If you notice a trend in India for gold prices, you would observe that each city in India has its own gold prices. Some cities have gold that is expensive, while other cities in India have gold that is cheaper in comparison? So how is gold prices fixed in different cities of India? Here is the answer:
Gold prices depend on international prices
Gold prices in Indian cities depend on international prices. So, if international prices go up, we have to pay higher for gold here in various cities of India. We barely mine any gold and import our requirements. Gold is imported by major government and private sector banks in the country as well as appointed agencies and companies, who then pass it to the big dealers. The list of importers keep changing and the government adds to the list every now and then.
Who brings the gold into India?
The importers like State Bank of India, Bank of Baroda, Mineral and Metal Trading Corporation, Union Bank, Syndicate Bank etc., import the gold into India. In fact, there are as many as 38 banks itself that import the gold into India. Now, they take into account the international prices of gold, convert the same into Indian rupees and add the import duties on them. This is how they arrive at the price.
But that is not final retail price
The prices are fixed by the Bullion Association in cities like Mumbai. In Mumbai for example the IBJA (Indian Bullion Jewellers Association), an association of gold dealers arrives at a fixed price and disseminates the gold price information to the retailers. For the purpose of arriving at a price it first contacts the big dealers and may also use the futures price to arrive at some kind of prices.
Other ways to calculate the price of gold
There are other ways to calculate the price of gold. You can take the international prices of gold and multiply with the current price of the rupee to the dollar. To this can be added the margin that the bank that imports the gold, value added tax, octroi and local tariffs. So, what you pay for the gold at the jeweller includes all these things apart from your making charges of jewellery.
Why do gold prices differ in different cities in India?
Different states in India have different local tariffs. The transport costs would also differ in between states. Some individuals believe that the gold prices would be less in cities like Mumbai, Chennai and Kolkata, because being ports they help to import and reduce the cost of gold. This may not always be the case and there are several other factors that could also influence the local city gold rates. Check gold rates in all major Indian cities here
Exchange plays a very important role
The currency also plays a very important role in determining the price of gold. For example, since we import gold we have to pay in dollar terms. So, if the Indian rupee moves lower from 67 to 68, we have to pay Re 1 more for gold. Higher the quantity of gold imported higher is the amount of foreign exchange reserves that flow out of the country.