HOW GOLD PRICES ARE DETERMINED

1. ECONOMICS OF
GOLD
ADVANCED MICRO ECONOMICS
GAYATHIRI A

2. CONTENTS
 INTRODUCTION
 HOW GOLD PRICES DETERMINED?
 FACTORS INFLUENCING PRICES OF GOLD
 HOW DOES INDIA'S GOLD OBSESSION AFFECT THE
ECONOMY?
 GOLD AS AN INVESTMENT
 WHY ARE GOLD RATES DIFFERENT IN DIFFERENT
CITIES IN INDIA ?

3.  India is one of the largest importers of gold in the world.
 The lustrous metal is considered to be sacred by the masses.
 Gold is one of the most valued commodities in the world- it is considered a symbol of
wealth, status and ornamental value.
 Gold is traditionally used as a tool to preserve wealth from one generation to next
 Gold was used to buy and sell commodities before fiat money was introduced , which we call
it as GOLD STANDARD.
 India is one of the largest gold-consuming nation-specifically in terms of jewelry.

4. Have you ever noticed how the price of gold keeps fluctuating?
The gold rate today might rise or decline from what it was last week.
Gold buyers and sellers closely monitor these price fluctuations to enjoy the best rates.
The London Bullion Market Association (LBMA) and the COMEX in the United States
are among the most significant exchanges for gold trading.
The price of gold is often quoted as the "spot price," which represents the current
market price for immediate delivery of gold.
Futures contracts and options also play a role in gold pricing, allowing investors to
speculate on future price movements.

5. FACTORS AFFECTING GOLD PRICES
DEMAND AND SUPPLY
 The demand and supply largely influence the gold rate in the domestic market.
 When demand for gold is high and supply is limited, prices tend to rise.
 Conversely, when demand is low and there's an oversupply of gold, prices tend to fall.
CURRENCY EXCHANGE RATES:
 Since gold is traded globally in U.S. dollars (USD), changes in exchange rates can impact the price of gold.
 A weaker USD typically leads to higher gold prices, as it takes more dollars to buy the same amount of
gold.
CENTRAL BANK POLICIES:
 The actions and policies of central banks, particularly with regard to interest rates and monetary stimulus,
can affect the price of gold .

6. GEOPOLITICAL EVENTS:
Geopolitical events, such as wars, conflicts, and trade tensions, can create uncertainty and drive investors to
seek safety in gold.
TECHNOLOGICAL ADVANCES:
Advances in mining technology can influence the supply of gold, while advancements in trading technology
can affect the speed and volume of trading, potentially impacting prices.
INTEREST RATES
Interest rates have an inverse relationship with gold and typically, gold price drops when rates rise.

7. GOVERNMENT DUTIES & TARIFFS
the Indian government also affects the gold rate by imposing import duties on gold. The import duties on
gold can vary depending on the political and economic conditions of the country. When the import duties
are high, the gold prices in India also tend to be high.
CULTURAL AND SEASONAL TRENDS
You might have often wondered why gold price is increasing rapidly during festivals.
It is because gold holds cultural significance in India, especially during festivals and wedding seasons. The
demand for gold jewellery during these times can lead to price surges.
Cultural preferences and festivities contribute to fluctuations in demand, impacting the overall price of
gold.

8. Here are some of the most significant peaks in gold prices in recent years -
• May 2023 - Gold prices hit an all-time high of Rs 62,720 per 10 gm owing to an increase in US
Federal interest rates.
• March 2022 - The highest price of gold in 2022 reached around Rs 55,000, caused by market
uncertainty due to the Russia-Ukraine conflict and rumours of inflation.
• August 2020 - Gold reached its peak price of Rs 56,191, fueled by global monetary policy
shifts, low-interest rates, liquidity, and pandemic-induced uncertainties favouring safe-haven
investments.
• September 2019 - Driven by global economic concerns and trade tensions, gold prices
touched Rs 40,000 per 10 grams.
• September 2011 - This was one of the highest increases in gold prices caused by global
financial uncertainty and the US debt downgrade. Gold prices were at a peak of Rs 32,000 per
10 grams.

9. • If you check the price of gold in Maharashtra, West Bengal, Rajasthan, or any other state across
India, gold prices are likely to be different everywhere.
• There is no standard gold invoicing pattern in the country, and the billing system varies from one
jeweller to the next.
• Every city has its own jewellery association, and the gold rate is declared by these associations every
morning, due to which the gold rate varies in each town.

10. RETAILERS' MARGINS
• Retailers also play a significant role in determining the gold prices in different cities.
• The margins that retailers keep can vary from city to city, and this can affect the price of gold. For
example, a retailer in a city with a high margin will charge a higher price compared to a retailer in a city
with a low margin.
DEAMAND & SUPPLY
• Local market conditions play a significant role in determining gold prices in different cities. The
demand and supply of gold in a particular city can affect the price.
• Again, the demand for gold is influenced by various factors such as the local economy, cultural
significance, and the availability of alternatives such as silver or platinum.
• For example, if there is a high demand for gold in a city, the price will be higher compared to a city with
low demand. Similarly, if there is a surplus of gold in a city, the price will be lower compared to a city
with a shortage.

11. LOGISTICS & TRANSPORTATION COSTS
• One of the main reasons for the variation in gold prices from city to city is the cost of logistics and
transportation. Gold is a heavy and valuable metal that requires secure transportation.
• The cost of transportation varies depending on the location, and this can affect the price of gold in different
cities
• Transportation costs depend on various factors, such as distance, mode of transportation, and security
measures taken.
• If the transportation costs are high, the gold prices in a particular city are likely to also be high.
PURITY OF GOLD
• Purity level is another factor that contributes to the difference in gold rates in different cities. The purity of gold
is measured in karats, and the higher the karat value, the purer the gold is.
• When it comes to purity, the price of gold jewellery depends on two things: a) the parts of gold in the
jewellery, that is, 22KT, 18KT, or 14KT; and b) the type of metal used to mix with the gold.
• As the purity of gold decreases, the cost of gold will also be lower, For instance, 18KT gold will be cheaper than

12. THANK YOU