Last Updated on Jul 20, 2023 by Vyshakh
Have you ever wondered why some people travel to different places to buy gold when they can buy it directly from the shops available in the city? If yes, then don’t fret! In this article, we are exploring the 9 reasons why gold rates are different in different cities in India, and some frequently asked questions where we also learn about the gold city of India.
Table of Contents
Why are gold rates different in different cities in India?
Here are nine reasons why gold rates differ in different cities in India.
Government duties and tariffs
The import duty and taxes imposed on gold by the Government play a crucial role in deciding the price of gold in any country. These duties can vary depending on the country’s political and economic conditions. When import duties are high, gold prices in India also tend to be high.
The Government’s role in the bullion trade (a market through which buyers and sellers trade gold and silver and associated derivatives) goes beyond tax rates. The Government sets the import duty rates as India relies on gold imports rather than domestic mining. These rates play a crucial role in determining retail prices. The currency pooling deficit or surplus influences import duty rates. A deficit results in higher import duties, while a surplus leads to lower duties. Overall, the Government’s decisions regarding import duties directly impact the pricing of gold in the retail market.
Logistics and transportation cost
Transportation costs are one of the primary reasons for variation in gold prices among different cities. Gold is a valuable and heavy metal. It requires secure transportation, resulting in an additional cost. Moreover, there are various factors involved in the transportation costs, such as distance, mode of transportation, and security measures taken.
Further, India, as a major gold importer of the world, incurs substantial expenses for transporting gold. As a result, fuel, vehicle and security costs are added to the cost of gold. After importation, gold is distributed to different states based on demand, with costs differing based on transportation modes and security measures. The higher the transportation expenses to a particular city or state, the higher the gold price in that region.
Retailers’ margin
Retailers play a crucial role in setting gold prices across cities. They have the flexibility to determine their profit margins. It can vary from city to city, impacting the overall gold price. In cities where retailers’ profit margin is lower, the price of gold, as a result, is lower in comparison to cities where retailers keep a higher profit margin.
Local jewellery association
There is an association for almost every segment in our country. Similarly, jewellers have their own association, which regulates the price structure of the gold on a day-to-day basis. Associations such as The Jewellers and Diamond Traders’ Association in Tamil Nadu play a role in determining local gold rates. These associations establish the gold prices based on factors like the previous day’s End of Day (EOD) price, international gold market conditions, and additional costs involved in making gold marketable. These rates are typically set twice a day. Similar associations exist in various states across the country, contributing to the variation in gold prices among different cities.
The purchase price of gold
The price at which you have purchased gold is a key influencing factor in your overall cost. Well, how does the seller decide today’s gold rate? The seller’s purchase price and source of gold are key factors here. Jewellers who acquire gold at lower prices can offer lower rates and vice versa.
Demand, supply, and quantity of gold
The dynamics of demand, supply, and quantity influence gold prices. Whenever the supply curve shifts, it impacts the availability and pricing of gold in India. An increase in the supply leads to lower prices, whereas the otherwise can cause a significant price variation.
When we look at the demand factor for gold, it can be categorised into household and industrial demand. Household demand is driven by the interest in jewellery, bars, and coins, whereas industrial demand is fueled by gold Exchange Traded Funds (ETFs). We must look into one more type of demand when discussing gold price variation – demand across states and cities. Southern cities in India generally have lower gold prices than the north and west. Major cities like Chennai, Mumbai, Delhi, and Kolkata exhibit higher demand than tier 2 cities. Bulk purchases by sellers in these areas allow them to offer gold at discounted rates, reducing retail prices.
Value of Rupee and US Dollar
Gold rates are influenced by the currency factor in India, particularly the US Dollar (USD). It has been observed that gold prices and the US dollar share an inverse relationship. This means that gold prices tend to decline when the USD strengthens, and vice versa.
Moreover, the value of the Indian Rupee against international currencies, especially the USD, plays an important role in determining the gold prices in the country. A decline in the Rupee’s value leads to an increase in gold prices and vice versa.
However, the gold market has experienced fluctuations in recent years, with prices either remaining high or showing a steady decrease, indicating a balanced status in the gold market. But in most cases, it has been observed that any fluctuations in the US currency and Indian Rupee directly or indirectly affect Indian gold rates.
Central Bank Gold Reserves
Another important factor that causes variation in gold prices is the actions of central banks and the Government. When central banks increase their gold reserves or purchase more gold, it tends to drive up gold rates. On the contrary, if any country exports a significant amount of gold, it can lower domestic prices.
Gold reserves are crucial for supporting the nation’s currency as it adds strength and stability. However, there’s a downside to it. Excessive gold imports can devalue the currency over time.
Inflation
Gold investment is known to be a hedge against inflation. It has been observed that when inflation rises, the demand for gold tends to increase. It results in higher gold rates. Economic uncertainties also influence the gold rates. However, when the interest rates are higher, people may opt for fixed-income assets instead of gold since gold does not provide regular interest on investments.
Conclusion
Understanding regional gold rates is essential for you if you plan to invest or buy gold. However, illegal gold smuggling poses a challenge. Smugglers evade import duties, enabling them to sell at lower rates. It is important to note that purchasing gold without a bill supports smuggling and is considered a criminal offence. You should prioritise obtaining a bill and avoid participating in illegal transactions, as the potential savings from paying less for gold are not worth the consequences.
By understanding regional gold rates’ dynamics, you can identify opportunities to buy gold at competitive prices and make strategic investment choices.
FAQs
Which is the gold city of India?
All thanks to the colour of the sandstone it is built from, Jaisalmer is the gold city of India. The city holds historical significance due to its wealth and its position along the caravan route linking India, the Arab world, and Africa. Caravans passing through brought valuable goods like silk, indigo, sugar, dried fruit, and opium.
In the heart of the city stands Sonar Quila, also known as the Golden Fort. This impressive structure, situated on Trikuta Hill, showcases the city’s rich history and enduring magnificence. With its golden hues and commanding presence, the fort serves as a remarkable symbol of the city’s past, captivating visitors with its splendid architecture.
Why is gold so expensive?
Gold is a precious and valuable commodity with unique properties. Well, this doesn’t only make it more valuable. There are several reasons as well, such as the demand, supply, value of the US Dollar, retailers’ margin, and more.
Where do you find the cheapest gold in the world?
You can find the cheapest gold in the world in Hong Kong. The region boasts a plethora of banks offering gold coins at competitive premiums, making it convenient for investors to enter the market without incurring high costs.
What is the gold rate today?
As of 4th July 2023, the price of 1 gm of 22K gold is Rs. 5,515, and 24K gold is Rs. 5,791 in Delhi.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
