How are Gold Rates Determined in India?

Gold is one of the most valuable metals that exist in human history. Its liquidity potential and investment benefits make it a great asset. In the financial world, it is considered an indomitable hedging tool to beat inflation as it has not seen much price fluctuation during the time of crisis. This is why gold loans are the best way to get immediate funds on hand based on the gold rate on a particular day. Speaking of gold rates, it is quite interesting to know how gold rates are determined. It is not a straightforward process and has several contributing factors.

Determination of Gold Prices

It is interesting to know that there are four major industries dealing with gold which include development, mining, consumer, and recyclers. The key consumers of gold are industrial, investors, and jewellers. Whether it’s a gold buyer or seller, checking the gold rate today is important for buying or selling the yellow metal.

Key Driving Factors for Determining the Gold Rate

Demand and Supply

The demand and supply of gold have a huge role in gold rate determination. Today, it is a scarce commodity with few countries having enough gold reserves. Since a higher appreciation value is attached to gold historically, its demand is at an all-time high. The current price of gold is largely affected by its demand in the market. When the supply is inconsistent and demand is huge, gold prices are on the higher side and vice versa. You can search for 1-gram, 5-gram, or 10-gram gold rates today to compare the rate fluctuation from yesterday.

Economic Condition

Gold has an inherent value that makes it a high-demand metal at all times. Investors see gold as a hedge over financial uncertainties such as inflation, recession, and other unprecedented times. Gold cannot be diluted making it a powerful asset that retains its value over time. Typically, the value of gold rises with an increase in the cost of living. This is because investors and consumers tend to hold on to gold during poor economic periods.

Interest Rate

According to industry experts, domestic gold prices and interest rates have an inverse correlation. The gold loan interest rate is closely monitored by the Reserve Bank of India. The repo rate and reverse repo rate are changed from time to time. This is done to manage the flow of money in India. When the interest rate rises, the demand for gold decreases, and when the interest rate decreases, the gold prices increase. Also, it is seen that investors tend to rely on fixed asset investment when the interest rate rises.

Rupee-Dollar Equation

The rupee-dollar equation does not impact the global gold prices but certainly affects the domestic gold rates. Primarily, this yellow metal is imported into India, which has a direct correlation with its rate determination. If the Indian currency weakens against the dollar, the domestic gold rates increase. However, it does not impact global gold prices.

Geopolitical Factors

Usually, geopolitical factors have a negative impact on most asset classes. However, the price of gold increases during such turmoil as it is considered a safe investment option by investors.

Who Determines Gold Prices in India?

Indian Bullion Jewellers Association

There is no formal process for gold rate determination in India. However, the Indian Bullion Jewellers Association (IBJA) has a crucial role in gold rate determination. The bullion members include established gold dealers in India. The gold is imported by banks and then supplied to bullion dealers across the country. There is an added fee to the imported gold price, which further shoots up the prices. So, the “gold rate today” is determined by IBJA by averaging the buy and sell quotes of its top ten members.

How do Dealers Determine “Buy” and “Sell” Rates of Gold?

While determining the “buy” and “sell” rates, the dealers consider several factors such as the exchange rate of the rupee, import duties, taxes, and more. Certain margin is also added to the gold rates. A detailed process is followed to ensure proper gold rate determination to maintain transparency in gold sales and purchases.

Types of Gold Prices

Spot Prices

Spot price is the fluctuating per-gram gold rate in the market. It is the current market price of the yellow metal, which can be bought or sold immediately.

Future Prices

The future price of the gold refers to the price that the seller and purchaser agree on for future transactions as per the standardised future contract. It is the pre-determined rate agreed to be paid on or before a certain date for gold purchase. Muthoot Finance is a leading financial service-providing company in India offering the best gold loan schemes. You can utilize your gold items, or jewelry to get a gold loan at an affordable interest rate.

With attractive loan features, we provide easy processing and quick loan sanction. There is no maximum limit to the gold loan amount provided you have gold articles for the collateral. Minimal documentation and pre-part payment facility along with the Loan@Home feature are some of the highlights of Muthoot Finance gold loan schemes.