Why Gold is Cheap in Kerala: Key Factors

Gold prices can sometimes be lower or higher or different in Kerala than in other parts of the country. A variety of factors can be the reason for this. All Kerala Gold and Silver Merchants Association sets the daily price of gold. The most important factor that determines the price of gold is its demand and supply.

Kerala is the state with the highest per capita expenditure on gold, in India. According to National Sample Survey Data of 2021, per person expenditure on gold in Kerala Rs 208.55 per month in rural areas and Rs 189.95 per month in urban areas. This data shows that demand for gold is high in Kerala. But then supply of gold in Kerala is also significant. There are some 15,000 gold traders in the state. This high supply offsets some of the impact of high demand, on gold prices in the state.

After the coming of GST regime, tax on gold sales in Kerala is at the same rate as in other parts of the country. Gold is taxed at the rate of 3% under GST. Tax evasion among gold traders is high in the state, according to media reports. Gold traders who evade GST may pass on the tax saving to customers in the form of lower prices.

Other factors that affect the price of gold in Kerala are the same as those that affect its price elsewhere. One such factor is inflation. When inflation rate is high, gold prices also go up. People use gold for protecting their savings from high inflation. So demand for gold goes up. This in turn increases the price of gold.

A high interest rate scenario may lower the demand for gold. High interest rate scenario results in banks offering higher interest rates on fixed deposits. So people get motivated to park their savings in bank deposits instead of using them for buying gold. The decline in gold demand due to this may cause a drop in gold prices.

Gold prices are quoted in US dollars, internationally. India relies on gold imports for meeting a large part of its gold demand. When dollar appreciates against the Indian rupee, gold importers in India have to pay a higher amount in rupee for importing gold. This in turn results in increase in price of gold in Kerala and other parts of the country.

Occasions such as wedding season or festival season have a very significant impact on the price of gold. During wedding season, demand for gold rises sharply in Kerala. This in turn increases the price of gold too. Many jewelers in Kerala supply gold jewelry directly to customers for the purpose of wedding. Many do not show these sales as sales through their shop.

Cultural factors have a very important role to play in determining the demand and price of gold. Kerala has a very strong culture of buying gold jewelry. In rural parts of the state, this culture is stronger than in urban parts.