The air is rife with enthusiasm and things are really looking up. For a change we are not discussing the long and sustained march of the Sensex towards higher levels. But we are talking about the arrival of the festival season, which has just begun post Ganesh Chathurthi.
There are festivals like Vijayadashami, Diwali and Christmas followed by New Year that have been good propellers for gold demand. Be it corporate gifts or for making new gold ornaments for the wedding season, this is the peak time for gold in India.
Some of you must have upped your sleeves to go gold shopping. Some of you must be looking at it only for investing. But in all cases take a breath and do dwell upon some of the factors that are material to gold shopping.
When you are buying gold and the intention is to make ornaments, then there are fewer things to watch out for. If you know some jeweller, about whom you are confident enough, things are much simpler. If it is not the case, then things are to be done with care.
First, let us see from where you procure gold with an intention to use it later, either for consumption or for investing. There are three sources from where you can procure gold: commodity exchanges, a jeweller or banks.
Commodity exchanges offer you the best quality gold at the best prices available in the market. However, things are applicable if you are buying huge quantities. The ticket sizes ensure that you have to be a large player. Also, to substantiate the transaction costs you have to keep dealing in large quantities on a continuous basis. Put simply, it is not a really an attractive option for one-time individual buyers. The banks, on the other hand, have been aggressive in selling gold. The gold medallions (coins) are available in all denominations starting from 1 gram to 20 grams. The banks also provide you with a certificate that testifies the purity and other details about gold. Of course, banks charge you a premium for all.
The issue comes up not with the premium you pay or the quality of the gold that you are buying, but at the time of exit. The banks don’t purchase gold from you. Even if the bank has sold the gold to you, it won’t buy gold from you. So if you are buying with an intention to invest, the crucial factor – exit route-is not available with banks.
If you are buying gold to make ornaments then first approach the jeweller from whom you intend to make ornaments. There are some jewellers who show some ‘ghat’ (diminution in the weight) at the time of buying gold from anyone, except himself. If you happen to buy a 10 gram medallion (coin) from a bank and take it to the jeweller for making a ring, then there is a possibility that the jeweller may treat gold to be of weight less than 10 gram, where for no reasons you incur a loss.
Consider buying gold from a jeweller. Here you have to be utterly cautious about the quality of the gold. Do insist on branded gold and insist on a certificate. If you are purchasing gold with an intention to invest, the exit may not be smooth. Though the jeweller may be ready to buy back the gold at a future date, the price at which he is willing to buy back is at a discount to the then prevailing price in the market. Some jewellers may not even do that and will buy from you if and only if they need gold at the time when you intend to sell. However, if you are buying gold from a jeweller to make ornaments in future, do check his policy. There are many good jewellers who will not show any ‘ ghat’ in the gold if you go back to the same jeweller with the gold you have bought from him to make some ornaments. Of course, you have been billed with making charges, which is just in most cases.
You have to consider all these factors while buying gold. If you are keen on buying gold for investment, better opt for an exchange traded fund. It offers a cost effective, real time, tax effective exposure on gold. In all other cases with other intermediaries, the mantra is caveat emptor.