How to know the correct price of gold

Trivia 19 Jun 2018

What Determines The Value of Gold in The Market

Ever wondered why the price of gold not only varies across towns and cities but also amongst different jewellery stores within the same city?

This is because gold prices in India vary according to the ever-changing market dynamics.

In India, gold prices are not determined through a formal exchange.

There is no single authority in India that sets a standard nation-wide gold price. But the gold price announced daily by the Indian Bullion Jewellers Association (IBJA) is recognised by gold dealers across the country . This is an average of the prices obtained on that day from ten large gold dealers Some of these dealers use the near-month gold futures contract on the Multi Commodity Exchange of India (MCX) , others provide a mark-up price over the cost they paid for buying gold from the importing bank. The interplay of inter-state transportation costs and price announced by local jewellery associations also plays a key role in determination of prices across different cities and towns .

The primary source of gold in India is imports through banks who add their fee to the landed cost while supplying to the dealers. The final cost includes the 10% customs duty and the 3% GST when gold is sold by banks and refiners to bullion dealers and jewellery manufacturers/retailers.

 

Jewellers typically refer to this announced gold price while calculating the final price of the jewellery. This price is multiplied by the weight of gold used in the ornament and then making charges are added to it. A 3% GST is then levied on the calculated sum . Some jewellers even charge a premium for purity and brand.

Few things to keep in mind before buying gold jewellery:

  • The jeweller’s rate may be for buying and selling and differs from the rate published in most newspapers and websites, albeit not significantly.
  • The weight of gold is calculated sans the weight of any precious studded stones.
  • The rate of gold varies with the purity parts of gold in the jewellery, i.e. 22k or 18k- as per the BIS standard hallmarking.
  • The cost of adding alloys for the jewellery’s strength and durability may be not more than 3% of the pure gold value.
  • Making charges (or wastage) is not standardised across jewellers. The charges can either be a percentage of the gold value or a flat rate per-gram of gold. The style of cutting, finishing and detailing also matters. Usually the making charges on gold jewellery range from 3% to 25% on mass market machine-made ornaments. Typically, hand-made jewellery is more expensive than machine-made one.
Related: Simplifying gold purchases: A look into making and wastage charges

Given the mechanics, the following factors influence the market price of gold:

  • Supply of gold: Gold is a scarce commodity, and not many nations have generous reserves of the metal. As the supply of gold varies, prices fluctuate. Harmonious geopolitical relations with gold producer countries also play an important role in determining the supply and price of the metal.
  • Exchange rate: Stronger rupee makes imports cheaper, reducing the overall price of gold.
  • Import restrictions: Any government policy such as higher customs duty, GST or measures to reduce imports, increase the gold prices.
  • Seasonal factors: Gold purchases and prices peak during the wedding season, religious festivals, a good harvest and monsoon season.

Knowing the basics of how gold is priced will help you better understand the estimate provided by your jeweller. You can now have an informed conversation with him on the rate he quotes, given the weight and purity of gold in question and the price published in the newspaper.

Also, don’t forget to ask for a transparent invoice providing a proper break-down of the cost of your purchase.

Gold Glossary

Filigree Jewellery

It is a jewellery-making technique involving gold or silver made into tiny beads or twisted threads and arranged in artistic motifs. The wires are often fashioned into lace-like decorations adding charm to the jewellery.

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