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Prices of gold and oil

  1. Dec 4, 2004 #1
    Why do prices of gold change in the same country from city to city
    How is the price of oil determined?
     
  2. jcsd
  3. Dec 4, 2004 #2
    Briefly, prices are based on demand and availability. When you buy oil, a considerable fraction of the cost is actually tax (not sure what level of government). The station might also have some sort of leverage to adjust for its location (land costs more per square foot in NYC, than in Smalltown, Nebraska, and shipping might be less if the station is near a refinery).

    I'm not too familiar with gold, but I suspect there could be hidden, variable administrative fees. Personnal theory. AFAIK, the advisors' salaries mostly come from interests though (stated 4% gain might actually be 5%, the difference used to support the firm).
     
  4. Dec 4, 2004 #3

    russ_watters

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    Staff: Mentor

    The price of gold itself does not change from city to city - are you talking about jewelry?
     
  5. Dec 6, 2004 #4
    I saw in the newspaper these bullion rates:
    Chennai:
    Bar Silver Rs.11,905
    24 ct gold(10 g) Rs 6,580
    22 ct gold (1 g) Rs. 609

    Mumbai:
    Silver Rs 12,310
    Standard gold Rs 6,635

    Delhi:
    Silver(.999) Rs 12,150
    Standard gold Rs 6,660
    Soverign Rs 5,400

    Though the threee cities are in same country, the prices are different.
     
  6. Dec 6, 2004 #5
    About petroleum, are the prices in different countries linked. For eg, last month or so I read that oil costs $50 per barrel in New York Stock exchange. But why did the prices in India get affected?
     
  7. Dec 6, 2004 #6

    russ_watters

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    Staff: Mentor

    Well, I stand corrected - maybe its since India is so much larger than the US that they have multiple comodities markets. In the US, pretty much everything financial comes out of New York. In any case, a 1% difference between 3 cities is not very much.

    Pretty much all comodities are globally linked though: since there is a finite supply and everyone wants some, the price will naturally be somewhat uniform due to supply and demand. If it was significantly cheaper in India, you could, for example, buy oil in India and ship it to the US for profit.
     
  8. Dec 9, 2004 #7
    That is true. It is relatively easy to construct computer programs that watch the price of the same commoditiy or stock in different markets. If there is a small difference, the program will automatically buy and sell the product at the same time in the two different markets, making an instant profit and driving the prices towards equality. The action point is determined of how much it cost to transport the product to the other market and buy/sell it there.

    As a small investor, it is probably not possible to do this. Fast computers, programs and data is requred and all of these cost big money.
     
  9. Dec 9, 2004 #8
    No actually it would be quite trivial to do - but brokers commissions will make that 1% differene irrelevant.

    Actually in the U.S. a good chunk of commodities trade is done in Chicago. See http://www.cbot.com/

    I'm no expert, but I know that in the commodities markets, you don't actually buy and sell the physical commodity. You buy and sell futures contracts. It is alot more vicious than the stock market : for every dolar that you make, some else MUST lose a dollar. Actually more when you consider brokers fees. The above link has more information.
     
  10. Dec 9, 2004 #9
    It is trivial which is why it is done by large, well-capitalzed firms that compete which each other so intensely that profit margins is extremely small. You must make many and big trades in order to make an interesting profit. Also, in order to make a profit you need to be quicker than the competitor which means faster computers, programs and above all data. And you need the lowest possible cost of capital and commissions, something that is only given to those using a huge sum of money very often. For example, if you have a computer system trading thousands of times every day, the commission cost will be very low per trade.

    A small investor have none of the above and will not be able to compete.
     
    Last edited: Dec 9, 2004
  11. Dec 14, 2004 #10
    The govt fixes the price of oil here in India. How do the oil companies get profit?
     
  12. Dec 15, 2004 #11
    Well, that is mostly up the the government. If they set the price lower than the cost of production, the companies will loss money and eventually go into bankruptcy. If they only allow a very small profit, the oil companies will make less investments in India since the capital required can gain greater profits in other markets. If they set prices higher than the rest of the world, there will be great profits for the companies. Obvisously such a system promotes corruption.
     
    Last edited: Dec 15, 2004
  13. Jan 2, 2006 #12
    These rate difference btw cities is largely due to different tax in each regions
     
  14. Jan 2, 2006 #13
    Nymex


    Hi ,

    Light sweet crudeoil is traded @ NYMEX not NYSE . Yes prices are linked bcoz delivery occurs @ current mkt price of NYMEX were it is traded
     
  15. Jan 2, 2006 #14

    Hi ,

    This concept is well know among speculators and professional trades called arbitrages oppturnity . One can speculatively gain easily if they are sure to know such oppturnity exists :wink:

    It dont need any stophistacted computer programmes to do this simple task . Trading and speculation is not a ROCKET SCIENCE as ppls think :)
     
    Last edited: Jan 2, 2006
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