How reference price for gold is determined in Nepal

Published On: January 9, 2020 10:44 AM NPT By: Muna Sunuwar  | @TheMunaSun


KATHMANDU, Jan 9: The Federation of Nepali Gold and Silver Dealers' Associations sets reference price of gold for traders and dealers across the country every day.

The price of gold has been making fresh records almost every day since last week in line with the rally seen in bullion prices in the international market. While the price in the international market sees fluctuations in line with the demand and supply, the price of the precious yellow metal in the local market remains constant at least for a day as the federation generally sets reference only once a day.

The federation sets the reference rate based on a formula. It has formed a committee to determine the reference rate. The committee meets every day and sets the reference rate which is subsequently put on the federation's website at 10 am. The reference price generally remains in effect for 24 hours.

According to the federation, the committee takes international market as reference and the price updated on kitco.com, which is in US dollar, becomes the base rate for Nepal.

The committee converts the price into Nepali currency based on exchange rate fixed by the Nepal Rastra Bank, adds customs duty, freight and insurance charges, and 0.5% profit each to gold dealers and commercial banks before finalizing reference rate for the Nepali market. 

The federation gives 75% weightage to price in the international market and 25% to the price in Indian market while fixing the reference price for gold. “As India is our largest trading partner, the movement of Indian currency is more relevant to Nepali currency,” said Tej Ratna Shakya, a former president of the federation. “Even if gold price is rising in the international market, gold price is comparatively lower in Nepal if value of Indian currency is not affected."

"The total market mechanism depends upon demand and supply which affects the price in unusual situations,” he added.

The federation also sends the reference rate to its member dealers through text message.

"The new reference rate also automatically gets displayed on digital boards set up at our member dealers' showroom. However, this system only works in the Kathmandu Valley at present," Shakya added. "Most of the gold dealers call at the federation's office to reconfirm the reference price."

SLOW DEMAND
With price surging, demand for gold has slowed down in the domestic market, according to dealers. 

"During wedding and festival seasons last year, daily gold demand had climbed to 50 kg last year. But demand has fallen significantly. We are getting more sellers than buyers this year," added Shakya. "If the situation continued further, the government might have to come to our rescue." 

According to Dharma Sundar Bajracharya, general secretary at the federation, said gold price surge is due to the ongoing tension between the US and Iran. "Other factors are US-China trade tensions and US Federal Reserve Bank's decision to cut interest rate as well as depreciation of Nepali rupee against US dollar.

Gold was traded in range of US$ 1,571.80 to US$ 1,595.90 per troy ounce in the international market in early trading on Wednesday, according to kitco.com.

Gold sets new record
KATHMANDU, Jan 9: The price of gold has hit a new record of Rs 76,500 per tola (11.664 grams) in the Nepali market on Wednesday.

The price increased by Rs 1,000 in a single day. According to the Federation of Nepal Gold and Silver Dealers' Association (FENEGOSIDA), the precious yellow metal was traded at Rs 75,500 on Tuesday.

According to officials of the federation, the sudden hike in the gold price is due to the ongoing conflict between Iran and the United States. The price of gold has been rising steadily in the domestic market since July with occasional drops.


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