India is world’s second biggest consumer of gold, after China. Bulk of the gold requirement is met through imports and domestic bullion recycled locally. So apart from international prices, which is denominated in dollar, import duties and other taxes play a role in determining domestic gold rates. Bullion is seen as a hedge against inflation but bond yields and the dollar rate also have a bearing on the prices of the precious metal. Here are latest gold prices in major Indian cities.
Throughout the course of history gold has been the most fascinating metal resource across the globe. Wherever on earth human civilizations chanced upon the shining substance, they treasured it like something either sacred or supernatural. For the Inca and other peoples of the Andean region of South America, gold was the "sweat of the sun," the most sacred of all deities. It was the ‘Gold Rush’ of the mid 19th century that led to the development of western coast of the US which was earlier primarily populated towards the eastern coast.
As far as demand for gold is concerned, India has been the largest consumer of gold, only to be overtaken by China in the last couple of years. The origins of the use of gold in India go as far back as the Indus Valley civilisation.
Over the centuries, gold, the only corrosion-resistant metal—a quality that makes it timeless—has come to be associated with purity. And in India, the land of spirituality and rich religious traditions, the purest has always been reserved for the divine.
Apart from its spirituality and divinity, gold is most significant in the contemporary era for its economic might. Gold is a universal liquidity standard making it the most sought after precious substance in the world.
Here are some facts you must know about the precious metal that is the yardstick of purity and luster throughout the world.
Gold prices differ from country to country, state to state, city to city and even at times from one retail store to another. There are diverse factors that determine the price of gold and all these factors are dynamic, interdependent and complex in the ways they play out in the market.
There is a change in the price of gold on an everyday basis because of the interplay of following determinants:
- London Bullion Market’s Spot price
- Bank transaction charges on Gold imports
- Custom Duty
- Market trends and government regulation in India
- Local taxes
- Making and wastage charges
Bullion is the term for gold and silver that are regarded as being in their natural, unprocessed state. Bullion is typically traded on commodity exchanges, where its value is determined by its weight and the price of the precious metal it contains at the time.
Bullion is a well-liked investment choice in India and is heavily traded on the nation's commodity markets. Bullion is in high demand due to its perceived value as a safe haven investment and its use in the jewelry sector.
In order to support the nation's economy and currency, the Indian government also keeps a strategic reserve of gold bullion.
There are two ways to indicate the purity of gold: Karat (denoted as KT) and the other is fineness number.
When purity of gold is measured in Karat, 24KT is considered the purest form of gold. But 24KT gold is considered too soft to be converted into any jewelry or ornament. Therefore, certain other metals such as silver and zinc are added to gold to convert it into jewelry.
Fineness number measures the purity of gold as parts per thousand. According to the World Gold Council website, 24KT should be 1.0, i.e., 24/24, but there is likely to be slight impurities in gold and can only be refined to a fineness level of 999.9 parts per thousand.
The government body called Bureau of Indian Standards (BIS) certifies the purity of gold. The process of certifying the purity of gold is called hallmarking.
According to the BIS website, there are two principle objectives of the hallmarking scheme:
1. To protect the buyer against adulteration
2. To obligate the producer to maintain legal standards of fineness and purity.
According to the BIS website, effective from January 1, 2017, hallmarking of gold is done only for three levels of purity. These are as follows:
|22K 916||Corresponding to 22 Karat gold|
|18K 750||Corresponding to 18 Karat gold|
|14K 585||Corresponding to 14 Karat gold|
The fineness number and BIS hallmarked on the piece of jewelry indicates that BIS has certified it to be of the fineness level/purity that is embossed on it as part of the hallmark. From June 16, 2021, it is mandatory for jewelers to sell hallmarked gold only.
Sovereign Gold Bonds (SGB) are government securities that offer an option to invest in gold without physically purchasing the precious metal. Investors can purchase securities in cash that are in denomination of grams of gold and can be redeemed on maturity.
The Reserve Bank of India issues gold bonds on behalf of the Government of India.
In comparison to keeping gold in physical form, the SGBs are a better option because they reduce storage-related risks and storage expenses are eliminated.
In the case of gold used in jewelry, SGBs are free from concerns like making charges and purity of metal. The bonds are kept in the RBI's books or in demat form, which eliminates the risk of scrip loss, among other things.
In addition, since the investor receives the current market price for the gold at the time of redemption or premature redemption, the amount of gold for which they pay is protected.
There are a few factors that have a direct bearing on the determinants of gold prices in India.
Supply – The supply of new gold is not constant as in its natural form gold has become a scarce commodity, with just a few nations having generous reserves. This means we have to manage with the current quantity of the commodity 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.
Import rates – India’s natural gold reserves are falling and the country’s gold production is down to a trickle compared to the past. Most of the gold used in India is imported, making import duties an important factor in determining gold prices in the country.
US Dollar exchange rate – Gold rates are heavily dependent on how the US dollar performs since it is the standard of exchange in the international market. 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.
International Relations – Tensions between global powers can push up rates. On the other hand, easing of sanctions can mellow the rates down. Overall global relations play a significant role in determining gold rates, primarily because gold is considered as a safeguard against geo-political instabilities.
Spot Price: London bullion market determines the per ounce price of 995k (99.5% pure) gold each day.
Bank transaction charges: These are bank’s margins added to the cost of gold that amount to around 0.2% of the cost.
(Adding spot price and bank transaction charges give us the metal value of gold.)
Custom duty: Custom duty and custom tariffs are levied on metal value of gold which in turn gives us the landed price of gold.
The Central Board of Excise and Customs (CBEC) publishes the custom tariffs fortnightly or when there is a change in spot price or currency exchange rate, A 10% custom duty is charged on this tariff.
(Landed price along with custom duty add up to determine the spot price of gold in India)
Market trends and government regulations: Market trends of demand and supply especially seasonal ups and downs on account of wedding season or festivals plays a significant role in determining the price of gold.
In addition to demand and supply, government policies of levying premium on imports or relaxing them changes the price of gold accordingly.
(The National Commodity and Derivatives Exchange Limited and the Multi Commodity Exchange of India Limited reflect the spot price of gold in India as a summation of all the factors stated above.)
Local taxes: After the spot price of gold is determined at the national level, variable taxes at the state level are added to the price. This includes the Value Added Tax (VAT).
The variability of rates in state level tax result in variability in the retail price of gold in different states.
Making and wastage charges: The last in the supply chain of gold are the making and wastage charges on coins, jewelry and bullion. This cost is the sum of profit margin, labour cost, wastage cost and business overhead cost.
These charges can be highly variable with respect to location of the retail store, availability of labour and cost of running the store, therefore, these charges are the primary reason behind difference in retail store prices.
There are several advantages to investing in gold.
Security: For starters, holding gold in physical form, such as coins or bars, gives one a sense of security and stability.
Inflation hedge: Due to its limited supply and finite resource status, gold is a well-liked investment choice because it serves as an effective inflation hedge.
Diversification of assets: A portfolio of investments can benefit from the diversification that gold can offer because it is not correlated with other asset classes like stocks and bonds.
Safeguard in an uncertain economy: In uncertain economic or market environments, some people turn to gold investments to safeguard their wealth.
The tax on gold investments in India is determined by the form in which the gold is held. For instance, there is no tax on the purchase or sale of gold if you invest in physical forms, such as gold bars or coins. However, you might have to pay taxes on any capital gains you make from the investment if you buy gold through a mutual fund or another type of financial instrument. Moreover, you have to pay income tax if you make money from gold mining or selling it.
Bureau of Indian Standards or BIS is the sole authority for hallmarking gold ornaments in India. Gold jewelry hallmarked by the BIS bears the BIS logo indicating that its purity is verified in one of its licensed laboratories.
BIS is the only agency in India approved by the government for hallmarking gold articles of any kind to ensure its purity.
Purity of gold can be checked in several ways but the most common ways include acid test or getting it appraised by a professional.
Acid test- An acid test entails putting a tiny drop of acid on the gold and watching what happens. If the gold is pure, the acid won't affect it in any way.
Getting appraised by a professional: Purity of gold can be determined by getting it appraised by a professionals, who use specialized tools and skills to determine its value.
On 29 July 2022, India witnessed the launch of India International Bullion Exchange (IIBX) in Gift City, Gandhinagar. The exchange opened up an opportunity for the long awaited 'one nation one gold rate' policy.
IIBX allows qualified jewelers and banks to import gold by paying international price without the intervention of intermediaries. This allows saving on freight charges and other marginal costs. Prior to the launch of the exchange, jewelers had to pay different prices in different states.
Directly importing gold through the spot exchange is advantageous for jewelers as it saves good money on margin payments. IIBX as an alternative channel for importing bullion in an efficient and transparent way ultimately benefits consumers since prices converge to a single point across the country.
Thus, the exchange has enabled taking a step forward towards ‘one nation one gold rate’ policy.
Gold mining is a global business with operations on every continent, except Antarctica, and gold is extracted from mines of widely varying types and scale. At a country level, China is the largest producer of gold in the world. In 2021 China’s production accounted for around 9% of total global production standing at 323 tonnes.
According to the data of World Gold Council, here are the top 10 gold producing countries of 2021-
|Country||Production in tonnes (2021)||Share in global production|
|Total Global production||3580.7|
According to the Goldhub data of World Gold Council, India imported 651.24 tonnes of gold in the fiscal year 2020-21. This was a substantial fall of 9.5% and 33.7% against 719.94 tonnes of gold imports for FY20 and 982.71 tonnes of gold imports in FY19 respectively. The fall in imports can be attributed to the Covid-19 pandemic.
India has been trying to regulate the import of gold since it has a direct bearing on Current Account Deficit (CAD) of the country. According to government data India witnessed a rise of 6.4% in Current Account Deficit (CAD) amounting to be $12.9 billion during April-July 2022 due to healthy gold demand.