Why do gold prices vary from outlet to outlet?

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Leaving out petrol and diesel, gold is the commodity the price of which is most keenly watched in the country. But very few have any idea how the price of gold is set in jewellery shops.

Jewellers in Kolkata told Money9 that though the West Bengal Bullion Merchants and Jewellers Association (WBBMJA) sets a price for the metal every day, no outlet is obliged to follow that price. “Following the WBBMJA price is not mandatory for our members. They can decide their own price every day,” said WBBMJA assistant secretary S K Chandra. Therefore, you might find a difference in price of the metal in the same city, or same area.

Just like anywhere else in the country, there is no regulator of gold prices in Bengal.

A number of outlets follow the price set by the association. But many also set their own price that are higher than the price set by the WBBMJA introducing a degree of arbitrariness in the pricing.

Some business organisations also follow the Reserve Bank of RBI quotes.

Even before the price of gold became a hot topic of discussion in the public domain, variation in the price of the metal in different outlets was common, though the range was not very wide.

India is the world’s largest importer of gold. About 70-80% of the domestic demand is met through imports.

The imports rose to a record 160 tonnes in March riding on the back of a dip in import duties and a softening of prices from the record high seen in August-September last year.

Though gold is imported only through government licensed agencies – most of them banks – there is no regulatory authority that can decide the retail and wholesale prices in the domestic market.

The macro factors that determine the prices of gold are demand and supply, inflation, import duty, GST, rupee-dollar exchange rate, rise of prices in the global market, uncertainty in the political/social climate etc. GST and other local taxes are levied by the state government which varies from state to state.

At a micro level, bullion associations mostly decide day-to-day gold prices in the different states or cities that is reflected in the price of gold displayed at the jewellery outlets every day. But there is a lack of clarity in the whole process.

COMEX (a division of the Chicago Mercantile Exchange) is the world’s most prominent benchmark futures contract for gold prices.