Friday, 11 December 2015


The Door bell rang at 10 p.m. and I peeped into the eye-hole. It was Mrs. Goldy, our neighbor. I opened the door, and Mrs. Goldy rushed in with the Diwali sweets. She was flaunting her new gold earrings bought on the same day (the reason she came late after her shopping venture). Mrs. Goldy is known for her gold jewellery and thus nicknamed for it. I complimented her for her new acquisition. She explained, “Gold is the safest and productive investment, so I decided that instead of spending on clothes, I will invest in gold.” True, gold has almost every time proven to be a safe and productive investment, but not gold jewellery. Many investors set aside a portion of their funds for investments in commodities, especially gold. Gold plays an important role in ‘asset allocation’ - an important aspect of any investment strategy. 16 ‘Why not gold jewellery?’ When individual buys jewellery, they are paying not only for the gold but also many other charges like jewellery designing and making charges, Value added tax (VAT), etc.

If the person sells this jewellery after a time period (say 5-10 years), one would receive the price only for the gold and no other charges. This is not the only loss, but if the jewellery is sold to a different jeweler other than the one from whom it was bought, he would not give 100% of the value of the gold, but only 50-80% of the value of gold used in the jewellery, depending on the purity of the gold, besides reducing the weight for the stones, ‘minakari’ and any other designing work done on it. Most of the jewelers would say that the gold supplied by all other jewelers is impure to the extent of 50% (of course other than his gold).

 Nowadays, Hallmark jewellery is available in market. But this kind of jewellery suffers the same drawbacks such as loss of making charges etc (from investment point of view). Many jewelers who deal in gold bullion and jewellery now have very sophisticated, expensive spectrum analyzer machines that test 17 the purity of the metal without destroying or melting it. But, most of the times, you may not be able to find one. To conclude if you plan to invest in gold, investing in gold jewellery would not get you the expected returns that could be gained by investing in pure form (24 carat) of gold. This, pure form is available in the form of coins, biscuits and small bars, even at some jewelers in the form of rings (there are circular wires made out of 24 carat gold, generally in 5/10 gm each regionally called as ‘vedha’ in Marathi ). If you foresee an important occasion such as wedding or business startup to be taking place in future (5-10 years down the line) in your family, you can start buying small portions of 24 carat gold in units of 5 or 10 gms as and when you can afford.

To support the same argument, against investing in jewellery well in advance before the wedding or any other occasion means spending additional amount (almost 2-5%) because the fashion and designs undergo changes at such a fast pace in today’s world….don’t you remember when your grandmother shows you some jewellery which she bought for you decades ago and you glance at it as some kind of arcane objects. 18 These 24 carat gold coins or biscuits or rings could then be exchanged with the same jeweler for gold jewellery made up of 22 carat generally or 18 carat (in case if the jewellery is studded with precious or semi-precious stones). There will be no loss in total value and you will receive almost the full appreciation of gold prices. But, ‘Caveat Emptor’, if you are going to sell the jewellery or even gold coins to another jeweler, he would not give 100% value of gold. It is always better if you sell pure gold or exchange jewellery to the same jeweler from whom you have bought it. If you are going to relocate to a different state or country, Hallmark jewellery presents a better option.

There are even banks which issue gold coins for investment purpose but they neither buy it back nor exchange gold jewellery, you have to sell the coins to your family jeweler again not receiving the 100% value. There are other avenues also through which you can invest in gold besides buying physical gold, like Gold ETFs (Exchange Traded Funds) and Gold MFs (Mutual Funds). But, these avenues would be discussed in the next issue of ‘Expressions’. Underlying all this discussion is the most important assumption 19 that gold prices will only appreciate and not depreciate over time like your car or bike you have bought. So, till then you can glitter like Mrs. Goldy buying gold jewellery or invest in Gold as a commodity and be known as Mrs. Smarty.

Dr. Meena Goyal 
(Chartered Accountant)

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