In India, gold is traded on a government-run dedicated stock market exchange called the Multi Commodity Exchange (MCX). A gold trade on the MCX implies trading in future contracts of gold, also called gold futures.
The way a futures contract works is that an agreement is made to buy or sell gold at a future date for a set price. While the investor has the option of taking the physical possession of gold at the determined future date, it is more common for them to settle the futures contracts in cash.
The MCX permits the investor to trade in gold via four kinds of futures contracts. These include:
Gold
Gold Mini
Gold Guinea
Gold Petal
To trade in a gold futures contract, you need to have a trading account with a commodity account with the commodity exchange of your choice. Besides the MCX, global commodity exchanges are popular for gold futures trading. Top commodity exchanges for gold trade include:
London Metal Exchange (LME)
Intercontinental Exchange (ICE)
Chicago Mercantile Exchange (CME)
Tokyo Commodity Exchange (TOCOM)
The price of gold traded on the MCX is determined by the following factors:
International price of gold
USD conversion to INR
Troy ounce to gold conversion (gold prices globally are tracked in troy ounces instead of grams, a gold weight measure used by the MCX)
Trading activity on MCX (supply-demand of gold)
1 troy ounce is equal to 31.103 grams.
The quoted price of gold on the MCX is 10 gms for 1 unit of gold. Hence to determine the price of gold on the MCX, the calculation formula is:
Price of 1 Unit = International gold price x USD-INR conversion / troy ounce to grams conversion