Why gold prices differ across Indian states: Check five reasons that decide gold rate across cities

Gold prices in major Indian cities generally move in line with global trends as the country mostly relies on imports to meet local demand. Any fluctuations in global prices of the precious metal reflect in domestic markets.

However, the prices of gold vary across states and cities in India despite being ruled by common macro factors like international prices, US dollar movements and bond prices.

For example, gold of 24K purity was trading at ₹76,460 per 10 grams in Delhi in the afternoon session on Monday, November 18, while gold of 22K purity was trading at ₹70,100 per 10 grams.

In Mumbai, gold of 24K was trading at ₹76,310 per 10 grams and of 22K variety at ₹69,950 per 10 grams at the same time.

Which state or city has the highest/cheapest gold price?

Usually, Delhi accounts for the highest prices of gold in the country due to various local factors. On Monday too, gold prices were the highest in Delhi compared to other cities.

Local markets like Kerala, on the other hand, see relatively lower prices of gold compared to other cities. This is due to high consumption, availability of a large number of gold sellers and lower transportation costs due to proximity to ports.

What factors led to the gold price varying across states?

A number of factors affect the prices of gold in the country which lead to varied rates of the metal across states. While international prices, global demand, purchases by central banks, the US dollar and bond yields are common macro factors affecting gold prices, domestic demand, local taxes, and transportation costs are some of the local factors that impact prices.

Local demand and supply

Local demand for gold is the most important determinant of its prices in various cities. Local demand is affected by local festivals, marriage season and other cyclical events like crop harvesting seasons. Cities with high demand for gold see high prices. Delhi is one of the major trading hubs in North India. It also sees high investment-related demand for gold in addition to that for jewellery, which drives up its prices.

Local supply is also a determining factor in gold prices. Markets closer to ports see lower prices, while those farther from major supply centres witness high prices. Transportation costs are also a major factor influencing local prices.

Cultural diversity and local festivals

As India is a diverse country, different festivals are celebrated in various states, which affects the demand for gold. While common festivals like Akshaya Tritiya and Dhanteras are celebrated almost across the country, regional festivals like Onam are celebrated in Kerala.

Local levies

Gold comes under the GST regime and is taxed uniformly across India at the central level. However, there are some local levies and municipal taxes that lead to varied prices of the precious metal across states.

Import duties

Import duties directly affect gold prices. India fixes import duty on gold every fortnight based on international prices. Generally, the government sets minimum import prices for the computation of import duties, and changes in these benchmark prices lead to price changes.

Local Jewellery Associations

Some local jewellery associations fix the prices of gold in their respective regions. These associations serve as price regulators for a particular area and consider factors such as purity and prevailing market conditions to determine the prices.