With Akshaya Tritiya (the auspicious day to buy precious jewellery) coming up on April 22nd, I wanted to answer a question that I come across very often. Is gold jewellery a good investment?
Recently I undertook an arduous task of exchanging some gold jewellery. There were broken bits, and a couple of necklaces bought twenty-plus years ago which ride too high up on the neck. Though I have seen old gold being exchanged and recycled into new ornaments all my life, doing it by myself was challenging. This experience taught me a lot about buying gold and the mistakes one could make in investing, exchanging or selling gold.
Is gold jewellery a good investment
The short answer is yes, provided you have the money and do not expect a return on investment immediately!
Gold has historically been considered a hedge against inflation, as its value tends to rise during periods of inflation or economic uncertainty. Gold can be sold or pawned for cash, making it a relatively liquid investment. It is a tangible asset that you can hold and touch, unlike other investments such as stocks or bonds. You can wear and enjoy how it embellishes you and makes you feel. In India, gold jewellery holds cultural significance. It can be a valuable asset to pass on to future generations.
However, The value of gold can be volatile and subject to market fluctuations. The returns on gold jewellery investments may not be consistent or predictable. Tying up your money in a non-income generating asset means you may be missing out on other investment opportunities. But if you have diversified your investment into Fixed deposits, mutual funds, stocks and bonds, then buying gold jewellery is a great option. Here are some factors to keep in mind when considering gold jewellery as an investment.
Things to keep in mind when buying gold jewellery (in India) as an investment
I am looking at the purchase of gold jewellery purely as a investment for its monetary value. The formal, aesthetic and sensorial pleasure is secondary here.
Wastage and making charges
Making charges are the fees charged by the jeweler for making the jewellery. A jewellery maker, my livelihood depends on making charges. Contrary to popular opinion it is quite low in precious jewellery. However, people crib about paying making charges as this is deducted during resale. Therefore, a lot of folks buy gold jewellery when there is a “No Wastage charges and No making charges” offer.
Not so Fun fact: The amount earmarked as making charges is still deducted when you return the piece to the seller as the amount will be mentioned in the bill and then discounted. Other jewellers will deduct a flat percentage as processing charges. The same rule applies to wastage as well.
Purity and Hallmark
Old gold that you exchange is typically melted down and used to make new jewellery. Hence purity is of upmost importance. 24 Karat gold is considered the purest form of gold even though it cannot be used in jewellery as it is. 22 Karat gold with BIS Hallmark and now with a 6-digit unique code is preferable for resale. Answers to questions regarding the new Hallmark system in India can be found on the BIS website. Check the latest local/national rules regarding hallmark if you are selling gold in another country. While jewellers and institutions that buy jewellery will accept 18 Karat, 14 Karat is rarely accepted in India. Before buying your old gold, the stores will test the purity and accept it in descending order from 98%. Unless and otherwise, you are returning the gold to the same store that you bought it from, getting 99%-100% is rare.
Plain gold, not gemstones
Plain gold jewellery has a higher resale value compared to jewellery with gemstones. When exchanging old gold for new, stones are taken out of their settings and then the gold is weighed. Synthetic, lab grown, stimulated, and composite stones are allotted zero value. The same goes for glass, cubic zirconia and other replacement stones. Diamonds and coloured natural gemstones are analysed by the 4Cs (cut, colour, clarity and carat) and valuated. Their value is also subject to market fluctuations and trends. If you have only gemstone jewellery sell it to other individuals who collect and/or wear them. They may pay a reasonable amount for the gemstones as well.
On a slightly different note, yellow gold is easier to exchange for a higher value compared to white, green or rose gold.
The reality of buyback schemes
One of the key risks of gold buyback schemes is the lack of transparency. Customers may not be fully aware of the terms and conditions of the scheme, including the actual value of the gold being sold back. Jewellers or companies may charge processing fees, melting charges, and other deductions, which can significantly reduce the actual value of the gold being sold back. Read the fine print even if the stores offer lifetime exchange.
Save original bills and certifications
The original bill serves as proof of purchase and ownership of the gold jewelry. It contains important details such as the weight, purity, wastage and making charges of the jewellery. It also records the date of purchase and the name of the jeweller and acts as a record of authenticity. To get full value for the gold that you are returning through the buy back scheme, you need to give back the original bill and gemstone certificate if any. A fee may be deducted for loss of the bill and certificate. original bills can help your heirs establish ownership and authenticity of the jewellery, which can be important in case of any legal disputes or family conflicts and at the time of property valuation.
Gold coins are not the holy grail
The British just before they left India glamourised the idea of gold coins being the holy grail of investment. They hailed coins as foolproof investment could be converted to pendants and worn individually or strung together as coin necklaces. Each coin could be taken off the necklace, pawned or sold as needed. IT was easy to store and great for people who cannot decide what item of jewellery to buy. It seems like a great starter investment and a even better gift. Sounds fantastic right? But there is a catch.
Gold coins sold by banks or post office only have 100% return. However, they cannot be made into jewellery as these are 24K gold and not 22K. No, you cannot put a 22K bail on a 24K gold coin. If you want to buy coins that you can use as pendants buy 22K coins with bail. But, these will come with making charges and the solder used sets the resale valuation at 99% even with BIS hallmark. Remember that even 100% of 22K is less that 100% of 24K gold.
So what kind of gold jewellery should you buy as investment?
Gold jewellery a good investment provided you buy items that are solid 22k yellow gold, plain (un-embellished), and with as less solder joints as possible.
Buying gold jewellery or exchanging old gold for new may seem like an arduous task. I hope that these tips will help make the process clearer and easier.
I hope you find it interesting
Cheers
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