Why gold price is different in different cities?

Answer 1

Gold has been a favorite choice of investment for Indians. People go for gold ETF and E-gold, but buying the yellow metal in the form of jewelry is the all-time favorite for us. However, when a person decides to buy gold jewelry, they are perplexed to find that prices are different from one jeweler to another on the very same day, and these are different from prevailing spot prices.

Rates are different

Everyone knows that the rate of gold, like that of any other thing, is subject to daily market fluctuations. Your morning newspaper gives you the daily rate of gold, but when you go to a jewelry shop, the jeweler quotes a different rate. Besides, that price appears to be different from another jewelry shop nearby. You find it surprising that price of gold differs in jewelry shops in a city. For example, Tanishq was quoting the rate of Rs 2,731/gm for 22 carat gold on January 16; it was the same for all Tanishq stores across the national capital region or NCR. But BC Sen Jewellers was selling at the rate of Rs 2,707/gm for 22 carat gold on the same day at Gurgaon.

Why rates are different

The Indian jewelry gold rate differs across the country as there are no guidelines in the country for the calculation of maximum retail price (MRP) of gold. Difference in sales tax rates in states is the reason for variation in gold prices in various cities. Gold price may be different in local jewelry stores of a city as these stores take rates from different associations or jewelers. Rates are different at various associations due to factors such as average basket price, gold reserves and gross margin. For instance, the rate varies between Tanishq and Bholasons Jewellers due to their average basket price, gold reserves and different gross margin.

Who decides the rates for the day

The rates are fixed on the basis of spot prices on MCX. Shri Krishan Goyal, General Secretary of the Delhi Bullion Merchants Association, says, "Gold rates for jewelry for the next day are based on end of day (EOD) price of MCX spot." As far as determination of rates is concerned, it is done by various associations of jewelers or big wholesalers. Soumen Mallik, Chief Executive of BC Sen Jewellers, says, "Gold rates for the day are decided by big wholesalers. The rates are determined on the basis of the end of price of MCX spot. The average basket price, gold reserves and different gross margin are other factors which affect the end price. A group of jewelers follow the rate decided by the big wholesalers. For instance, all the jewelers (around 40-odd brands) of Gold Souk Mall in Gurgaon follow the rates decided by Bholasons Jewellers."

Does it change during the day

Gold rates for jewelry are based on the EOD price of gold spot on MCX. It means the price of gold for, say, Tuesday is decided on the basis of EOD price of gold spot on Monday. But the opening prices on Monday are same as closing prices on previous Friday as bullion and currency markets remain closed on Saturday and Sunday. If there is any holiday in the bullion market, the rates would be decided on the basis of end of day price of last trading day. Usually, the price decided is not changed during the day. But it is not the case if there are wild fluctuations in the prices of gold on MCX. Mallik says, "If the rates show wild fluctuations, then the rates are changed during the day as well."

Variation with spot prices

The rate of gold offered by jewelers is higher in comparison with the prevailing rate at MCX. Amit Bomb, Director, Avenue Montaigne, says, "The price of gold offered by us is relatively higher than the trading rates. The difference is Rs 150-200 per gram. It means if the EOD price of gold spot on MCX is Rs 27,000 per ten grams, the jeweler is likely to offer at around Rs 28,500- 29,000 per ten gram."

How it is done in smaller cities

Traditionally, most Indians go to their small family jewelers, normally located in a congested wholesale market, sit down on cotton mattresses with the jeweler and pick out some items. How do these small jewelers decide the rates? They take rates from big wholesalers in their city or the city nearby as applicable. Jwala Kumar, a jewelry shop owner in Patna, says, "Gold rates in Patna are decided on the basis of MCX prices shown on business channels. Big wholesalers in our city open the rate for the day and we have to take update on the prices at least three times a day." Asked how much is the variation with spot prices shown on television, he said, "Prices offered by us are higher by Rs 300-1,000 per ten grams."

How banks decide the rate

The rate of gold offered by banks also varies. Large banks take gold rates from the Hong Kong Exchange in the morning. In afternoon, these banks take rates from the London Metal Exchange and from the New York Mercantile Exchange in the evening. But if these banks take gold rates from same sources, why do the rates vary? The rates vary due to their average basket price, gold reserves and different gross margin. Smaller banks take gold rates from kitco.com.

What should customers do

When you plan to buy gold jewelry, you should check the gold price in the newspaper. Besides, you can check the price online, which is available on various websites. Information about price helps the customer when they visit the jewelry shop. Experts suggest that slight differences of gold price should not be the decisive factor while buying. When you plan to purchase gold jewelry, the purity is usually 18-22K; you should consider that other metals are mixed in it to provide strength to it. The more delicate the piece and intricate the design, the higher would be the mixed material. If you are buying from a local jeweler, the only guarantee on purity is his word. But this is not the case with branded jewelers, who certify purity. One measure to ensure that your gold is pure is to buy hallmark jewelry that is available at all branded stores and reputed local jewelers. Jewelers usually charge between 8 per cent and 25 per cent of the cost of gold as labor charges.

This depends on the kind of jewelry. The more delicate the piece and intricate the design, the higher would be the making charge. Some jewelry brands have a maximum retail price, which usually includes making charges, while other brands charge the current price of gold and making charges.