“There is no honest man — not one — that can resist the attraction of gold! — Aristophanes”
We Indians are known for many things across the world, our hospitality, food, colourful lifestyle, Bollywood, dance and the list goes on. What many people don’t know is that Indians also have a strong desire for the shinier things in life, especially gold. We are perhaps the largest consumers of gold in the world, with over 2,000 tons of unused gold in the country, making it a “Sone ki Chidhiya” in the true sense. Our love for gold has been on for centuries, and it is just being growing stronger day by day.
Indians consider gold auspicious, making it an integral part of their lives. An Indian celebration without gold is dull and lustre less, with gold adding zing, bling and shine in our festivals and functions. Purchasing gold is a tradition in India, a tradition which continues irrespective of gold prices. We, as a country are more than happy to shell out the rates commanded by gold. Currently 1 gram of 24Kt gold is sold at INR 5300!!! Why?
As Covid-19 rips through economies across the world, the demand for the physical gold has seen a sharp fall. It is estimated that the Indian demand for gold will fall by about 36%. While keeping this in mind, Gold prices are at the same time, witnessing the biggest rally ever in history. You must have wondered about the factors that determine gold rates in India.
For the inquisitive souls out there, here are some important factors which determine the price you pay for gold in India.
· Supply – Gold, in its natural form has become a scarce commodity, with just a few nations having abundant reserves. As the supply of new gold is not constant and changes from time to time. This which means we have to manage with the current quantity out there in the market. Prices can change sharply if the demand and supply equation changes and are always an important factor when it comes to determining rates in India.
· Import rates – Natural gold reserves in India are falling and the country’s gold production is down to a small drop compared to the past. As such most of the gold used in India is imported, making import duties an important factor in determining gold prices in the country. A high import rate is bound to increase rates and vice versa.
· US Dollar – Gold rates are heavily dependent on how the US dollar performs, with prices inversely proportional to dollar rates. This relationship arises from the fact that gold is an internationally traded commodity and the US dollar is the preferred international currency. Any changes within the United States are bound to have an effect on gold prices, either directly or indirectly. The fact that a majority of gold purchased in India is imported means that prices in India are also impacted by international markets.
· International Relations– – International relations between nations can influence gold prices, as tensions between global powers can push up rates. For example, if the US has cold relations with a major gold producer, gold prices could be impacted due to lack of supply. Easing of sanctions and overall global relations play a significant role in determining gold rates, primarily because gold is considered as a safeguard against geopolitical instabilities.
How is the prices of Gold determined in India ?
The Indian Bullion Jewellers Association or the IBJA as it is known plays a key role in determining day to day gold rates in the country. IBJA members include the biggest gold dealers in the country, who account for almost the entire legal gold sold and purchased in India, which come from across the country. Gold in India is mainly imported by banks, who then supply the imported gold to bullion dealers across India. Banks supply this gold to dealers after adding their fee to it, which already makes them a bit higher than the rate at which gold was imported.
The IBJA then determines the prices after consulting 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. IBJA then takes the average of these ‘buy’ and ‘sell’ quotes and determines the gold rate for a particular day based on this average. This average rate is adjusted for local taxes and a rate fixed accordingly.
How to calculate the price of the various purities ( 22KT, 18KT, 14KT, 9KT) of gold?
Pure gold is a very soft metal and is often hardened with the addition of different alloying elements. The natural colour of gold is yellow but alloying helps in achieving different colours like white or pink. These colours depend on the ratio of alloys added. Generally, copper and silver granules are added to the pure gold. Pure gold is designated 24 Karat (KT) and the quantity of alloy used depends on what Karat is required. Gold is widely available in 22KT, 18KT, 14KT, 9KT. This classification indicates the parts of pure gold in 24 parts of alloy.
Now, if you want to find out the price of 18KT gold then for that you will check for the market price of pure gold and then use the following equation.
Price of 18KT gold = Price of pure gold X 18/24
Here, 18 is the purity of gold that we want and 24 is the purity of pure gold.
So,
Price of gold 53,000/- per 10 grams
53000 X 18 / 24 = 39,750
So 18KT gold price would be INR 39,750 per 10 grams.
I hope you will be able to understand the math behind the price of gold next time when you go out to buy jewellery.
For any further question, you can contact me on caratique@gmail.com
Make sure to visit our website for some exciting custom made jewellery.
Sources:
www.ibja.co
www.bankbazaar.com
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