Gold in any form like jewellery, coin, or bar is considered the safe and best investment in India. The considerable fluctuation in the gold price has never faded the desirability quotient of this metal. The price of this yellow metal is determined by various factors. The demand and supply, import rates, and dollar value are the few important factors to be named. If these are the global determining factors, then why the gold price isn’t the same everywhere? Have you ever thought or know about it? If not, head down to read further.
The rate of gold on a particular day is based on the International gold rate on that day. Based on this theory the price should be the same across regions. However, this theory does not apply to India. Several factors contribute to different Gold price in the states of India. Let us discuss them in detail here.
Who Determines the Gold Price in India?
The Indian Bullion Jewellers Association (IBJA) has an important role to play in the gold prices of India. IBJA constitutes people who are the biggest dealers of gold in India. These members together have a main role in establishing the gold price in India. The major importer of gold is the Banks in the country. They distribute the imported gold to the dealers. These dealers are members of the association and are spread across the country in various states. When Banks distribute they add a fee over the cost of gold. This is the first step in adding to the rate of gold.
IBJA interacts with the major dealers who in turn give out a quote based on the rate at which gold was purchased. Their quote is based on demand. After collating data from all leading dealers, IBJA fixes the gold rate for the day on the average of the buy and sell quotes received. In the quotes given, dealers add a margin to the cost of gold.
What are the Factors that Cause a Variation in the Gold Price?
Transportation Cost
India is one of the largest consumers of gold globally. Since it is a physical commodity, it involves transportation costs, which get added to the gold price. As in any kind of commodity business, the transportation costs get added to the buyer’s price, making the price difference. The mode of transportation and the security measures taken to transport the metal safely involves costs that naturally get added to the gold price making the price difference among the regions. After gold is imported it has to be taken to the various states based on the demand.
India is a big country and transporting from a central point to all states involves cost. Also, not all cities have a port. In such cases transportation should be by other means. The cost of transportation is borne by the respective states and so we can see the reason for the change in the gold price in states of India. The states add up the cost of transportation to the cost of gold they sell within the state.
The Amount of Purchase
As in any trade or business, the higher you purchase the more you get it at the discounted price. If you are in a state that has a higher consumption of gold, the sellers naturally tend to import more quantity to meet the supply chain requirement. Therefore you will get them at discounted prices, this naturally reduces the price for the buyer.
In India, the southern states have higher gold consumption compared to the gold imported in the rest of India. Therefore you can see a significant gold price change in states like Tamil Nadu and Kerala than the rest of the other states in India. Also, you can see the gold price at low rates in Mumbai because a large number of gold imports in India take place in Mumbai, which is the hub for the other state buyers. This is one of the reasons that gold rates are low there. Therefore the quantity of purchase play as the price-determining factor.
Involvement of the Associations in the Pricing
The local gold associations are the key players in fixing the gold price in India, based on the major bullion associations of the country. The bullion association of India, headquartered in Mumbai, a renowned association decides the opening and closing of gold prices in India, based on the International gold market. Even the RBI looks for the rates given by this association.
It is one of the unbiased platforms for all the other associations and dealers in helping them out with any kinds of disputes in the industry. This association fixes the price twice a day, based on the closing value of the previous day’s international gold market.
This rate along with other costs incurred in making the jewel results in the changing price of the gold in the different states.
Import Duty Levied by the Government
The government’s charges on importing commodities also add up to the gold price. Because India imports the majority of the gold, the sellers who import the gold are levied with 10% charges of the total value imported. This, in addition to the state taxes, contributes to the price difference among the states. Gold import at port cities is lower than in interior cities and leads to a gold price change.
Stocking Up the Gold to Sell it Profitably
Some sellers tend to buy the gold for low cost and stock them up, until the demand increases. This stocking up also contributes to the change of gold price in states of India. When you stock up on gold, you artificially increase demand. Since demand and supply are major forces playing in fixing the price of gold, this will clearly help in bringing about a price change.
When stockpiling is done in any particular Indian state, it helps to bring about a difference in the price of gold in that state. Artificial scarcity creates artificial demand and thus increases the rates.
The Role of Big Volume
The volume of gold that a city holds also plays an important part in the price of gold. When a big volume is involved, the jewellers are able to give a discount. Due to the advantage of holding a higher volume of stocks they can bring about a small difference in prices. This is possible in cities like Mumbai. Here the price of gold is slightly lesser than the rest of the cities.
The smaller cities transact only a lesser amount of gold. So offering discounts will not be possible here. The original state rate less the discount makes the difference in the price of gold.
Taxes Levied
Some taxes charge a heavier tax on gold than others. This difference in the tax rates has an effect on the gold price in India. This tax is also added to the cost of gold and ultimately reflects in the final price paid by the consumer.
Making Charges of Jewels
In terms of pieces of jewellery, making charges also play an important role in determining the gold price in states of India. A simple formula used by jewellers here is :
Final jewellery price= Gold rate x weight of gold in gms Making charges GST
Depending on the design of the jewel making charges are different. An intricate design calls for a higher making charge. It ranges from 6% to 14% which means a sizable portion of the price of gold is taken up by the making charges. While some levy this as a percentage per gram of gold, some levy this as a percentage of the total weight of gold.
Quality of Gold as a Determiner of Rates
The price of gold also is based on the quality of gold. Quality of gold is available in grades from 9k to 24 k, where K stands for Karat. It is considered that the higher the Karat, the better is its quality. So ultimately higher Karats, the higher price of gold. 24K gold is considered to be the highest purity but generally not used to make jewels. This proves that the quality of gold sold in the states has a bearing on its price.
These are the important reasons for the difference in the gold prices across Indian states. Now that you know the reason for different gold prices across the states, you should also know how and who is determining the price?
How Gold Price is Determined in India?
There is no formal process involved in determining the gold rates in India. However, the International market rate plays a vital role in determining it. The Bullion association whose members are the major gold dealers in the country decides the day-to-day gold rates. They are the legal account holders of buying and selling gold in India.
The primary importer of gold in India is the banks. They in turn supply it to the dealers across the states with a fee added. The bullion association acts as a bridge among the dealers in fixing the rates. It gets the buying and selling quotes from the major dealers based on the rate they purchased for. Then takes the average of the total buying and selling quotes to determine the rate for the particular day.
The quotes provided by the dealers are based on the international market rate(exchanged to the rupee’s value) transportation costs, import duty and additional taxes. This is to ensure that the rates are matched to the international rates.
So now you get to know how gold rates are calculated in India.
If you are in a state that has a port your gold rate may be less compared to the other state. The local associations are the key players when it comes to fixing the rates in your state. However, they are the legal associations that abide by the bullion association regulations, which are monitored by RBI. The demand for gold in some states may increase during the festival and special occasions of that state. If during that season the supply is less then you might tend to see an increase in the gold price in your state. So you cannot name one single reason for the price difference among states. They are all interrelated and contributing factors that contribute to the gold price change.
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FAQ
How is the gold price fixed?
The prices are fixed based on the international market value, dollar-rupee value, importing fee, interest rates on the bank’s deposits, demand, and supply, seasonal price, and inflation.
What is the one important reason for varying gold prices across states in India?
It is difficult to name one reason for varying gold rates among states. There are several factors like local taxes, transportation costs, local associations’ take on the market situation, seasonal demand in your state meeting the supply, etc.
Where can I find today’s gold price in my state?
Several financial websites flash the current gold rate in your city. You can find them online. Also, the retail jewellery shops can let you know today’s gold rate in your state.
Can I predict the gold rate in my state?
No. It is because it is determined based on various factors like local taxes, international market rates, currency value, etc. These are not constant values that can help you to predict the gold rate.
