The rupee in the price
Kavita IyerMarkets data editorGold is priced internationally in dollars, so a gram in rupees moves with two things at once: the metal and the exchange rate. This page explains how a reader can tell which of the two moved on a given day, and why the rupee is not a passive part of the price.
Two prices in one
The rupee price of gold is the dollar price converted to rupees. When the dollar price rises, the rupee price rises. When the rupee strengthens against the dollar, the rupee price falls, even if the dollar price is unchanged. The two move together, and the rupee price is the product of both.
This means a headline that says 'gold rose' may be wrong if the rise was only the rupee falling. A reader who wants to know what happened to gold must look at both the dollar price and the exchange rate. The table above this text does that: it shows the international price in dollars and in rupees, so the two can be separated.
How to tell which moved
On a given day, a reader can tell which moved by comparing the dollar price and the exchange rate. If the dollar price rose and the rupee was flat, the metal moved. If the dollar price was flat and the rupee fell, the exchange rate moved. If both moved in the same direction, the rupee price moved more.
The comparison is simple, but it requires both numbers. The table above this text shows the international price in dollars and in rupees, and the exchange rate is implied by the conversion. A reader can look at the dollar price and ask: did the metal move? Then look at the rupee price and ask: did the exchange rate add to or subtract from that move?
The rupee is not passive
The rupee is not a passive part of the price. It moves with the dollar, with the trade balance, with interest rates and with capital flows. A weak rupee makes gold more expensive in India, even if the international price is flat. A strong rupee makes gold cheaper, even if the international price is rising.
The rupee's movement is often the larger part of the rupee price change. On a day when the dollar price of gold is flat and the rupee falls by a small amount, the rupee price of gold rises by that amount. The rupee is a price in its own right, and it deserves the same attention as the metal.
The exchange rate and the premium
The exchange rate also affects the premium measured here. The premium is the difference between the domestic benchmark and the international price, both in rupees. If the rupee falls, the international price in rupees rises, and the premium may narrow even if the domestic price is unchanged.
The premium is measured as a percentage, so a falling rupee can make the premium look smaller without any change in the domestic market. A reader who sees the premium narrow should ask: did the domestic price fall, or did the rupee fall? The two have different meanings, and the table above this text separates them.
A daily check
A reader who wants to follow the rupee in the gold price can do a daily check. First, look at the dollar price of gold. Second, look at the rupee-dollar rate. Third, multiply the two to get the international price in rupees. Fourth, compare that to the domestic benchmark.
The difference is the premium, and the move in the premium is the part that is neither the metal nor the exchange rate. The table above this text does this calculation, and it updates with each reading. A reader can use it to see which part moved on any given day.
What the rupee does not change
The rupee does not change the domestic premium. The premium is the extra amount buyers pay over the landed cost, and it is set by demand. The rupee changes the landed cost, because the international price is in dollars, but it does not change the premium.
The rupee also does not change import duty or the tax on the purchase. Those are set in rupees, and they move only when the government changes them. The rupee is a part of the price, but it is not the whole price. The gap is the sum of many parts, and the rupee is one of them.
The rupee in brief
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Questions about the gap
Why does the rupee price move with two things?
The rupee price of gold is the dollar price converted to rupees. When the dollar price rises, the rupee price rises. When the rupee strengthens against the dollar, the rupee price falls. The two move together, and the rupee price is the product of both.
How can I tell which moved on a given day?
Compare the dollar price and the exchange rate. If the dollar price rose and the rupee was flat, the metal moved. If the dollar price was flat and the rupee fell, the exchange rate moved. If both moved in the same direction, the rupee price moved more.
Is the rupee a passive part of the price?
No. The rupee moves with the dollar, with the trade balance, with interest rates and with capital flows. A weak rupee makes gold more expensive in India, even if the international price is flat. The rupee's movement is often the larger part of the rupee price change.
Does the exchange rate affect the premium?
Yes. The premium is the difference between the domestic benchmark and the international price, both in rupees. If the rupee falls, the international price in rupees rises, and the premium may narrow even if the domestic price is unchanged. The premium is measured as a percentage, so the rupee can make it look smaller.
What does the rupee not change?
The rupee does not change the domestic premium, import duty or the tax on the purchase. The premium is set by demand, and the duty and tax are set by the government. The rupee is a part of the price, but it is not the whole price.
One gram, two prices, one unit
The Indian gold price is the world price, landed, taxed and then marked up by a domestic premium. This site converts both to one gram and prints the difference, before tax and after.