How Gold Markets Run in India

Gold is traded in many forms, primarily as jewellery, bullion and ETFs. Gold jewellery sales are predominant in India with a lot of traction observed during wedding seasons and major festivals. Gold bullions are the pure forms of gold generally sold in large quantities while gold ETFs are a type of commodity trading where price speculations and contract purchases happen.

Gold bullions

Bullion trading is the basic term given to trading of gold, and the bullion reserve of a country demonstrates how much wealth a country has. Since India is the world’s largest importer and consumer of gold on the planet, its bullion market has a lot of promise. As a matter of fact, bullion’s price is on the rise thanks to a decline in the value of the dollar in the international market.

The export and import of gold has witnessed an increase in the number of restrictions in comparison with other commodities. India’s bullion market is highly fragmented and bullion prices vary to significant extents in various parts of the country, and the lack of a common benchmark across the nation is cited as the primary reason for its unorganised bullion market.

Gold jewellery

India’s jewellery and gem sector is among the quickest growing industries of the country, with the rate of growth recorded at approximately 15%. The main reason for the growth of the jewellery industry is attributed to domestic consumption during the festive seasons, wedding season, the monsoons and the performance of the harvest.

In fact, gold rates in India are affected by demand from jewellers and retailers throughout the year. Prices tend to peak around January/February when the wedding season is in full bloom while October/November generally brings surges to gold rates owing to major festivals and wedding seasonal demand. Gold jewelleries are generally priced higher than bullions as they include various costs including workmanship charges. As such, resale of gold jewellery fetches a lesser value than the purchase price.

Gold ETFs

Gold is generally sold in futures exchanges, where contracts are traded between sellers and consumers. The contracts are basically agreements between traders and sellers to deliver a predetermined quality and quantity of metal at a pre-agreed date. As these contracts can be margined easily, the market currently has a good amount of liquidity, and most of this liquidity is achieved through speculators who aspire to make profits on increasing gold prices. Thanks to the speculators, the retailers, refiners, producers and manufacturers, the gold sector is granted a safe haven against market risk.

A relatively high percentage of gold futures contracts are delivered before the predetermined date, which means that the contractual commitments of consumers are liquidated before they take possession of the precious metal. However, speculation is not the only premise on which the gold industry operates.

For instance, a firm that produces gold jewellery may agree to sell the metal to consumers as they physically purchase gold. Say if a jeweller requires 200 ounces of gold to produce 1000 gold rings. The production process may consume two weeks of his / her time, and in the same period, the consumer might not be willing to deal with the price risk. In this case, the jeweller may choose to sell a gold contract (200 ounces) on one of the gold exchanges and purchase physical gold at the same time for production purposes. Doing so will no longer require to undertake the price risk. When the rings have been produced after two weeks and the dealer finds a buyer, the ring is sold and the dealer buys back the contract at the same time.

Though consumers in India have different options when it comes to the purchase of gold, gold prices in the country are often dictated by international events and global rates.