Why shops differ

There is one national benchmark for gold, but two shops in the same city quote different prices. The difference is part metal, part shop. This page explains why the benchmark is not a price, what a shop adds, and what a reader should compare before buying.

The benchmark is not a price

The benchmark published by the India Bullion and Jewellers Association is a reference rate, not a price at which anyone buys or sells. It is the rate used for tax, for lending against jewellery and for buy-back counters. It is the same across the country, and it changes twice on each trading day.

A shop's price is not the benchmark. The shop adds its own costs and its own margin, and it may add a making charge for jewellery. The benchmark is the floor, not the ceiling. A shop that quotes the benchmark as its price is selling at a loss, and no shop does that.

What a shop adds

A shop adds three things to the benchmark: a making charge, a margin, and the tax on the purchase. The making charge is the cost of turning metal into jewellery, and it varies with the design. The margin is the shop's profit, and it varies with the shop's location, overheads and strategy. The tax is the goods and services tax, charged at three per cent on the total price.

The making charge is the largest variable. A simple bangle may have a small making charge, and a intricate necklace may have a large one. The margin is smaller and less visible, but it is there. The tax is the same everywhere, but it is charged on the total, so a higher price means a higher tax.

Why two shops in the same city differ

Two shops in the same city differ because they have different costs and different strategies. A shop in a high-rent location may charge a higher margin. A shop that buys in larger volumes may get a better price from its supplier. A shop that is holding old stock may be willing to sell at a lower margin to clear it.

The difference is not the metal. The metal is the same, and the benchmark is the same. The difference is the shop's costs and the shop's decisions. A reader who compares two shops should compare the total price, including the making charge and the tax, not just the quoted rate per gram.

What part is the shop rather than the metal

The part that is the shop rather than the metal is the making charge and the margin. The metal part is the benchmark plus the import duty and the domestic premium, and it is the same for every shop. The shop part is the cost of turning metal into jewellery and the profit the shop wants to make.

The shop part is not published anywhere, and it is not estimated here. A reader can find it by comparing the total price of the same item at two shops. The difference is the shop's addition, and it is the part the reader can negotiate.

What a reader should compare

A reader should compare the total price of the same item, not the rate per gram. The rate per gram is only the metal part, and it may be the same at two shops while the total price differs because of the making charge. The making charge is often quoted as a percentage of the metal price, and it can vary widely.

The reader should also compare the purity. The benchmark is for fine gold, and jewellery is often less pure. A lower purity means a lower metal price, and a shop that quotes a lower rate may be selling a lower purity. The reader should ask for the purity in carats and the exact weight, and then compare the total price.

Buy-back is not the same

When a reader sells gold back to a shop, the price is not the benchmark. The shop will deduct its own margin and may deduct a making charge if the item is jewellery. The buy-back price is often below the benchmark, and it is not published anywhere.

The buy-back price is the shop's decision, and it varies from shop to shop. A reader who wants to sell should ask for the buy-back price before buying, and should compare it with the benchmark. The difference is the cost of liquidity, and it is the shop's addition, not the metal's.