The shine of gold is irresistible for many of us and the onset of the festive season is just another excuse to indulge in buying gold. India does not produce any gold and imports for the current financial year have surpassed previous years in terms of value. Between April and September 2021, India has imported gold worth $24 billion.
It’s possible that this is a result of latent demand, festival and wedding spending all put together as none of this consumption was seen in 2020.
Whatever the reason, buying gold needs to be thought through rather than an indulgent activity.
With marriage and festive season starting, this is hardly going to be easy, but here are some reasons why you need to be careful.
If you are buying purely for ornamental reasons and not as an inflation hedge or security in uncertain times, the price you pay will not matter.
It’s only when the dual role of gold comes into play that the price becomes important.
India imports 800-900 tonnes of gold every year, practically its entire demand is imported. This means that the rupee price that we pay to buy gold depends on the exchange rate.
Given that the Indian rupee is depreciating, we end up paying a much higher rate over time for the gold that is purchased in India.
Moreover, there is an import duty with cess (AIDC) and surcharge (SWS) to consider.
The final wholesale price in the market comes at least 10% higher than the dollar price of gold.
Jewellery impact of gold
If you are planning to buy gold jewellery keep in mind that there will be making charges and the quality of gold will be lower as it needs to be conditioned for jewellery making.
This means you will not be getting 24k gold value in the final finished product. Moreover, the ornament will not be 100% gold, there could be precious or semi-precious stones and so on.
The weight of your ornament is unlikely to be the weight of gold used in it.
Small-sized festive gold purchases suffer
If you are planning to buy gold in small denomination coins or bars during the festive season be warned that such purchases come at a premium over the market price of gold. For example, the price of 10 gm 24K gold in Mumbai today is Rs 48,950.
However, a ten-gram gold coin is retailing at anywhere between Rs 51500 to 56250. If you want to buy a one-gram gold coin the premium will increase further; smaller the denomination the higher the cost.
This is at least another 5%-10% more than the market price of gold. If you need to sell these coins and bars or give them as a pledge for a loan, the value will not be calculated at your buy price, it will happen at the sale ask price which is often lower.
All these issues add unwanted layers to the price of gold and what you finally pay for is definitely not the value you can hope to receive for the gold if you need to sell it.
For those who think of gold as an investment, avenues such as gold ETFs and sovereign gold bonds are a lot more logical and value accretive than loading up on gold jewelry or even bars and coins.
This festive season make the right choice by being aware and weighing your options rather than just falling for the shine.