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Purchasing gold is one of the favourite modes of investment to build a corpus and safeguard savings against inflation. If you are looking forward to starting trading or investing in this commodity, you must know how gold price is determined in India. By staying informed, you can take a decision on whether to buy or sell your holdings.

Current Participants in Gold Price Fixing

Gold price on a certain day can be broadly generalised as an agreement between different participants involved in the buying and selling of the commodity. There are four types of entities involved in this process of gold price fixing, including:

  1. Firms doing exploration or development of gold

  2. Miners

  3. Recyclers

  4. Consumers

According to current market conditions, the London Bullion Market Association fixes gold’s international price to balance its worldwide demand and supply.

The Indian market depends largely on gold imports since the domestic production of this commodity is insufficient. Besides the international price, taxes and foreign exchange rates are also key influencing factors that determine gold price in India. 

How the Gold price is Determined in India

Here are some major factors that significantly influence gold’s current price:

  • Supply and Demand of Gold

The overall availability of gold fluctuates from time to time. When there is an abundant supply of this scarce commodity with respect to its overall demand, its price decreases, and vice versa. 

  • Import Charges

India has little gold reserve, and the overall domestic yield of this commodity is much lower. As a result, Indian gold market largely depends on importing this metal. It pays a considerable amount in import duties to other countries. This is why whenever gold’s import charges increase, the gold rate inflates simultaneously.

  • Rupee-Dollar Conversion Rate

If Dollar price increases with respect to Rupees, India needs to pay more to import gold from the international market and vice versa. This is how Rupee depreciation can significantly escalate gold’s price and hurt the Indian market.

All these aspects exercise a direct influence on how gold rate is determined in India. In this regard, you also need to know that there is no particular entity that fixes the gold price within the country. Still, the Indian Bullion Jewellers Association (IBJA) performs a key role in setting day-to-day domestic gold rates.

IBJA is a domestic institution having several major gold dealers as its members. These dealers are responsible for most of the purchased and sold gold. The IBJA takes into account the average purchase/sell quotes of these members to determine the gold rate for a day.

Types of Gold Rates

You can purchase gold at two different rates in India from the commodity market. These are as follows:

  • Spot Price

The spot price of gold refers to the fluctuating per-gram rate of this metal in the spot market. You can purchase spot gold from a trading marketplace (MCX) in exchange for money and hold your purchased metal instantly in your portfolio. 

  • Futures Price

You can also purchase this precious commodity in a standardised futures contract. In this transaction, you agree to buy a certain amount of gold at the fixed futures price on or before a pre-determined date. Although you pay the price instantly, your gold is delivered to your portfolio after the pre-determined maturity date.

To conclude, although gold is less volatile than a company's stocks, its price changes every moment according to availability, the exchange rate of currency, etc. Therefore, now that you are aware of how gold price is determined, you can make informed decisions about your investment in this commodity and reap the maximum benefit out of the market.

FAQs on How Gold Price is Determined in India

  • ✔️How is gold price calculated?

    Following is the formula that Multi Exchange Commodity (MCX) in India uses to calculate the price of gold:

    Gold’s price at MCX exchange = (The international price of gold x USD to Rupee conversion rate) / Troy-ounce to grams conversion

  • ✔️Who sets the market price of gold?

    IBJA plays a major role in determining the price of this commodity in India. They consider the average asked and selling prices of gold to determine its day-to-day price.

  • ✔️How do jewellers determine gold prices?

    In India, the invoicing pattern differs from one jeweller to another. Still, the following is a formula that broadly resembles their billing:

    The price of jewellery = {Price of raw gold (18 or 22KT) x Weight of Gold (gram)} + Making Charges + GST

  • ✔️What moves the price of gold?

    Several factors that influence gold's price are its demand and supply in the market, Rupee-Dollar conversion rate, charges on import, etc.