Multiple terms related to gold prices like spot gold price, MCX FUTCOM and OPTFUT gold price are popular in the Indian gold segment. These terms are quite significant because they determine the gold prices in India. Spot gold price means the exact price of gold at a particular time at a particular location. It refers to gold that is purchased immediately or on the spot. The price is determined at the spot and the gold and price are interchanged instantly. This is unlike FUTCOM that will fix the gold prices for the future, even if the prices go up later.
The actual spot gold price is derived from the nearest month gold futures contract with the most volume. This can also be the nearest month or the front-month out on the time horizon.
When an investor decides to buy gold, it is important to track the market values of gold during that period and the upcoming trends. Spot gold is one of those verticals which directly influences the gold jewellery prices in the country. Gold prices have been measured in terms of US dollars for decades. Thus, factors like fluctuations in the US dollar valuation, global macro-economic trends, economic growth in the periphery of the USA, gold prices in the MCX FUTCOM etc. determine the spot gold prices. The value of spot gold changes daily. These gold prices are obviously cheaper as there is no additional rate for storage and delivery involved like gold futures.
What drives the prices?
Spot gold prices largely depend on the law of supply and demand of investments. When the MCX gold prices show a downwards trend, people like to buy gold at that point of time at a cheaper price. So, when the buyers are trying to buy gold, sellers would like to lift prices and vice versa.
Apart from investment purposes, gold is bought for certain industry requirements and mostly for jewellery making. Demand for jewellery, currency fluctuations, certain political developments, inflation rates, interest rates, the risk appetite of the investors and the equity market determines the spot gold prices. Uncertainly in political developments and unfavourable monitory policy for the currency market will drag the spot gold prices up. Investors will find better scope or future in the gold segment rather than other investments options.
How does spot gold prices vary on location?
An ounce of gold will remain the same whether it is being traded in the USA or in India or in the UK. Eventually, the international spot gold price will remain the same everywhere. But what drives the spot gold prices is taxes and the currency values of a particular country. For example, INR carries lower values than the US dollar. As India exports a large amount of gold that is traded in the US dollar, when it arrives in India buyers will pay the price in terms of INR. Then the value of the gold will be adjusted or converted to INR from the US dollar. In addition to that, import taxes will be charged.
In India gold bars of both 22 carat and 24 carat is exchanged widely. The most popular sizes are 1 tola, 5 tolas and 10 tolas. Tola is a unit of measurement which is popularly used in the South Asian regions. One Indian tola is approximately counted as 11.66 grams.