Sparkle Or Shine, Gold Still Glitters

Updated: Jan 26 2003, 05:30am hrs
Investment in precious metals jewellery and precious and semi-precious stones jewellery is not only the game of disposable income on a personal level, but also culture and heritage.

The World Gold Council (WGC) profiles the appeal gold has in Indian society. "Its demand cuts across age, gender, geography, and social and economic class. Gold is desired by businessmen and their wives; it is coveted just as much by farmers and their wives. For centuries, the only method of saving that was known to Indians in the villages and small towns was gold. Even with the availability of new financial products in the market, gold remains an integral part of the investment portfolio of many Indian families. It comes good in times of economic and political uncertainty, as is borne out by its performance last year when it delivered a return of 20 per cent in rupee prices from January 1, 2002 (price per 10 gms of standard 24K gold in Mumbai was Rs 4,640) to December 31, 2002 (price per 10 gms of standard 24K gold in Mumbai was Rs 5,580)," reads a statement issued by the WGC.

It is this neverdying lust for gold and jewellery and, of course, your kitty of disposable income that almost everyone in the trade and industry is chasing.

Thus, not surprisingly, the makers and marketers of precious metals jewellery -- gold, silver and platinum -- and precious stones studded jewellery -- diamonds, gems, and semi-precious stones -- are waging a fierce battle among themselves to reach your purse and are trying to ward off competition from other players as well.

Rising income levels - more so with the working women - have prompted into action the four main set of competitors in this game: the gold producers (represented by the World Gold Council), the platinum producers (represented by the Platinum Guild International), the diamond producers and marketers (led, if not represented, by De Beers) and of course the jewellery makers and marketers (like Tribhovandas Zaveri, Tanishq, Gilli, Carbon, and scores of others). Each of these players has chalked out an independent marketing plan.

Thus, for a lay man or an avid investor, it is really confusing as regards to what one should opt for, keeping in mind the two main aspects of investments - safety and resale / return value of investment while keeping with the trends and fashion of the times.

In a country like India which is almost wedded to the yellow metal, diamonds and platinum may be the in-thing for the fashion-conscious and those in the upper middle-income group and above, but for a large section of buyers, including the fashion-conscious, gold has been and would continue to be the base for investment purpose.

While the price of gold is known from many published sources, that of diamond is hard to get.

An option available -- of course at a cost -- is buying of diamonds certified by renowned agencies like International Gemological Institute (IGI); International Gemological Laboratories (IGL) and a few others.

Because of the logistic problems and cost concerns, some of the branded diamond jewellery makers offer their own certificates which, more or less, gives near correct weightage and related price of the piece of diamonds used.

However, for certification it would be good if the caratage of the diamond is above 0.5 carat. The following four Cs also need to be looked for while buying diamonds -- clarity, colour, cut, caratage. Price of such diamonds could be compared with Rapaports weekly pricesheet, accepted the world over.

However, unlike in the US, buying of certified diamonds in India has not yet picked up. Firstly, there is a lack of awareness of the certifying entities, and secondly, the cost of diamonds and its certifying process. The certification, however, does help the buyer to an extent to get a near-correct price, both on buying and selling the piece of jewellery -- almost akin to buying hallmarked or branded jewellery where the quality is ensured, this too at a price say 40-100 per cent higher than unbranded or the non-hallmarked ones.

It has been noticed that it is only before and during the crisis times that gold can be relied upon as a relatively better investment product with higher returns than other comparable asset classes. But not many people would want the crisis times to continue for long only for the appreciation in gold prices.

This, therefore, restricts the investment value of gold as is seen from the recent price rise. Whereas, such crisis or war premium factors are not blended into the prices of either diamonds or platinum which do not witness the kind of price fluctuations as in gold.

Despite this, increasingly, companies marketing platinum and diamond jewellery are testing the grounds to see if these can become investment options.

Among the three main players, it is the WGC which is the most aggressive on this front, as WGCs associate director (Jewellery, India) Hiroo Mirchandani says, "Indias gold demand cannot be taken for granted."

A check of the markets in New Delhi and Mumbai reveals that gold still wins hands down. Buyers and sellers still back the yellow metal for one main reason -- it fetches the best returns at the time of resale.

Says Deepak Mehra, director, AKM Mehrasons, a prestigious jewellery store in New Delhi, "From the investment point of view, gold is the best buy as it is an easily tradable commodity that can be sold anywhere. With diamonds this becomes slightly difficult, as there is a variation in prices across India. As far as platinum is concerned, it is still a new concept. Many jewellers have not even formulated their buyback policies."

Though he agrees that buying preferences have shifted slightly from gold to platinum, he says this is due to the fashion perspective. It is not so much an investment decision.

"From the resale point of view, many people look at the yellow metal as security, and in that sense, gold still rules the roost. Even though platinum is more expensive than gold, there are distribution and network issues that are involved here. Platinum is not sold in every jewellery shop as gold is. That affects its resale value. People are buying platinum more for fashion rather than anything else," adds Mr Mehra. Diamonds too suffer from similar problems.

On the other hand, a section of jewellers feels gold-buying may have been a safe haven during politically turbulent times. However, in the current times when consumerism seems to be taking over our traditionally savings-oriented mindsets, a via media is needed. One needs to have gold and wear it too. So, gold biscuits are passe and jewellery is the new in-thing. Branded jewellery--backed by corporate guarantees--is a trend whose time has come.

But there is a caveat: "The sale of branded jewellery may have increased in the past two years. But if you want to buy it as an investment, then remember that branded jewellery is nearly 40 to 100 per cent more expensive than normal gold jewellery. I wouldnt say it is a wise investment option," Mr Mehra of AKM Mehersons cautions.

Rajeev Verma, managing director of New Delhis famous Lalsons Jewellers, concurs: "For the common man who needs ready cash, gold is the best investment. Gold can be converted into cash anytime and anywhere," he says. "Platinum does not have much resale value. There are a number of reasons for this. First of all, 60 per cent of Indias jewellery business happens in small towns where many jewellers dont even know what platinum is. Also, very few people actually manufacture platinum jewellery in India. This is because platinum melts at nearly 2,000 degree centigrades, and not many people have such manufacturing facilities."

Despite this, the slugfest between the players of the bullion and precious stone studded jewellery is taking a formal shape, in that for the first time branded jewellery makers have formally come out with their own unique jewellery repurchasing plans, which is almost akin to the buying back plans offered by the so-called family jeweller.

However, it remains to be seen what is the actual return value to the customer opting for the buyback plans offered by the jewellers, for, each such selling of jewellery erodes the actual value of the jewellery sold, as the jeweller cuts the making charges, which forms a large portion of the jewellerys price.

According to Mr PC Gupte, manager - marketing and advertising, Tribhovandas Bhimji Zaveri (TBZ), diamonds have a bright future and Indias position in the global diamonds market, over the next 3-5 years, would be placed at second from the current fifth position.

Little wonder therefore, the Rs 4,000-5,000 crore diamonds market is said to be growing at a rate of 10-20 per cent per annum and is expected to grow further even next year.

With increasing financial independence with the women, the potential to sell a highly priced Asmi collection (Rs 12,000 onwards) and Nakshatra collection (Rs 30,000 onwards) is not a tough task anymore.

Looking at the current diamond market scenario, it becomes imperative for diamond manufacturers to focus at creating brand awareness for diamonds.

Yet, Mr Verma believes gold is the best investment. "After all, there has been a 30 per cent jump in gold prices in the last two years. In fact, I expect the price of 10 grams to cross the Rs 6,000 mark in the next 15 days," he says.

WGCs Hiroo Mirchandani has facts and statistics to support gold. "In India, 72 per cent of the population lives in rural areas and depends on the monsoon for its livelihood. There is limited availability and knowledge of financial products, widespread poverty, no social security net, and a vulnerable currency alongside exchange control. Here, gold jewellery, which makes up 90 per cent of gold consumed in India, has been viewed as an important family investment for decades."

Ms Mirchandani feels gold is a safe instrument because of its low risk, reliable store of value. "It is an excellent portfolio diversifier, and an asset of last resort in times of uncertainty, because of its high liquidity which can be converted to cash in case of emergency," she says. "Banks, cooperative banks, moneylenders and pawnbrokers, all accept gold jewellery as security for loans."

Ms Mirchandani advises investors to always buy gold from a trusted source, either the family jeweller or a BIS-recognised hallmarked gold retailer. "Since gold is a low-risk investment, we maintain that with at least 10-15 per cent of ones portfolio invested in gold, the future is safe and secure," she says.

Little wonder therefore, jewellers like Mr Verma rate jewellery investment options like this: gold, diamonds and platinum, in that order.