Traditionally, gold has been viewed as a hedge against future uncertainty and volatility, especially by Indians. Investing in gold is also a good portfolio diversification strategy. India is one of the biggest consumers of physical gold as it is considered auspicious and a good investment. Indians are discovering how unused gold articles can be used to generate cash to meet financial needs. Thus, gold loans have become very popular due to the ease of process and disbursement. One of the factors that determine the gold loan amount is the weight and purity of the gold.
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As the price of gold varies with different purity levels, the gold price for 22ct would be different from the 24ct gold price. Thus, the gold rates have a big impact on the gold loan interest rates. Most lenders have online gold loan calculators that help customers find out details of a gold loan.
What Affects Gold Prices?
India imports most of its gold and the gold prices are influenced by many factors like USD dynamics, exchange rates, customs duties, etc.
- US Dollar: Gold in India is initially priced in US dollars. The gold rate for a particular day is heavily dependent on how the US currency performs on that particular day. As India imports a majority of its gold, the Indian gold rate is influenced by global market conditions, especially the dynamics of the USD.
- Supply: Gold is rare and thus a valuable commodity. Only a few nations have substantial gold reserves. The demand for gold usually overpowers the supply. Thus, the prices of gold depend upon how large or small the demand-supply gap is.
- Import Duties: As mentioned earlier, India doesn’t have enough natural gold reserves to meet the growing demand for gold. To meet the gold demand, India imports gold from other countries. The applicable import duties in this transaction have a direct effect on the Indian gold rates.
- International Relations: Geopolitical relations between nations could affect the supply of gold and that in turn affects the gold prices. Thus, good relations with nations that drive gold supply drive gold rates.
- Economic Conditions: Volatility in global markets push up the demand for gold which is seen as a hedge against economic instability. Thus, gold prices usually increase when economic conditions are unfavorable.
Calculation of the Gold Rate in India
For most Indians, gold prices are synonymous with the price of gold coins, gold jewelry, etc. Gold jewelry is mostly made with 22k, 20k, and 18k gold. Thus, 22ct gold price is one of the most common gold price indicators for gold jewelry. However, gold coins, bars, bullions, etc are usually made with 24k gold. Thus, a 24ct gold price is a standard for buying 1-gram gold coins, 5-gram gold coins, etc.
It is important to know how jewelers calculate and declare gold prices every day. Every city has a local gold traders’ association that determines the gold rate for each day. This is the reason that even for the same purity and weight, the price of gold could differ for different cities.
The standard formula that is applied to calculate the final price of gold coins, gold jewelry, etc is:
Final price of the jewelry = Price of gold per gram (24k, 22k, 20k, etc) X (Weight in grams) + making charges/gram + Goods and Services Tax (GST) on (Price of jewelry + making charges).
It is very easy to track live gold prices online before making a purchase.
How Does Gold Rate Affect Gold Loan?
The loan to Value (LTV) Ratio is one of the biggest determinants of the loan amount you are eligible for. LTV Ratio is the ratio of the gold loan amount you can get for the value of the gold you pledge. It is calculated by taking into account the weight and purity of gold. The higher the purity of gold, the higher the gold price. When gold prices increase, the value of the gold to be pledged also increases. Thus, a higher amount is available to the borrowers of a gold loan.
