may be due to this.
Gold Associations –
Local gold associations also play a major role in determining a local gold price. In big cities like Mumbai, Delhi, Chennai price of gold is fixed by this gold association. For Mumbai “Bombay Bullion Association Ltd” decided the price of gold. They act as a union and decide a local gold price. Fixing of gold price happens twice a day. This could be the reason of variation in gold price across cities.
Purchase Price –
The jeweler may have purchased gold long time back where a gold price was low and now he is selling gold which is equivalent to international gold rates. However, this price variation will be very small.
How gold price are determined in India?
Ideally, the gold rate depends on the international gold rate. However, it depends on additional factors like import duty, dollar price variation, etc.
The largest producer of gold is outside India and to import gold we need to pay a dollar-rupee conversion price. If rupee falls against the dollar the landing cost of gold increases and gold becomes expensive.
The second important point is import duty. To control the current account deficit, the government increases import duty. This makes gold further costlier.
The pricing of gold in India is primarily influenced by an informal process, as there is no centralized authority in the Indian gold industry. While international prices do have an impact on gold rates in India, they may not align exactly with the global rates. The Indian Bullion Jewellers Association (IBJA) plays a crucial role in determining the day-to-day gold rates in the country. Comprising the largest gold dealers in India, the IBJA collectively contributes to establishing prices. These members represent the majority of legal gold transactions in India and hail from various regions of the country. In India, banks are the primary importers of gold, which they then distribute to bullion dealers across the nation. The banks add their fee to the imported gold, making the rates slightly higher than the initial import price.
The process of determining gold prices is initiated by the IBJA, which engages in conversations with the top ten gold dealers in the nation. These dealers provide their individual ‘buy’ and ‘sell’ quotes, which are influenced by the rate at which they acquired gold. The IBJA then calculates the average of these quotes and establishes the gold rate for a specific day based on this average. This average rate is further adjusted to account for local taxes and a corresponding fixed rate is determined.
Gold Price History
In order to compare gold price with the international market let’s look at the last 70 years’ history of the gold price. This chart is taken from Gold Price history data of RBI.
Gold is a yellow shining metal and is a very good hedge against inflation. The price of gold is increasing every year. Keeping this in mind one should keep investing in gold.
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