Anyone who tracks precious metals for even a few weeks will notice that figures rarely stay put. Shoppers casually checking the gold rate today 22k​ often find it slightly different by evening, and those comparing the today gold rate in Jaipur​ against other cities see small gaps as well. These changes are not accidents. They come from a mix of worldwide trends, national policy, currency movement, and the rhythm of Indian festivals. Understanding the main drivers will not allow you to predict tomorrow, but it will help you respond sensibly when the numbers shift.
Global Sentiment and Investor Behaviour
Most of the metal in India is imported, and hence, global trends in it see a quick impact in local markets. Investors turn their money into this asset class in times of uncertainty in growth, banking sector stability or political instability, as bullion benefits from a flight-to-safety. On the flip side, when confidence and share values are on the rise, some of this money trickles out, thus tempering values.
Interest rates affect this product, as metal does not pay any interest. During a period of attractive rates on deposits and bonds, this asset class becomes less enticing. When rates fall, the reverse happens. Another critical aspect is the buying power of big houses and sovereign funds. Sustained buying activity helps the metal retain its ground.
The Rupee, Duties and Taxes
Since this product is traded globally and converted to local currency, the value of the Rupee has a direct impact on it. A weaker Rupee makes it more expensive, despite a stable international value. But a stronger Rupee can negate global rises and help local figures remain steady.
Government policies have a considerable impact on retail prices. The import duty, which is one of the main constituents of the price of this product, changes often. Any increase or decrease in this duty can make a sudden jump or dip in retail figures. Besides duty, there is also Goods and Services Tax (GST) on the metal and a different rate on making charges. This explains why the figure on the invoice exceeds the quoted ‘benchmark’ that one sometimes sees on the news channels.
The Reserve Bank of India also has a role to play in terms of rates, reserves and sovereign gold schemes. Its policies are typically slow in onset, but have a bearing on the broader economic backdrop against which this product is traded.
Seasonal Rhythms in Indian Demand
India has festivals and ceremonies that dictate a part of the demand for this product. Akshaya Tritiya, Dhanteras, Diwali and the months of weddings are busy times for jewellery counters. During these times, some retailers add a premium to the quoted value due to demand outstripping supply, and also offer discounts on making charges to draw in customers.
There is also the rural demand which follows the monsoon cycle and its impact on disposable income. A good harvest leads to increased buying in villages and towns whereas a poor one leads to reduced buying. Analysts track rainfall, crop yield and rural wages, besides global cues.
Post major festivals and ceremonies, there is a period of relative calm in terms of demand. Savvy buyers take advantage of this slack season to get better deals as compared to a busy festive season when there are few buyers at any given moment.
Responding Calmly to Daily Swings
The biggest challenge for the average buyer is dealing with day-to-day swings. A sudden jump in numbers causes fear of missing the bus, whereas a sudden drop causes a frenzied buying spree. Either way, buyers act out of impulse in these circumstances.
A better way is to look at this product with a long-term point of view. Instead of looking at daily changes, look at changes over months and years. Look at the overall trend. Short term ups and downs are part of the ride.
Secondly, decide what one needs this product for. If it is a wedding, for instance, one can spread out the buying to take advantage of these dips. If it is an investment product, one could also look at a systematic investment plan, which would help buy more units when prices are low and fewer when they are high, thus, averaging out the cost.
Lastly, do not fall for any rumours, either through social media or word of mouth. Always rely on trusted sources and channels. Doing so helps in making better purchase decisions.
Bullion has always been a fascinating product which reacts to a mix of fear, hope, policies and festivals. Being aware of these can help take the emotion out of buying this product. The next time figures take a hike or a hit, one will now be in a position to know what is behind it, and not get impulsive. The most important learning for any buyer or saver to understand is that patient buying, as opposed to frenzied buying, is always a better option.