How Gold Price is valuated in India

1. Supply - Gold, in its natural form has become a scarce commodity, with just a few nations having generous reserves. As such the supply of new gold is not constant, changing from time to time, which means we have to manage with the current quantity out there in the market. Prices can change sharply if the demand and supply equation changes and are always an important factor when it comes to determining rates in India.
2. Import rates - Natural gold reserves in India are dwindling and the country's gold production is down to a trickle compared to the past. As such most of the gold used in India is imported, making import duties an important factor in determining gold prices in the country. A high import rate is bound to increase rates and vice versa.
3. US Dollar - Gold rates are heavily dependent on how the US dollar performs, with prices inversely proportional to dollar rates. This relationship arises from the fact that gold is an internationally traded commodity and the US dollar is the preferred international currency. Any changes within the United States are bound to have an effect on gold prices, either directly or indirectly. The fact that a majority of gold purchased in India is imported means that prices in India are also impacted by international markets.
4. International Relations- - International relations between nations can influence gold prices, as tensions between global powers can push up rates. For example, if the US has cold relations with a major gold producer, gold prices could be impacted due to lack of supply. Easing of sanctions and overall global relations play a significant role in determining gold rates, primarily because gold is considered as a safeguard against geopolitical instabilities.

Who determines gold prices in India?

Gold prices in India are determined largely through an informal process, as there is no "kingmaker" as such in the Indian gold industry. International prices do have a bearing on gold rates in India, though the rates might not be the exact same as they are internationally. The Indian Bullion Jewellers Association or the IBJA as it is known plays a key role in determining day to day gold rates in the country. IBJA members include the biggest gold dealers in the country, who have a collective hand in establishing prices. These members account for almost the entire legal gold sold and purchased in India, and come from all corners of this diverse nation. Gold in India is primarily imported by banks, who in turn supply this imported gold to bullion dealers across India. Banks supply this gold to dealers after adding their fee to it, which already makes them a bit higher than the rate at which gold was imported.

The IBJA then gets into the act of determining prices by speaking to the ten biggest gold dealers in the country. These dealers give their respective 'buy' and 'sell' quotes, depending on the rate at which they purchased gold. IBJA then takes the average of these 'buy' and 'sell' quotes and determines the gold rate for a particular day based on this average. This average rate is adjusted for local taxes and a rate fixed accordingly.

Dealers generally arrive at their 'buy' and 'sell' rates by taking the international cost of gold and multiplying/adjusting it to the exchange value of the Rupee and adding any import duties and taxes such as VAT. Dealers ensure that they add their margin to the rates they give, keeping in mind their requirements. This procedure ensures that gold rates in India are on par with international trends and customers can purchase gold without any worry of being cheated with regards to gold rates.

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