Thursday, July 25th 02:43 PM IST

How to calculate the Indian price of Gold

# gold  # India gold imports  # Finance Ministry  # gold prices  

To prevent underinvoicing of gold, silver imports, the Ministry of Finance updates gold import prices based on global market trends every month for calculation of import duty. At present it is $401 per 10 grams and new rates are due by the end of this month.

Photo Courtesy: BigStockPhoto

By Sreekumar Raghavan
MUMBAI/KOCHI,INDIA (Bullion Street):Many people wonder why there is a difference between Indian and global prices of gold? Sometimes TV channels that seek my views on gold and silver market often ask whether trends in Indian market mirror global trends or is there any difference?

The answer to this question is both yes and no. Indian markets do reflect global trends but being the largest consumer of the yellow metal, its own demand and seasonal factors do affect the market sentiments.

If London Bullion Market Association (LBMA) Fix is at $1320 an ounce, Indian prices on a per gram basis could be $42.44 x Indian Rupee value against dollar (let us assume it is Rs 60). Gold per gram prices can be arrived at by dividing dollar value of gold in ounce by 31.9899927.This gives an answer of Rs 2546 per gram. To this we have to factor the 8% import duty which means we have to add Rs 203.68 to get an approximate market value on landed gold in India. Apart from this value added tax rates could be different from state to state and hence that also has to be added to arrive at the final price. When it is turned into jewellery, the retailers may mark up anything from 5-25 percent as making charges.

To prevent underinvoicing of gold, silver imports, the Ministry of Finance updates gold import prices based on global market trends every month for calculation of import duty. At present it is $401 per 10 grams and new rates are due by the end of this month.

Photo Courtesy: BigStockPhoto

So important factors that impact Indian gold prices are:
1) Global prices (since the nation only produces about 100 kg of gold every year)2) Indian Rupee vs US Dollar and other currencies3) Local demand, supply mostly through imports, recycling3) Seasonal demand factors (wedding, festivals..)4) VAT rates in different states5) Gold rates differ for bullion, 24 carat, 22 carat and 18 carat gold.

These could be the reasons why jewellers themselves quote different prices for gold in their websites and in some states gold prices on a particular day is fixed by the jewellers associations and do not change till next trading day even if there are wild fluctuations in domestic spot, futures and global markets.

Bullion Street has now started a gold prices section that enables consumers to know gold prices in about 20 major currencies with continuous updates on week days.

Meanwhile, due to tight restrictions on gold imports introduced by Reserve Bank of India and the Finance Ministry, gold smuggling seems to be increasing if news reports are any indication:

http://www.bullionstreet.com/news/india-witnesses-spurt-in-gold-smuggling/5264

http://indiatoday.intoday.in/story/gold-smugglers-return-hike-in-import-duty-india-today/1/284848.html


Meanwhile, Reuters have compiled the series of measures taken by India Government to curb consumption of gold:

http://in.reuters.com/article/2013/07/24/india-gold-timeline-idINDEE96N06S20130724

(The author is Chief Strategist at Commodity Online Group, email: info@bullionstreet.com)

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