Understanding daily gold price differences across urban markets

If investors compare gold rates across different cities, they will notice that prices are not the same in every urban market. The rates can vary by a few rupees per gram or even more.

For a metal traded based on global spot prices and imported into India, these daily price differences between cities often come as a surprise to buyers and investors. In this blog, we will explore the reasons behind these variations across urban markets.

The prices in India are determined on the basis of global spot prices. The global spot prices are quoted in the US dollar per troy ounce. It is then converted to Indian rupees at the current USD/INR exchange rate. After this, additional charges like import duty, logistics, and transportation costs are added to the converted prices. 

Currently, 3% GST is charged on the value and 5% on the making charges of the jewellery. The prices differ in the different cities because of a number of factors. Some of those factors are:

Most of the gold in India is imported. After being imported, it is transported to different cities in India. Cities that are nearer to ports like Mumbai will have a slightly lower cost of transport and logistics, and hence the price in these areas is slightly lower. In contrast, cities that are not along the ocean, but are far inland, will face increased expenses in terms of transport, insurance, and security, which are all added to the consumer price. 

That is why investors find that the gold rate in Hyderabad or the gold price in Kolkata today will display varying figures at the same time. This price gap often remains below Rs. 100 per gram, based on the local demand, supply, and market conditions. 

In addition to logistics and taxes, cultural demand is also a major factor that affects the rates in different region. Places such as Chennai, Hyderabad, and Kolkata have deep-rooted traditions of consumption that are associated with weddings, festivals, and family ceremonies. 

Therefore, the rates tend to be slightly higher in areas with high cultural or festive demand, like Chennai, because of the high regional purchasing trends of temple jewellery. Local jewellers occasionally increase their costs to reflect this strain on supply, especially during peak wedding season, when many people are buying. 

Each city has its jewellers' association, which determines the daily rate. Although these associations adhere to the international and national price standards, they usually introduce their own margins, which result in minor variations in the rates of the different region.

Although the GST on gold value is the same at 3% across the country, some states may impose additional local taxes, including an entry tax, or even a state tax that is levied by that specific government, which increases the rate in that city. 

The daily price variations which investors observe in different towns in India are not random or arbitrary, but the aggregate effect of various combined factors like the transport cost, local levies, the closeness of ports, cultural demand, and jeweller pricing strategies, all overlaid on the global spot rates. 

Knowing this structure helps investors make intelligent buying decisions by comparing rates across a few cities before buying. Thus, rates in a nation as geographically and culturally diverse as India differ in different cities due to the local imprint.