How Are Gold Prices Determined
India is one of the top consumers of gold in the world. People not only buy gold jewellery, but they also buy gold for investment purposes. However, if you pay close attention, you will find that the gold rate fluctuates on a daily basis. The gold rate today will be different from what it was yesterday, as it is based on various factors.
Let us understand how gold rates are determined so you can make wise purchase decisions.
Factors Determining Gold Prices
● Inflation Rates
Inflation is one of the primary factors determining the gold rate today. As the inflation rate goes up, it also increases the prices of various commodities and services in the country, including gold prices.
● Gold Reserves
The Reserve Bank of India maintains a gold reserve for future needs. The gold reserves have a huge impact on gold prices. Higher gold reserves reduce the supply, leading to an increase in the gold price. Similarly, when the reserves are reduced, the supply increases relative to demand, which reduces the gold price.
● Demand & Supply
Gold is a part of the Indian customs and traditions. Hence, the demand for gold is high during the festive and wedding seasons. As the demand for gold increases, it also leads to an increase in the gold price.
● Rupee to Dollar Conversion Rate
India imports most of its gold requirements. Hence, the gold rates are initially set in US dollars. Depending on the exchange rate between the US dollar and the Indian rupee, gold prices fluctuate. If the dollar rates strengthen against the rupee, gold prices go up and vice versa.
● Global Economy
The global economic condition also has a severe impact on the gold rate today. Sudden and unfortunate events, such as a pandemic, recession, or global tensions, affect gold prices.
● State-Level Taxes and Duties
In India, each state has its own set of rules and regulations that contribute to determining the gold rate today. When gold is imported into a particular state, the government imposes duties and taxes, which impact the gold price. Hence, gold prices in Maharashtra may differ from those in Ahmedabad, Delhi and other states.
● Government Policies/Regulations
The government also establishes policies and regulations governing gold imports and commodity trading. For instance, the government may levy import duties or taxes, which can affect the gold price. Many times, people also use gold as a hedge to deal with inflation. Thus, government policies related to inflation also affect the gold rate today.
The Formula for Calculating Gold Price
While gold pricing involves multiple factors and calculations, here is the primary formula:
Gold Rate Today = ( Spot Price x quantity) + Premiums
OR
Purity Method:
Gold Value =( Gold rate x purity x weight)/24
OR
Gold Value= (Gold rate x purity x weight)/100
Conclusion
As we have seen, the gold rate today is determined by a number of factors in the market. Aspiring investors and buyers must determine how much quantity they need to buy and what the right holding period is.
By understanding how different factors affect gold prices, it is possible to make the right amount of investment at the most appropriate time to maximise the benefits, whether in terms of profit or otherwise.
