Filed 25 July 2013, 14:43 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.
Indian gold prices do reflect international trends, but not directly and not proportionally, because India is also the largest consumer of the metal and its own demand and seasonal factors move the domestic market. The answer to whether Indian prices mirror global ones is therefore both yes and no, and the useful version of the answer is the arithmetic, which has four terms that move independently of each other.
The calculation as the original set it out
Take a London benchmark of $1,320 an ounce. Divide by the number of grams in a troy ounce to get a dollar figure per gram, multiply by the rupee exchange rate, which the original put at Rs 60 to the dollar, and the result is roughly Rs 2,546 per gram before any charge. Add import duty, at 8 per cent when this was written, which is about Rs 204 per gram. On top of that sit value-added tax, which varied by state, and the jeweller's making charge, which varies by piece.
One correction belongs on the record rather than in the copy: the original divided by 31.9899927 to convert an ounce to grams. A troy ounce is 31.1035 grams. The constant used is about 2.8 per cent too large, which makes the per-gram figure correspondingly too small. The archived text is reproduced as filed, because figures are never silently rewritten here, and the discrepancy is stated because a reader following the method should use the correct constant. The unit table in Charts & Data carries it.
The dispatch also notes that the Finance Ministry published a tariff value for gold and silver imports, updated monthly against global trends, used as the base for calculating duty rather than the invoice value, a measure aimed at under-invoicing. It stood at $401 per ten grams when this was written.
The four terms, and why each moves separately
| Term | What it is | What moves it |
|---|---|---|
| International price | London benchmark, USD per troy ounce | The world market, continuously |
| Exchange rate | USD to INR conversion | Currency markets, independently of gold |
| Import duty | A statutory percentage on a published tariff value | Policy: 2 % to 10 % over two years |
| Landed premium | Transport, insurance, local scarcity | Physical demand and supply channels |
| State VAT | A local sales tax | The state you buy in |
| Making charge | Workmanship and retail margin | The piece, the retailer, negotiation |
The independence of these terms is the whole point. A rupee gold price can rise on a day when the dollar gold price falls, because the rupee weakened by more than the metal did. It can jump overnight with no market move at all, because duty changed. And two jewellers in different states can quote different prices for identical 22-carat gold, entirely legitimately.
Purity, and the comparison that is usually wrong
Indian retail quotes 24-carat (999.9) and 22-carat (916) gold separately, and most jewellery is 22 carat. A very large share of published comparisons between Indian and international prices compare a 22-carat retail number including duty and making charges with a 995-fineness wholesale number that includes neither. The gap that results is then attributed to some feature of the Indian market rather than to the four terms above.
That is why this dispatch has kept its readers for more than a decade: the question "why is gold more expensive in India than in the US" has a precise answer, and it is arithmetic rather than culture.
What has changed since
All four numbers. Duty, the exchange rate, the international price and the tax structure have each moved substantially, and India's state VAT was subsequently replaced by a national goods and services tax. The method is unchanged, which is the durable part, but the figures in this dispatch are July 2013 figures and are not a current calculation. For the policy sequence that made duty the volatile term in this stack, see India's gold import regime.
Questions about this dispatch
How do you calculate the Indian price of gold?
Start with the London benchmark in dollars per troy ounce. Divide by 31.1035 to get dollars per gram, multiply by the rupee exchange rate, then add import duty on the published tariff value, the landed premium, state sales tax and the jeweller's making charge. Each of those terms moves independently, which is why a rupee price and a dollar price can diverge on the same day.
Why is gold more expensive in India than internationally?
Because a retail Indian quote contains duty, premium, tax and making charges that a wholesale international quote does not, and because the two are usually quoted at different purities: 22-carat retail against 995-fineness wholesale. The gap is arithmetic, not a feature of the Indian market.
This dispatch divides an ounce by 31.99. Is that right?
No. A troy ounce is 31.1035 grams, so the constant in the original is about 2.8 per cent too large and the resulting per-gram figure correspondingly too small. The archived text is reproduced as filed because this site does not silently rewrite figures, and the correction is stated on the page. Use 31.1035.
Can I use this method today?
The method, yes. The numbers, no. Duty, the exchange rate, the international price and the tax structure have all changed substantially since July 2013, and state VAT has since been replaced by a national goods and services tax. Treat the figures as a worked 2013 example and substitute current ones.
This page restores an item first published on 25 July 2013, 14:43 IST at the address below. Cite the publication date rather than the date you read it: the material is a 2011 to 2016 document, and the date is what makes it meaningful.
https://www.bullionstreet.com/news/how-to-calculate-the-indian-price-of-gold/5286