How are Gold Prices Determined in India?

Gold has been a symbol of prosperity for Indians historically. It is more than an investment, a sign of wealth as well as a significant part of weddings and festivals across the country. With so much usage of gold in India, have you ever wondered why gold prices change every day?

Many people think that jewellers and gold dealers decide gold prices in India on their own. But that’s not true; gold prices are decided by various domestic and international factors. In this article, we will explore how gold prices are determined in India.

How are Gold Prices Determined in India?

The gold prices in India are determined by various domestic factors and international market trends. Since India imports a major portion of its gold requirements, the international gold prices have a major impact on the gold prices in India.

However, there are some other factors that determine the gold price in India. Among these factors are the exchange rate between the Indian rupee and the US dollar, taxes levied by the government, import duties, transportation costs, and the domestic demand for gold in various cities in the country.

Since these factors keep changing regularly, gold prices may also fluctuate every day. At times, the change in gold prices could be due to global fluctuations, while at others, government policies or seasonal demand may impact gold prices. In order to understand how gold prices are determined, let us understand all these factors one by one.

International Gold Prices

One of the most significant factors impacting gold prices is the international gold prices. Gold is traded worldwide in some of the major financial markets like London, New York, Shanghai, and Dubai. The international price of gold is expressed in dollars per troy ounce, where 1 troy ounce is about 31.1 gm. Gold is traded globally; hence the prices change throughout the day due to buying and selling.

Let’s say investors around the world start buying more gold as they may expect an economic slowdown, leading to an increase in international gold prices. Hence, gold prices in India may also increase since India imports gold in a major quantity.

Common reasons leading to higher gold prices:

• Increasing inflation
• Economic uncertainty
• War and political instability
• Underperforming stock markets
• Purchasing of gold by central banks
• Increased demand for investments
• USD-INR Exchange Rate The gold prices in India can still move despite no change in international gold prices. This can happen due to a change in exchange rates. Import payments for gold are done in US dollars, and importers have to buy dollars before purchasing gold.

The fall in the Indian rupee in comparison to the US dollar means that the importer would have to pay more for the equivalent weight of gold. That is how the retail gold price gets affected by the depreciation of the Indian Rupee.

Let us assume that the international price of gold is $4,000 an ounce.

Then, 1 USD = ₹95 now, Next week, 1 USD = ₹97.

Import Duty on Gold

India is one of the leading countries in gold consumption, but the domestic production is still limited. This leaves the country to heavily depend on imports to meet the demand. In order to control imports as well as to generate revenue, the Government of India levies customs duty on imported gold.

If import duty on gold is high, the cost for importing gold also increases. Hence, this additional cost is passed on to wholesalers, jewellers and ultimate consumers. In case import duty on gold decreases, gold usually becomes cheaper.

That is why jewellers, investors, and buyers eagerly wait for every Union Budget in order to learn about changes in import duty on gold.

Goods and Services Tax (GST)

Apart from the gold prices in India, buyers also have to pay GST while buying jewellery.

At present: GST is levied at 3% on the value of gold. GST is levied at 5% on making charges for jewellery.

Though GST has no impact on the market price of gold, it leads to an increase in the total price paid by the buyer. For instance, if the value of gold for a necklace is ₹1,00,000, then GST and making charges will cause an increase in the total bill.

Local Demand & Supply

Just like other products, gold prices are also subject to the law of demand and supply. In India, there is high demand for gold during:

• Wedding season
• Dhanteras
• Diwali
• Akshaya Tritiya
• Navratri
• Festivals

In such circumstances, the jewellers receive more orders from customers. In case of limited supply and imports, they may charge some premium over the benchmark rate. Conversely, during low demand periods, the jewellers usually offer discounts on making costs or premium rates.

Also Read: Electronic Gold Receipts (EGR) vs Physical Gold: A Quick Comparison

How Jewellers Decide Gold Prices in India?

Many first-time buyers are shocked to see a higher bill for the jewellery than the published rate for the gold. The reason for this is that the published gold rate is merely indicative of the cost of the metal.

This includes other costs such as:

• Manufacturing costs
• GST
• Hallmarking cost (if applicable)
• Complexity of design
• Jeweller’s markup
• Stone cost (in case of diamond/gemstone jewellery)

Final Jewellery Price = (Gold Rate per gram * Weight of gold in the piece) + Making Charges + 3% GST + Hallmarking Charges

FAQs

Who decides the gold price in India?

Gold prices in India are not set by a single person or organisation. They are influenced by international gold prices, the USD-INR exchange rate, government duties and taxes, and local market demand.

Why do gold prices change every day?

Gold prices fluctuate daily due to changes in global gold prices, currency exchange rates, inflation, interest rates, geopolitical events, and investor demand.

Why is gold more expensive in India than the international price?

India imports most of its gold. Import duties, GST, transportation costs, and dealer margins increase the final price compared to international market rates.

Why do gold prices differ from one city to another?

Gold prices can vary slightly between cities because of differences in transportation costs, local demand, logistics, and dealer premiums.

Does the US Dollar affect gold prices in India?

Yes. Since gold is imported and traded globally in US dollars, a weaker Indian Rupee generally makes gold more expensive, while a stronger Rupee can help reduce prices.

Do festivals and wedding seasons increase gold prices?

Higher demand during festivals like Diwali, Dhanteras, Akshaya Tritiya, and the wedding season can lead to slightly higher local gold prices or premiums.

Why is jewellery more expensive than the daily gold rate?

The daily gold rate reflects only the value of the metal. Jewellery prices also include making charges, GST, hallmarking costs, and the jeweller's margin.

What should I check before buying gold in India?

Before buying gold, check the latest gold rate, ensure the jewellery is BIS hallmarked, compare making charges across jewellers, and ask for a detailed bill.