Gold has been money longer than money has existed. Its valuation, though, is anything but ancient or simple. The price you see on a ticker, the rate a jeweller quotes you, and the value a lender assigns to your gold ornament are three different numbers arrived at through three different processes. Understanding each one matters if you plan to buy, sell, or borrow against this metal.
The Global Benchmark: How the Spot Price Works
The international spot price of gold is determined through active trading on commodity exchanges, primarily the London Bullion Market Association (LBMA) and the COMEX division of CME Group. The LBMA Gold Price, formerly known as the London Gold Fix, is set twice daily through an electronic auction administered by ICE Benchmark Administration. Participating banks submit buy and sell orders, and the auction algorithm finds a price at which supply and demand balance within a narrow tolerance. This happens at 10:30 a.m. and 3:00 p.m. London time.
The price that emerges from these auctions is quoted in US dollars per troy ounce. It becomes the reference rate for central banks, mining companies, refiners, and financial institutions worldwide. Futures prices on COMEX, meanwhile, fluctuate continuously during trading hours based on contracts for future delivery. The interaction between spot and futures prices creates a dynamic that traders watch closely, since divergence between the two often signals shifts in storage costs, interest rates, or market sentiment.
From Global to Local: How Indian Prices Are Set
India is the world's second-largest gold consumer and imports almost all of what it uses. Domestic prices are therefore derived from the international spot price but adjusted for several local factors. The dollar price is converted to rupees, and then import duties, goods and services tax, and transportation costs are layered on top.
The duty component is currently large. In May 2026, the government raised the total import duty on gold and silver from 6% to 15%, combining basic customs duty with the agriculture infrastructure and development cess. This was the sharpest single increase on record and it pushed domestic prices well above the international equivalent overnight. On top of that, GST applies at 3% on the value of the gold itself and 5% on making charges when you buy jewellery. Anyone checking a loan app for gold-related financial products will notice that the per-gram rate displayed already reflects these local adjustments, not the raw LBMA price.
Currency fluctuations add another variable. When the rupee weakens against the US dollar, domestic gold prices rise even if the international price stays flat. This disconnect confuses people who track only global headlines. The domestic price can move in the opposite direction to the international one if currency movements are strong enough.
Purity and Its Role in Valuation
Not all gold is valued equally at the point of transaction. The LBMA benchmark assumes 99.5% purity or higher. Jewellery, on the other hand, is typically 22 karat (91.6% pure) or 18 karat (75% pure) in most Indian households. Hallmarked pieces carry a BIS mark, a fineness number such as 916 for 22 karat, and a six-digit HUID, which together confirm what the item actually contains. Where hallmarking is absent or disputed, purity is tested using methods like X-ray fluorescence (XRF) assaying or the traditional touchstone method.
The valuation formula is straightforward: the net weight of gold in the item, multiplied by its purity fraction, multiplied by the applicable per-gram price. A 10-gram chain of 22-karat gold, for example, contains about 9.16 grams of actual gold. The remaining weight is alloy metal, which carries little to no market value. Stones, fastenings, enamel and other non-gold components are stripped out of the weight entirely. Making charges, the premium paid for craftsmanship, are also excluded when gold is valued for resale or lending purposes.
When and Why Gold Rates Get Revised
Gold prices are not static through the week. The India Bullion and Jewellers Association (IBJA) publishes indicative rates twice daily based on the latest international price, exchange rate movements, and local supply and demand. Jewellers typically update their rates at the start of the business day and sometimes again during the day if international prices move sharply.
For lending, the position changed substantially in 2026. Under the RBI (Lending Against Gold and Silver Collateral) Directions, 2025, which took effect on 1 April 2026, lenders no longer set their own reference rate. Valuation must use the lower of two figures: the 30-day average closing price, or the previous day's closing price, for gold of the assessed purity, as published by IBJA or a SEBI-recognised commodity exchange. The same rule applies to banks, non-banking financial companies, cooperative banks and housing finance companies, so the same ornament should now fetch broadly the same valuation across regulated lenders.
The loan-to-value ratio is also no longer a flat number. When applying for a gold loan, borrowers should know that the RBI now sets LTV by ticket size: up to 85% for loans up to ₹2.5 lakh, up to 80% between ₹2.5 lakh and ₹5 lakh, and up to 75% above ₹5 lakh. Smaller borrowers therefore get more against the same gold than they did under the earlier flat 75% cap. The directions also require lenders to share the valuation report before disbursal and to return pledged gold within seven working days of full repayment.
What Drives Revisions Beyond Daily Fluctuations
Beyond intraday movements, several structural factors trigger notable shifts in gold valuation. Central bank purchases are a major one. In recent years, central banks across several countries have increased their gold reserves significantly. Inflation expectations, real interest rates, and geopolitical instability all influence how investors price gold over weeks and months rather than hours.
Government policy changes force the most abrupt revisions. The Union Budget of July 2024 cut basic customs duty on gold sharply, and domestic prices dropped within hours. That cut was reversed less than two years later, in May 2026, when duty went back up to 15% and prices jumped by a comparable margin in a single session. The lesson for anyone holding or pledging gold is that duty policy can reprice the domestic market overnight, independently of what London or New York is doing, and it can move in either direction.
Practical Implications for Individuals
If you own gold or plan to transact in it, the single most useful habit is checking the rate on the day of your transaction rather than relying on a price you saw a week ago. Gold is liquid, but its price is not stable. A difference of even a few hundred rupees per gram, compounded over the weight of a meaningful holding, translates into real money. If you are pledging rather than selling, ask for the assaying certificate and the valuation basis in writing, since both are now your right rather than a favour. Knowing how the price reaches you, from London auction to local counter, gives you a better sense of whether the deal in front of you is fair.
