How Gold is priced in India

I have seen my parents, especially my mom, investing in gold schemes, and even the jewelry merchants come up with unique schemes on auspicious days like Akshaya thritiya. I have also seen them worry as soon as gold prices fluctuate. This often made me think about who decides the prices of gold in India. Sometimes, it skyrockets, and occasionally, it stoops low. 

Well, if you also had similar doubts, your search ends here. For curious minds, here are some “behind the scenes” factors determining the price you pay for gold in India.

• Supply – In its natural form, gold has become a rare commodity, with just a few nations having generous reserves. As such, the supply of new gold is not constant, changing from time to time, which means we have to manage with the current quantity out there in the market. Prices can vary sharply if the demand and supply equation changes, and they are always important in determining rates in India.
• Import rates – Natural gold reserves in India are dwindling, and the country’s gold production is down to a trickle compared to the past. As such, most of the gold used in India is imported, making import duties an essential factor in determining gold prices in the country. A high import rate is bound to increase rates and vice versa.
• US Dollar – Gold rates heavily depend on how the US dollar performs, with prices inversely proportional to dollar rates. This relationship arises because gold is an internationally traded commodity, and the US dollar is the preferred international currency. Any changes within the United States are bound to affect gold prices directly or indirectly. The fact that most gold purchased in India is imported means that international markets also impact India’s prices.
• International Relations- – International relations between nations can influence gold prices, as tensions between global powers can increase rates. For example, if the US has cold relations with a significant gold producer, gold prices could be impacted due to a lack of supply. The easing of sanctions and global overall ties play an important role in determining gold rates, primarily because gold is considered a safeguard against geopolitical instabilities.

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Who determines Gold prices in India?

Gold prices in India are mainly determined through an informal process, as there is no “kingmaker” in the Indian gold industry. International prices have an effect on gold prices in India, though the rates might not be the same as they are globally. The Indian Bullion Jewellers Association, or the IBJA as it is known, plays a crucial role in determining day-to-day gold rates in the country. IBJA members include the most prominent gold dealers in the country. They have a collective hand in establishing prices. These members account for almost all legal gold sold and purchased in India and come from all corners of this diverse nation. Gold in India is primarily imported by banks, who in turn supply this imported gold to bullion dealers across India. Banks supply this gold to dealers after adding their fee, which already makes them a bit higher than the rate at which gold was imported.

The IBJA then determines prices by speaking to the ten biggest gold dealers in the country. These dealers give their respective ‘buy’ and ‘sell’ quotes, depending on the rate at which they purchased gold. Based on this average, IBJA then takes the average of these ‘buy’ and ‘sell’ quotes and determines the gold rate for a particular day. This average rate is adjusted for local taxes and is fixed accordingly.

Dealers generally arrive at their ‘buy’ and ‘sell’ rates by taking the international cost of gold and multiplying/adjusting it to the exchange value of the Rupee and adding any import duties and taxes such as VAT. Dealers ensure that they add their margin to the rates they give, keeping in mind their requirements. This procedure ensures that gold rates in India are on par with international trends and that customers can purchase gold without worrying about being cheated about gold rates.

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