Gold-Part 2

9.1 The London Fix – How Global and Domestic Gold Prices Are Set

Varun: Isha, I’ve always wondered—who actually decides the price of gold each day?

Isha: That’s a great question, Varun. Globally, it’s done through something called the London Fix, and in India, we have our own system.

Varun: London Fix? Sounds fancy. Is it still relevant?

Isha: It’s more of a tradition now, but yes—it still sets the global benchmark. And in India, prices are set based on dealer quotes and import costs.

Varun: Interesting. So both global and local factors shape the price we see?

Isha: Exactly. Let me walk you through how both systems work—it’s actually quite fascinating.

Overview

Before diving deeper into gold price dynamics, it’s worth exploring how spot prices are determined internationally and in India. While these mechanisms have limited direct relevance to trading gold futures on MCX, they offer valuable context and historical insight into how benchmark prices are established.

International Price Discovery: The London Fix

Globally, the benchmark price of gold is set in London through a process known as the London Fix, conducted twice daily:

• AM Fix: 10:30 AM London time
• PM Fix: 3:00 PM London time

This process is coordinated by London’s leading bullion banks, originally facilitated by N.M. Rothschild & Sons. Today, the procedure is overseen by the London Bullion Market Association (LBMA).

How It Works

• Around 10–11 major banks participate, including names like JP Morgan, Standard Chartered, ScotiaMocatta, and Société Générale.
• At the scheduled time, dealers from these banks join a secure conference call.
• Each participant submits buy and sell orders based on client demand and market conditions.
• An average price is calculated from these bids and offers, which becomes the official gold price for that session.
• The process typically lasts 10–15 minutes and is repeated in the afternoon.

Though the London Fix closely mirrors actual trading prices in global markets, many view it as a symbolic tradition—a legacy mechanism that continues more for consistency than necessity.

Domestic Price Discovery: The Indian Bullion Mechanism

India, being one of the world’s largest consumers of gold, follows a more localized approach to price setting.

Key Steps

1. Designated banks import gold into India.
2. These banks distribute gold to bullion dealers, adding import duties and handling charges.
3. The Indian Bullion and Jewellers Association (IBJA) collects buy/sell quotes from its dealer network.
4. These quotes are averaged to arrive at a daily reference price, which is then circulated to jewellers and traders.

9.2  Understanding Gold Price Disparity – CME vs. MCX

Varun: Isha, now I’m curious—if the global price is set in London, shouldn’t gold prices be the same everywhere?

Isha: That’s a common thought, but not quite. Gold prices can vary a lot between global exchanges like CME and domestic ones like MCX.

Varun: Really? I thought any difference would mean an easy arbitrage trade.

Isha: It’s not that simple. India adds import duties, taxes, and other costs to the global price. That’s why MCX prices are usually higher.

Varun: Ah, so the gap is because of how gold lands in India?

Isha: Exactly. Let me show you how the price difference actually works—it’s a great example of how global and local markets connect.

Gold is a globally traded commodity, and many traders assume that its price should be uniform across international exchanges. This leads to a common misconception: if gold futures are priced differently on the Chicago Mercantile Exchange (CME) and the Multi Commodity Exchange (MCX), there must be an arbitrage opportunity.

However, this assumption overlooks key structural differences in how gold is priced and traded across regions. Let’s break it down.

Why Prices Differ Across Exchanges

At first glance, it seems logical to expect parity. For example, if 10 grams of 995 purity gold is quoted at $430 on CME, then the MCX price for the same quantity and purity should also hover around $430 (converted to INR). But in reality, prices on MCX and CME often diverge significantly.

To understand why, we need to examine how gold’s spot price evolves in India, and how that influences futures pricing.

Step 1: International Spot Price Conversion

Gold is quoted internationally in troy ounces, where:

• 1 troy ounce = 31.1035 grams

As of October 20, 2025, the spot price of gold in the US market is approximately:

• $4,238.58 per troy ounce

To convert this to 10 grams:

Using the current USD to INR exchange rate of ₹87.97 per $1:

This is the theoretical base price of 10 grams of gold in India, assuming no additional costs.

Step 2: Import Costs and Duties

India is a net importer of gold, and the actual landed price includes several charges:

• CIF (Cost, Insurance, Freight)
• Customs duty (currently around 15%)
• Agriculture Infrastructure and Development Cess (AIDC)
• Bank handling charges and premiums

These costs can add 5–10% or more to the base price. For example, if the international price is ₹1,19,899 per 10 grams, the effective domestic spot price may rise to:

This explains the disparity of ₹9,500–₹10,000 between global and Indian spot prices.

Step 3: Futures Pricing Formula

Futures prices are derived from spot prices using the formula:

F = S × e^(r × t)

Where:

• F= Futures price
• S= Spot price
• r= Risk-free interest rate
• t= Time to expiry
• e= Exponential constant (~2.718)

In the US, futures are priced off the lower spot price of $4,238.58 per ounce. In India, futures are priced off the higher landed spot price, which includes import duties and taxes.

As of October 20, 2025, the MCX Gold December futures are trading at:

• ₹1,32,485 per 10 grams

This is consistent with the inflated domestic spot price and explains why CME and MCX futures prices differ significantly.

9.3 What Drives the Price of Gold?

Varun: So MCX gold prices are higher because of import duties and taxes. Makes sense now.

Isha: Exactly. But that’s just the pricing structure. The real question is—what actually moves gold prices up or down?

Varun: You mean apart from supply and demand?

Isha: Yes, much more than that. Gold reacts to global events, inflation, interest rates—even currency movements like USD-INR.

Varun: Sounds like gold is more emotional than I thought.

Isha: You’re not wrong. Let’s look at the key factors that drive gold prices—it’s a fascinating mix of fear, finance, and fundamentals.

Gold has long held a reputation as a safe haven asset, especially during periods of economic or geopolitical uncertainty. When markets turn volatile, investors across the globe instinctively shift toward gold—not for short-term gains, but to preserve wealth.

Here’s a line chart showing the historical rise in gold prices from 1970 to 2025. It highlights key milestones:

• Gold was around $35/oz in 1970
• Surged to $615/oz by 1980
• Rose steadily to $2,000/oz in 2025

1. Gold as a Safe Haven During Global Events

History shows that gold prices tend to rise in response to major global disruptions. A recent example is the Russia–Ukraine conflict, which escalated in early 2022. In the weeks following the invasion, gold surged from around $1,800 to over $2,050 per ounce, as investors sought refuge from geopolitical risk and inflationary pressures.

Other events that have historically triggered gold rallies include:

• The COVID-19 pandemic (2020)
• The US banking crisis (March 2023)
• The Middle East tensions (ongoing)
• The Lehman Brothers collapse (2008)
• The Eurozone debt crisis (2010–2012)

Each of these events led to a decline in risk assets like equities and a corresponding rise in demand for gold.

2. Gold vs. Inflation

Beyond crisis-driven demand, gold is also viewed as a hedge against inflation. Investors believe that over the long term, gold retains purchasing power better than fiat currencies.

Let’s look at the long-term performance:

• In 1970, gold was priced around $35 per ounce
• As of October 2025, gold trades near $2,000 per ounce

This represents a 57× increase over 55 years. Calculated as a compound annual growth rate (CAGR), this translates to approximately 8.2% per year.

Now compare this with global average inflation:

• World inflation average: 5–6% annually
• India’s inflation average: often 6–7% or higher

This means that while gold may outperform inflation globally by 2–3%, its real return in high-inflation economies like India is more modest.

3. Key Drivers of Gold Prices

9.4 Technical Analysis on Gold – A Practical Trading Setup

Varun: So gold prices move with global events, inflation, interest rates… it’s a lot to track.

Isha: True, and that’s why many traders use technical analysis to simplify decision-making—especially for short-term trades.

Varun: You mean charts, moving averages, that kind of stuff?

Isha: Exactly. TA helps you spot trends, entry points, and exit levels without needing to decode every macro headline.

Varun: Sounds practical. Can we look at a real setup for gold right now?

Isha: Sure. Let’s walk through a current trade plan using the October 2025 chart. It’s a great example of how TA works in action.

Technical Analysis (TA) is a universal toolkit for traders, applicable across equities, currencies, and commodities. In this module, we’ll walk through a short-term trading setup for gold using TA principles and current market data. The goal is to demonstrate how to build a trade plan using price action, moving averages, and chart patterns.

Step 1: Establishing the Broader Trend

Before initiating any trade, I begin with a 2-year daily chart to understand the primary trend. This helps identify whether the market favors long or short positions.

Observations from the Gold Chart (2023–2025):

• Gold consolidated between ₹1,15,000 and ₹1,22,000 per 10 grams through most of 2023.
• A breakout occurred in May 2025, initiating a strong uptrend.
• As of October 21, 2025, MCX Gold December futures are trading at ₹1,30,588 per 10 grams, marking a new high.
• The trend is clearly bullish, supported by higher highs and strong volume.

Conclusion: The broader trend favors long trades. Any short positions must be tactical and tightly managed.

Step 2: Short-Term Chart Setup

Switching to a daily chart with 9-day and 21-day exponential moving averages (EMAs):

• The 8 EMA has crossed above the 21 EMA, confirming short-term momentum.
• Price action is holding above the pivot zone of ₹1,28,800, indicating accumulation.
• Bollinger Bands are expanding on the upper side, suggesting breakout potential.

Step 3: Trade Plan

Based on the chart structure and moving average alignment, here’s a sample trade setup:

This setup aligns with the broader uptrend and offers a favorable risk-reward ratio. Given gold’s volatility, such a move could materialize within a single session.

Step 4: Liquidity Consideration

Gold futures contracts are introduced months in advance, but liquidity builds closer to expiry. Always trade near-month contracts for better volume and tighter spreads. For October 2025, the December contract is the most active.

9.5 Key Takeaways

• Global gold prices are set through the London Fix, a twice-daily process led by major bullion banks under the LBMA.
• In India, gold prices are determined locally by the Indian Bullion and Jewellers Association (IBJA) based on dealer quotes and import costs.
• Gold prices on MCX and CME differ due to factors like import duties, taxes, and currency conversion, not because of arbitrage opportunities.
• India’s landed gold price includes CIF, customs duty, AIDC, and bank charges, which can add 5–10% to the international base price.
• Gold acts as a safe haven asset, with prices rising during global crises like wars, pandemics, and financial meltdowns.
• Over the long term, gold has outpaced inflation, growing at a CAGR of around 8.2% from 1970 to 2025.
• Key drivers of gold prices include geopolitical risk, inflation, interest rates, currency movements, and central bank policies.
• Technical analysis helps traders plan short-term gold trades, using tools like moving averages, Bollinger Bands, and price action.
• A bullish setup in October 2025 shows gold breaking out, with a trade plan targeting ₹1,32,000 and a stoploss at ₹1,28,800.
• Liquidity is highest in near-month gold futures contracts, so traders should focus on active contracts like December 2025 for better execution.

9.6 Fun Activity: 

You’re a gold trader trying to explain why MCX gold futures are trading higher than CME gold futures. Use the clues below to calculate the domestic price and identify the key cost components.

Scenario:

You observe the following data on October 20, 2025:

• CME Gold Spot Price: $4,238.58 per troy ounce
• 1 troy ounce = 31.1035 grams
• USD/INR exchange rate: ₹87.97
• Import duty and charges in India: 8%
• MCX Gold Futures Price: ₹1,32,485 per 10 grams

Questions:

1. What is the international price of 10 grams of gold in USD?
2. Convert this to INR using the exchange rate.
3. Add 8% import duty and charges. What is the landed price in India?
4. Compare this with the MCX futures price. What is the price gap?
5. Name two reasons why this gap exists.

Answer Key:

1. $4,238.58 ÷ 31.1035 × 10 = $1,362.87
2. $1,362.87 × ₹87.97 = ₹1,19,899
3. ₹1,19,899 + 8% = ₹1,29,491
4. MCX Futures = ₹1,32,485

Price Gap = ₹1,32,485 − ₹1,29,491 = ₹2,994

5. Import duties and taxes

Futures premium and local demand-supply dynamic