How good is your gold?
By Amit Bhanot |
1/31/2011 12:04 PM Monday
There have been lots and lots of stories cropping up on a daily basis in the media as to how good an investment gold is. The past 5-6 years were almost like a dream run for those who invested in gold as this yellow metal has grossed a whopping return of 167 per cent since 2006. In fact, it is now proved beyond doubt that gold is the bellwether of all investments. But do you have true knowledge as to how to acquire this precious metal? Also, unlike purchasing gold as an ornament, what should be the correct strategy to purchase gold as an investment? It is a known fact that Indians always have had a profound love for the yellow metal (Indian households have more than 15,000 tonnes) due to which the country has remained the biggest consumer of gold.
This is in spite of the fact that we produce only a fraction of the total gold mined globally. Another very interesting factor is that it draws the attention of not just the women but men too, the latter considering it as a valuable invest-ment quotient. Coupled with the Indian women’s fondness for gold jewellery, the metal acquires a hoarding value too. However, gold bought for investment purposes is often used for making jewellery and this erodes its value because Indian jewellers and goldsmiths are known to apply unique prac-tices beyond the understanding of those not in the trade. It is therefore very important to know the hows and whys of purchasing gold.Be Need-Specific
One of the biggest mistakes made by Indians is that they often assume that hoarding gold in the form of jewellery can be construed as investment. Buying a gold chain is an alto-gether different matter from parking your surplus funds in gold. The reason is quite simple: As an investment you have to purchase gold in its purest form, i.e. 24 carat or 100 per cent (usually 99.9) pure metal. The current price in the bul-lion market for 10 grams of this gold is `20,300. However, if purchased for making jewellery, gold has to be slightly impure because when in its purest form it is not very hard. “Some other metals like silver or copper are mixed with gold to make it strong and prepare it for making jewellery. With this mixing of 2 carat or 8.4 per cent, the value of the gold reduces to 22 carat gold or 91.6 per cent purity,” explains Ratindra Nath Rastogi, General Secretary, UP Bullion Market Association.
Also, if the volume of this mixed metal reaches a level of 25 per cent, that gold becomes 18 carat or 75 per cent pure gold jewellery. This calculation is very easy but is made out to be complicated by the jewellers who use their own standards for arriving at the valuations. Therefore, gold purchased for investment purposes should be from trusted sources such as banks, Metals & Minerals Trading Corporation (MMTC), etc. This normally is in the form of gold bars or coins. There is a slight glitch in purchasing gold from banks as they don’t repurchase it, thereby forcing the investors to explore the bullion market for selling that investment. Even then this gold provides better returns as compared to jewellery. “It is always wise to invest in the form of gold bars and coins as investors can avoid the craftsmanship charges involved in making jewellery. Also, its swapping is much more price-effective,” says Shri Krishan Goyal, President, Bullion Merchant AssociationValue Calculations
After decades of willful practices adopted by jewellers, the government finally decided to step forward to protect the consumers. A few years ago the Bureau of Indian Standards (BIS) initiated the hallmarking of jewellery sold in the country with a certificate of purity. An independent agency functioning under the BIS first tests the jewellery and then gives a certificate about the purity of gold contained in it. It usually comes in the form of 916 hallmarking which means purity of 91.6 per cent or 22 carat. Hallmarking is also done for 18 carat or 75 per cent pure gold jewelry. One thing to keep in mind is that hallmarking without a certificate is of no value. “This has been a step in the right direction since it has ushered in transparency,” comments Anoop Kumar Agarwal, Store Manager, Tanishq.
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