Ever wondered why gold coins are expensive compared to the price of gold on the MCX? Typically, the spot price of a commodity is lower than the futures price as the futures price is effected by the duration to expiry and interest rates. However, in India it is common to see the spot price of gold trade at a premium to the MCX price of gold. Also, lets say that you see gold’s price as Rs. 50,000 per 10 grams on the MCX and rush out to buy a 10 gram gold coin, you come to know that the coin costs Rs 55,000! You wonder why gold in the market is costlier than the price on the screen.. In this blog, we will try to break down the pricing of gold coins for you. All calculations done are for a 10 gram gold coin.
Step 1: Convert the international price of gold in USD to INR
On 31 July, 2022 gold was trading at USD 1,760 per oz. First, gold is measured in troy ounces and 1 troy ounce is 31.1034768 grams. Next, the value of $1 is Rs. 79.32. After doing some abra-cadabra (nah! simple maths), I get the value of international price of gold in Rupee per 10 grams as 44,883.
Step 2: Landed price of gold in India - add the taxes!
There is a 12.5% custom duty and 2.5% agriculture infrastructure and development cess on Gold imports in India. So, after taxes, the price of 10 grams of gold in India comes to Rs. 51,616 and this is usually close to the futures price of gold on the MCX.
Step 3: Find out the spot price of gold
The MCX price of gold should only be used as reference and typically the spot price of gold is 2.5% to 3% above the landed price of gold in India. This is because of the costs incurred to transport and store gold, coupled with the premiums and discount on gold.
The spot price varies from city to city by 100-200 Rupees and can be found out using a simple google search “Spot price of gold in Hyderabad today”. You don’t want the spot price and MCX price to have a wide gap.
Step 4: Making charges and GST
The jeweler (Tanishq, Joy Alukas, TBZ, etc.) or refiner (MMTC, BRPL, etc.) charges a making charge for making the gold coin or bar and this varies from brand to brand. Tanishq usually charges a high making charge compared to other brands. You wouldn’t want to pay a very high making charge because this doesn’t affect the purity or quality of the gold. The making charge is a percentage of the spot price of gold and ideally should be between 3% to 5%.
There is also a 3% GST on gold coins that you have to pay on the gold price + making charge.
Final price of the gold coin
So, once you add the premium, making charges and GST to the MCX price of gold you will get the price of a gold coin.
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| Price break-up of a 10 gram gold coin price |
If you want to buy a 24k 999 purity 10 gram gold coin, check the price what different brands are selling for and check how much premium to the MCX price / spot price you are paying. Do not compare a 22k gold coin’s price with a 24k gold coin’s price.
Tanishq is selling a 24k 10gram gold coin at Rs 60,000 on 31 July, 2022 which translates to a 16.2% premium while other brands are selling between Rs 55,800 to Rs 56,600 which translates to a premium of 8.1% to 9.7%.
Hope this helps you understand why gold coin prices trade way above gold prices on the commodities exchange!
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