How Are Gold Rates Determined?

Gold prices in India are primarily determined by an informal method. Know the factors which are used for gold rates determination here!

7 Dec,2022 11:17 IST 217 Views
How Are Gold Rates Determined?

Gold loans have become an ideal avenue to raise immediate funds through a flexible loan product. However, for a gold buyer, seller or investor, it is essential to understand how gold price is determined to ensure they get the best price for the gold or the highest gold loan amount at the time of application.

How Are Gold Prices Determined?

One of the most common factors with gold in India is its price fluctuations, resulting in different prices daily. Suppose you are looking to buy gold today. The gold price may rise or fall tomorrow. Gold buyers and sellers constantly monitor these price fluctuations to ensure they get the best price for their gold.

However, understanding the price pattern and predicting if the gold price is likely to fall or rise requires understanding how the gold price is determined in India. The factors of how gold prices are determined are as follows:

• Demand and Supply

The demand and supply factors correlate with each other and directly affect the current price in the domestic market. If the demand for gold is higher than the supply, the gold price will rise. On the other hand, the gold price will fall if the market is lower than the supply.

• Economic Situation

People consider gold a safe investment to hedge against negative economic factors such as inflation. Suppose there are negative factors such as inflation and recession in the economy. In that case, it creates a fall in the financial markets. Investors may have limited liquidity and incur more losses. They prefer to invest in gold which may see higher demand in the domestic market.

• Interest Rates

The prevailing interest rates have an inverse relationship with domestic gold prices. RBI monitors and changes interest rates such as repo rates and reverse repo rates to manage the money flow in the Indian market, which indirectly affect the gold prices in India.

If the interest rates increase, there is a heavy sell-off of gold, increasing supply. People prefer to buy gold when the interest rates decrease, increasing the demand.

How Gold Price Is Determined: The Mathematical Formula

Apart from the factors that affect the gold price in India regularly, there are two mathematical formulas to calculate the gold prices based on the quality of the gold. Understanding the formula can allow you to identify the best prices for gold before making a purchase. Listed below are the two methods to calculate the gold price and their formulas:

1. Purity Method (Percentage): Gold value = (Gold’s purity x weight x gold rate) / 24

2. Karats Method: Gold value = (Gold’s purity x weight x gold rate) / 100

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Q.1: How the gold price is determined?
Ans: In the international and domestic markets, gold prices are determined based on demand and supply, economic situation, and prevailing interest rates. A change in such factors directly or indirectly influences gold prices.

Q.2: Do gold prices affect the gold loan amount?
Ans: Yes, gold prices directly affect the offered gold loan amount, as the loan amount depends on the actual value of gold in the market. On any given day, the higher the gold prices, the higher the offered gold loan amount.

Q.3: How can I apply for a Gold Loan with IIFL Finance?
Ans: Getting a gold loan from IIFL Finance is super easy! Click here and fill in all the required details to get an approved loan in 5 minutes.

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