Understanding How Gold Prices Are Determined

Due to its extravaganza, liquidity, investment advantages, and ornamental usage applications, gold is one of the most sought after metals in the market. Even during the inflation phase, gold does not exhibit any dramatic price swings. Hence, it becomes imperative that everyone understands how this precious metal’s price is determined before investing or selling it.

How are gold rates determined

Gold prices are set regularly. You might be living in Mumbai, but the gold rate in Mumbai might be dynamic and change from day-to-day. It is an agreement between the parties on the same side of the market to buy & sell gold at a set price or to sustain market conditions by managing supply and demand to ensure that the price stays at a certain amount. Gold Fixing is done at the Business Association of London Bullion. The prices are set in US dollars every day at 10:30 am GMT and 3 pm GMT.

The spot prices are derived from:

Over the counter markets

OTC is a decentralised capital market not listed on the stock exchange. Instead of a physical trading floor, the market participant trades by phone or fax. The financial institutions that serve as market makers and bid or ask for a proposal act as the spot price.

Big banks and traders with bullion

For their buyers, bullion merchants and banks exchange vast quantities of gold. As part of the trading process, they buy and sell gold, contributing to a reliable source of spot prices for gold.

Gold’s closing price

The official closing price of gold does not exist. For example, the gold price today in Mumbai would not have a closing price. Companies use the following two options as the regular closing price:

  • Fixed Price
  • The supplier of data determines the closing price. To assess the closing price, data vendors use a particular recorded methodology.

Below are some factors that determine the price of gold:

Demand for Consumption

Indian consumers regard gold as both an investment and an adornment, according to a World Gold Council report commissioned by the World Gold Council and the Federation of Indian Chambers of Commerce and Industry (FICCI). Based on the heavy demand for gold in the country, there are also provisions for selling gold online.

Inflation and Gold price

The value of the currency declines as inflation increases, so individuals choose to keep cash in the form of gold. Thus, gold becomes a weapon to protect against inflationary pressures when inflation persists for an extended period. In the inflationary era, this pushed gold prices higher.

Gold and rates of interest

Note that there is a negative relationship between gold and interest rates under normal conditions. A rise in yield reflects the expectation of a healthy economy. A strong economy causes inflation, and gold is used as a safeguard against inflation. If you hit up “gold sale near me” online, you will see different vendors’ results with almost the same gold price, but the vendor can charge based on their internal policies sometimes.

Strong monsoons

Rural demand plays a significant role in the country’s demand for gold, which relies primarily on monsoons. India consumes 800-850 tonnes of gold annually, and rural India accounts for 60 per cent of its gold consumption. Therefore, the monsoon plays a significant role in gold consumption because farmers buy gold from their earnings to generate assets if the crop is healthy.

Effect of the equation of the Rupee-Dollar

Although it does not influence global gold prices, the rupee-dollar equation plays a role in Indian gold rates. Gold is mainly imported, so gold prices are likely to appreciate rupee terms if it weakens against the dollar. So, a depreciating rupee may dent the country’s demand for gold. Remember, however, that the shift in rupee-dollar rates does not affect dollar-denominated gold rates.

Currency Weakening

Gold and the dollar have an opposite relationship under normal conditions. Since foreign gold is denominated in dollar terms, gold prices are pushed up by any decline in the dollar and vice versa. The inverse relationship is because a declining dollar raises other countries’ currencies, which boosts such resources as gold.


Several factors determine the gold price, thus explaining the dynamic nature of the yellow metal. As an investor or seller of gold, consider the points discussed above before exploring various options.