Indians are very fond of the precious yellow metal. Gold is seen as an investment and also a symbol of stature for many of us. Gold ornament is probably the most popular and fastest selling type of the yellow metal in India. But not many know what goes into the pricing of gold ornaments, the pricing of the gold ornament depends on a lot of factors and not just the rate of gold.
Formula for calculating the price of gold
There is a special formula that is used to calculate the price of gold. Given below is the formula that is used to calculate the price of gold.
Price of the gold ornament - Price of 22k gold (weight of the gold + wastage charges) + Making charges for the ornament + Value Added Tax
In India, gold ornaments are usually made from 22 karat gold and hence, the same is used for calculations.
It is important to understand all the components and factors that go into the calculation of gold. Given below is a clear and detailed explanation of all the factors that go into the pricing of gold.
- Karat - What many might not be aware of is that gold in its purest form is very delicate and is not suitable for jewellery. To make gold stronger and more suitable for jewellery, it is alloyed with various other suitable metals that make it strong enough to be made into jewellery. Gold is usually alloyed with metals such as nickel, silver or copper to make it suitable enough to be moulded into ornaments and when this happens, the percentage of gold decreases. The gold content in a jewellery is indicated by ‘karat’. If a piece of ornament is made of 22 karat gold, it means that the ornament consists of 22 parts of gold or 91.3% gold and the rest constitutes of other metals. The purest gold will be of 24 karat.
- Weight in grams - Gold jewellery in India is weighed in grams. This part in the formula indicates the weight of the gold ornament. Heavier the ornament, more the price.
- Wastage charges - There is a lot that happens while making a gold ornament. While moulding gold into an intricate ornament a lot of gold will be wasted while cutting, shaping, melting the gold into the desired design. A lot of gold is wasted while making an ornament and jewellery makers charge a fee for the gold wasted in the process of making the ornament known as wastage charges. The wastage charges evied depends on the type of ornament and can be anywhere between 2% to 25%.
- Making charges - Making charges indicate the fee paid to the goldsmith for the services rendered while making the gold ornament out of raw gold. The more intricate and complex the design of the ornament, higher the making charge.
- Value Added Tax - Value Added Tax is a type of indirect tax levied by the government on purchase of products. VAT is very different from sales tax and the VAT charged in every state is different from another. Many states in India charge VAT on gold ornaments.
Factors that affect the pricing
There are a lot of factors that affect the pricing of gold ornaments. Given below are some of the important factors that affect the pricing of gold.
- ETFs - Usually funds are required to maintain the value of ETFs sold in the form of physical gold and of lately demand for ETFs has increased.
- The rupee and the dollar - India is one of the top consumers of Gold and since the supply is not enough, there is import of gold. The value of imported gold is maintained in dollars and then is converted to rupees. The exchange rate of rupee and dollar plays a very important role in the pricing of the gold.
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