Price of Gold bees is around 42rs and MCX gold future is around 49k so why there are two different prices. Can anyone explain this. Either gold bees should be 49rs or MCX gold future should be around 42k.
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I found an article that mentions how Gold ETF prices are set -
“Gold ETFs are valued based on the prices published by the London Bullion Market Association (LBMA). The daily LBMA AM (they publish both AM and PM) prices are taken by the fund houses and converted into rupee terms after adjusting for customs duty and other costs such as goods and services tax (GST) to arrive at the NAV," said Vishal Jain, head, ETF and fund manager, Nippon India Mutual Fund.
The NAV price is also known as the landed price of gold. It can be different from the domestic trading price of physical gold in the wholesale market. The traded price of gold ETFs is expected to be in line with the wholesale domestic price of gold, though demand also has a bearing on it. “The traded price of gold ETF is generally in line with the domestic physical gold price but due to the demand factors, it might trade at a premium or discount to domestic physical gold prices in India. In recent times, as the demand for gold investments has gone up, we are seeing some of the gold ETFs trading at a premium to physical gold prices," said Chirag Mehta, senior fund manager, alternative investments, Quantum Mutual Fund.
The above can also be confirmed by checking the Scheme Information Document for GOLDBEES (on Page 41) -
For more information about LBMA AM and PM rates, check this Varsity chapter
I also came across a research paper which compared the prices of Gold ETFs against MCX Gold Futures between the period of 2007 to 2016.
After seeing the above figure, it is visible that there is a noticeable difference between the price of Gold ETFs and MCX Gold Futures by the end of the period of comparison (aka 2016). From what I can conclude after seeing the figure, the deviation between the ETF and MCX Gold Futures prices started after the introduction of the Import Duty back in 2012. But my conclusion seems to contradict the statements in the article that I referenced above as well as the Scheme Information Document (which says that custom duty is also taken into account when arriving at the NAV price).
Here the catch is the Cash Component. This difference between the price of Gold ETFs and MCX Gold Futures is of no real value because if you go ahead and try to redeem your Gold ETF units (normally if you have units that amount to 1kg & above) and try to convert them into real gold, then you will have to pay a Cash Component for doing that redemption. As per the Scheme Information Document of GOLDBEES (Page 29), Cash Component is defined as -
Cash Component for Creating in Purchase / Subscription Unit Size: Cash Component represents the difference between the Applicable NAV of Creation Unit and the market value of physical Gold. This difference will represent accrued interest, income earned by the Scheme, accrued annual charges including management fees and residual cash in the Scheme. In addition the Cash Component will include transaction cost as charged by the Custodian/ Depositary Participant and other incidental expenses for creating Units. The Cash Component will vary from time to time and will be decided and announced by the AMC. Cash Component for creation will also include Entry Load, if applicable. The Entry Load will be declared by the AMC from time to time and will be within the limits specified under the SEBI Regulations.
The Fund may allow cash Purchases of Nippon India ETF Gold BeES in Creation Unit size by Large Investors and Authorised Participants. Such Investors shall make creation request to the Fund/AMC whereupon the Fund/AMC will arrange to Purchase the underlying physical gold. The portfolio deposit and Cash Component will be exchanged for Nippon India ETF Gold BeES in Creation Unit size with the Fund. The minimum number of Nippon India ETF Gold BeES that can be Purchased for cash directly with the Fund will be announced by the Fund from time to time.
To give a real example, check the latest Cash Component for the IDBI Gold ETF -
As the Cash Component is negative, the person will have to pay that amount when converting those Gold ETF units into real Gold (as mentioned in the highlighted line in that screenshot). Adding GST to that and the effective price of gold will likely become equivalent to what you would have paid for taking delivery for MCX Gold Futures
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