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Why the Gold Rate Moves Before Kathmandu Wakes Up
By the time a shop in New Road opens its shutters, the day's price has already been decided somewhere else. A plain-language account of the chain that runs from an overnight trading screen to a rate board in Asan.
A jeweller in Kathmandu has almost no influence over the number chalked on the board each morning. That number is assembled overnight out of forces that are mostly not local and entirely not negotiable. Understanding the chain will not let you predict it. It will stop the daily movement feeling arbitrary.
Link one: the international price
Gold trades more or less continuously across London, New York and the Asian centres, quoted in US dollars per troy ounce, which is 31.1035 grams. That price responds to things a long way from any jewellery shop: interest rate expectations, inflation figures, central bank buying, and the general appetite for somewhere safe to put money when the world looks unsteady.
The last of those produces the sharp weeks. Gold is what people buy when they are nervous, and nervousness does not follow a calendar.
Link two: the currency
The international price is in dollars. Nepali customers pay in rupees. So every move in the exchange rate is a move in the local gold price, even on a day when gold itself has not budged.
Nepal's rupee is pegged to the Indian rupee at a fixed ratio, so the dollar exposure runs through India. When the dollar strengthens against the Indian rupee, gold gets more expensive in Kathmandu whether or not anything happened in the gold market. This is why the local rate sometimes rises on a day when the international headline says gold fell.
Link three: getting it into the country
Gold arrives as an import, and imports carry customs duty and the cost of the foreign currency used to buy them. Duty changes are infrequent but not gentle. A change in the rate structure resets the entire local price level in a single day, in a way no ordinary market movement does.
There is a quantity dimension too. Gold imports draw on foreign exchange reserves, which is why the volume entering the country is managed rather than open-ended. When supply into the trade is tight, the gap between the international price and what is actually available locally widens.
Link four: the local market itself
Finally there is demand, and in Nepal demand is seasonal to an unusual degree. Wedding months and the festival season concentrate a large share of the year's buying into a small number of weeks. That does not move the published rate much, but it moves availability, workshop lead times, and how willing anyone is to negotiate on making charges.
What this means for a buyer
Three practical consequences.
- Daily movement is normal. A one per cent move overnight is an ordinary day, not an event.
- Timing the market is not a strategy. The variables above are not reliably forecastable by anyone, including people who do it for a living.
- The controllable costs are local. You cannot influence the metal price. You can influence what you pay in making charges, and whether the weight you are billed for is the weight you are receiving.
The rate is weather. The bill is a decision.