Why Gold is Cheaper in Kerala: The Key Reasons Explained. | IIFL Finance (2024)

Gold loan are short- to mid-term financial instruments to obtain funds easily for multiple purposes. The loan amount offered against the market value of the pledged gold depends on the gold price on that particular day. Fundamentally, the rate of gold is determined by the international gold rates on that day. So, logically speaking, the gold rates should be the same everywhere. But this is not so.

Gold prices vary across countries. Even in India the prices differ across states and cities. Apart from international rates, the price of the yellow metal is determined by various other factors like demand and supply, import duties, and rupee-dollar exchange rate. In addition, there are a few more variables that add to the equation.

Here is a list of factors that determine the gold price:

• Inflation:

Whenever there is an elevation in the inflation level, the gold rate increases. Gold is used as an instrument to hedge against inflation, meaning its value does not fluctuate much during inflation. So, during inflation there is more demand for gold as it is a preferred asset rather than currency. Because of high demand, the gold rate goes up.

• Interest On FDs:

When interest rates on FDs rise, the gold prices fall because people invest less money in gold. On the contrary, with a decrease in the interest rates on FDs, the price of gold increases. This is because a lower interest rate is an opportunity for people to invest in gold, which generates a high demand eventually contributing to increased gold prices.

• Time Of Purchase:

During festivals and weddings, demand for gold increases and so does the gold rate. For example, the price of gold sees a steep increase around Onam in Kerala because gold is considered auspicious and an ideal gift to family members.

• Currency:

Gold rate largely depends on the global market. Currency fluctuations are caused by various factors, including monetary policy, imports, inflation, etc. The gold rate increases when the US dollar strengthens against the Indian rupee. This is because India imports most of its gold and pays in dollars. Accordingly, when the Indian rupee falls, importing gold becomes more expensive.

Gold prices, on a particular day, can be known from several financial websites. It can also be known by visiting any retail jewellery shop.

It must be remembered that gold rates at the state level differ as per the local taxes and transportation costs. One interesting fact is that gold prices in various southern cities are significantly lower than in the north and west.

In India, Kerala is one of the most significant gold markets. Presently, the gold rates in Kerala are the lowest for 22-karat and 24-karat gold. Check the difference between 22k and 24K in india

The Unique Gold Market of Kerala

Kerala's affinity for gold is not just a trend but an integral part of its societal fabric. The state exhibits a pronounced fondness for gold, evident in its substantial contribution to India's gold demand. Monthly per-person gold expenses in Kerala's rural areas average at Rs 208.55 and Rs 189.95 in urban settings. Festivities and traditional ceremonies further amplify this penchant for gold, making it an indispensable part of celebratory customs.

But why does gold seem more accessible in this region? Kerala's gold rates are primarily shaped by the All Kerala Gold and Silver Merchants Association, responsible for determining daily gold prices based on numerous influential factors. The pivotal driver behind Kerala's comparatively affordable gold prices hinges on the intricate dynamics between demand and supply.

Gold Rates in Kerala 2024

What's the gold price movements in Kerala over the years?

Over the years, the gold price has fluctuated like any other state in India. Here’s a look at the gold price movements in the past.

Factors Steering Gold Prices in Kerala

Inflation's Influence:

Kerala experiences relatively subdued inflation compared to its counterparts. With a more stable purchasing power, the urgency to seek gold as a hedge against inflation diminishes, leading to reduced demand and subsequently, lower prices.

Interest Rate Dynamics:

The lower fixed deposit rates in Kerala discourage traditional investments, prompting a shift towards gold investments, thereby augmenting demand and elevating prices.

Currency Fluctuations Impact:

Gold import costs hinge significantly on currency fluctuations. Kerala's favorable trade balance and augmented foreign reserves help maintain a stable rupee against the dollar, thereby keeping gold import expenses in check and contributing to comparatively lower gold prices.

Seasonal Demand Patterns:

Kerala displays a distinct pattern in gold demand, showcasing lesser fluctuations throughout the year due to fewer festivals and ceremonial occasions necessitating gold purchases. This steadier demand curve contributes significantly to stabilizing gold prices in the region.

GST on Purchase:

When you buy gold, there's a 3% GST added to the value of the gold and the making charges. If the gold is imported, there might be additional import duty and cess, making the total tax around 18%.

Cultural Predispositions

Purity and Design Preferences:

The preference for 24-karat gold in Kerala, valued for its perceived auspiciousness, contrasts with the national preference for 22-karat gold due to its durability. Additionally, Kerala's penchant for simpler and more elegant gold jewelry designs results in lower making charges, influencing overall gold prices.

Kerala's Distinct Gold Market Tapestry

The phenomenon of lower gold prices in Kerala is a convergence of economic underpinnings, cultural idiosyncrasies, and consumer inclinations. Kerala's unique consumption patterns, bolstered by its economic stability and cultural leanings towards specific gold qualities and designs, contribute significantly to the region's comparatively accessible gold prices.

Understanding the intricate interplay of regional dynamics within the gold market unravels the nuanced factors shaping the price of this cherished metal, showcasing Kerala's distinctive position in India's diverse gold landscape.

Also, if you are facing a financial crunch, you need not sell your gold jewellery. Instead, you can pledge the gold jewellery with a reputed lender such as IIFL Finance and take out a gold loan.

IIFL Finance provides a fast and 100% transparent process for gold loans to meet your urgent financial needs. It provides the best value for your gold assets and offers competitive interest rates. Moreover, IIFL Finance keeps the ornaments locked in secure vaults and returns the pledged gold safely to the borrower after the loan is repaid.

How Is The Gold Rate In Kerala Calculated?

The gold rate in Kerala is determined by the All Kerala Gold and Silver Association on a daily basis. It is a group of gold merchants that decides the gold rate keeping in mind all the above factors.

The most important factor shaping the gold rate in Kerala is the international gold price. An increase in the global gold price also raises the gold rate in Kerala. In the last few years, the US dollar has been gaining strength against the Indian rupee due to which the gold rates in Kerala have increased.

In Kerala, the love for the yellow metal is evident in every Malayalee’s life. According to Commodity online, a leading business journal, Kerala accounts for over 20% of India’s gold consumption. As the gold rates are the cheapest in Kerala, it is the best state for buying gold, both for consumption and investment.

Conclusion

Investment in gold can be in the form of gold jewellery as well as coins, biscuits and bars. It can also be done through gold mutual funds or through gold exchange-traded funds. But before buying gold one must ensure its weight and purity and avoid purchasing gold that is not BISmark-certified.

Gold rates change every day. So, to get the best deal you must check the highest and lowest gold prices before you decide to sell or buy gold.

Also, if you are facing a financial crunch, you need not sell your gold jewellery. Instead, you can pledge the gold jewellery with a reputed lender such as IIFL Finance and take out a gold loan.

IIFL Finance provides a fast and 100% transparent process for gold loans to meet your urgent financial needs. It provides the best value for your gold assets and offers competitive interest rates. Moreover, IIFL Finance keeps the ornaments locked in secure vaults and returns the pledged gold safely to the borrower after the loan is repaid.