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Authorities who decides the price of gold
Posted on: 07/Sep/2019 5:51:24 PM
Gold procured from overseas might be imported by approved banks.
This imported gold is sold through the above-approved banks to the bullion dealers or bullion traders. This sale is done as on the date then and there.
The gold price is calculated as per the value of US Dollars or Pounds and the other related expenses. The price of gold is decided by the trend of several buyers together and their buying capacity.
The price is calculated based on the prices in the country from where it was imported, customs duty, and other related expenses and sold to Indian Bullion Jewelers’ Association (IBJA).This set-up operates from Mumbai. The price is decided based on the buying capacity of the entire buyers together and their buying capacity. It is fixed based on the 6 integrated factors:
- The day’s International Price
- Customs Duty percentage
- VAT
- Octroi
- Premium
- Their profit
So, the price will vary from state to state depending on the VAT and Octroi.
Mumbai is the commercial capital of India. The USA and European countries are the leaders in gold trading.
The centuries-old set-up, functioning in London, Britain, London Bullion Market Association (LBMA), is the authority which fixes the value of gold. The gold price varies twice every day at 10.30 AM and 3.00 PM. LBMA comprises of over 100 of the world’s largest banks and Finance Corporations. The value 2 times per day as above is fixed through telephone calls.
5 companies represent LBMA. These companies represent themselves as well as their customers. In other words, their customers order their requirements of buying/selling through them. Based on the receipt of these orders and assessing the day’s demand, their customers’ requirements, and stock on hand, they organise a meeting, consult together and then fix the price.
It also happens sometimes that the paper value of gold is altered artificially. Many such tricks are practised! They will fix the gold price in US Dollars or Euros or British pounds depending on the 6 factors mentioned above depending on their country, etc..
However, the gold price as in Dubai, though it is a leading country in gold trade, is not that popular. Dubai does not play any role in fixing the gold price and is not followed by any other countries.
Gold price is fixed as per the demand and supply. For example, if the demand is for 100 tons and the supply will be only 90 tons, as the demand is more than supply, the gold price will be higher. When the demand is less and the supply is more. The gold price becomes lesser.
Actually, this demand/supply criteria is fixed by the demand from countries such as the USA (New York), Uk (London), China (Shanghai), India, Dubai, and Japan. A major role among these countries is played by China (leading position) followed by India (2nd).
Apart from the above major countries, prominent banks and financial institutions such as Barclays, Bank of China, Coldman Sox, HSBC Bank, JP Morgan Chase, Morgans Stanley, Standard Chartered Bank, SCOTIA-MOCATTA, Toronto Dominion Bank, and UBS Bank also participate in this decision.
Subsequently, the present leading producer and consumer in the world, China has brought up certain policies threatening the rest of the countries of the world!
Until now, though China was the leading gold consumer, only the London Bullion Market Association has been fixing the gold price. Presently, China has started buying gold mines in large numbers! It has brought the gold kept in London, New York, and Switzerland and kept it under its control.
Though the USA and Europe remain as the gold trading and gold price-fixing entities, they have not kept large quantities of gold by themselves. However, China has kept the world’s largest quantity of gold and paper gold as well! Due to this, there is anxiety whether the exchange rate of US Dollars and British Pound will change gradually and China’s Yuan playing the leading role! In fact, China has started indulging in such activities from April this year.
We are now aware that gold price varies from state to state in India. These changes are due to the sales tax rate in the respective state, the bank from which the gold was procured and the distance travelled, and other related expenses.
As India happens to a multi-culture and multi-religious country with excess demand for gold, the price varies from state to state. For example, the wedding season in North India is far different from the wedding season in South India.
The term,’ London Gold Fix’ is frequently used! However, even in London, the gold price is fixed twice in a day!
The 5 prominent banks which are the bullion traders participate and decide as per the order received from their clients - say 10 clients - someone of the may buy, another may sell - 1 customer may buy 100 kg gold whereas another may sell 50 kg of gold!
All these data have to be taken into account, the demand for the day, how many are buying, how many are ready to sell by these 5 banks and analyse the trading trend which may happen in just a few minutes and then decide their requirement. This process is known as ‘London Gold Fix’!
To get the latest Gold/Silver price visit : Gold rate in Chennai
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