How Is Gold Price Calculated?

India’s love story with gold is known to all, with it being one of the largest consumers of gold in the world. The yellow metal is an integral part of our lives, as we consider it to be auspicious and always include it in our festivities. Moreover, investments in gold are considered to be ideal as they provide a hedge against market fluctuations.

However, have you ever wondered how gold prices are calculated? Let’s find out.

Gold prices can be categorised into two types- spot prices and futures prices.

• Spot Price

The spot price of gold is the actual value of gold. The spot price is the amount that you will have to pay for each ounce of gold as soon as you get the physical delivery. This price fluctuates on a daily basis as it is directly linked to the current value of gold. When you purchase gold from jewellers or dealers, they add a premium to the spot price of gold to cover their costs.

• Futures Price

Gold futures are contracts that state that the lenders will purchase a specific amount of gold on a future date, at a predetermined price. The price of gold futures contracts is fixed on various factors including the metal’s spot price, storage and shipping costs, etc.

Gold price is determined based on various factors. Some of these factors are discussed below:

• Demand and supply of gold

The supply of gold in its natural form is scarce, and hence may not be constant. Hence, if the demand for gold increases as opposed to its supply, the price of gold may go up sharply.

• Import duties

Most of the gold consumed in India is imported, as our own natural reserves of gold are reducing. Hence, import duties play a huge role in calculating the gold rate in the country. The higher the import duty, the higher the rate of gold.

• Value of the US dollar

The gold rates are inversely proportional to the value of the US dollar. This is because this precious metal is traded internationally, and the US dollar is the preferred currency for such trades. Thus, any changes in the value of the dollar can affect the rate of gold.

In India, the Indian Bullion Jewellers Association, or the IBJA, plays an important role in determining the gold rates in the country. IBJA is an association of some of India’s biggest gold dealers who account for almost all the legal gold sold and purchased in our country.

The gold here is mostly imported by the banks, who then sell it to dealers across the country along with an additional fee. This already pushes the price of gold higher than the rate at which it was imported. The IBJA then determined the daily gold rate by taking the average of the ‘buy’ and ‘sell’ quotes quoted by their top gold dealers.

The dealers give these quotes based on the rate at which they purchased the gold. Here, they take into account the international gold rate after adjusting it to the value of the rupee and then any import duties and taxes applicable. They also add their respective margins to the gold rate.

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