he other day my aunt was trying her best to persuade my friend to buy some gold jewellery. When she did not show much enthusiasm, my aunt began to extol the benefits of buying gold.
"They say that it is a lifelong investment," she said confidently.
I asked her who 'they' were, only to be thrown a 'will you keep quiet' look.
Don't get me wrong. I don't disagree with my aunt. In fact, I could not agree with her more (at least on this aspect).
Gold is a fine investment. But I am just not sure about jewellery.
Let me explain why.
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~ How you buy gold will be determined by why you are buying it
Let's say that I was passionately in love with the yellow metal. Always wanted to adorn myself with it. Get married to it till "death do us part", and when death did cause us to part - pass it down to my children and grand children as heirlooms.
Now in such circumstances I would definitely buy jewellery.
Or, if I had to gift my girlfriend a piece of jewellery, I would buy gold. Not because I have a penchant for gold jewellery but out of sheer fear of seriously offending her sentiments. And, may I add, would be miserable if she chose not to wear it.
But, all this certainly does not make gold a good investment.
~ What makes a good investment?
Only when you buy an asset (land, stocks, bonds) or invest in something (say a friend's business) with the idea of making money, it becomes an investment. When you regard something as an investment, you will be clear about two aspects (at least you should!).
i. You want to make a good profit on it.
ii. When you are getting a price that brings a smile to your face (and your wallet), you will have no qualms selling it.
Got it? There is no place for sentiment or emotion.
Now tell me, would you commit any of the drastic acts below just because the price of gold hits the moon?
- Sell that lovely necklace handed over to you by your parents when you got married?
- Sell the ring your husband so lovingly gave you when he proposed to you on bended knee?
Or would you wake up in the middle of the night in panic should the price of gold hit rock bottom and get depressed over why your precious necklace is now worth so much less?
In a nutshell, will a dramatic price hike get your adrenalin pumping and the drop leave you cold?
No (at least I hope not!).
In fact the gyrations in the price of gold will have no impact on you, unless you want to buy more gold.
That's because of the sentimental value attached to it and not the investment value. The value you attach to that piece of jewellery is purely emotional and does not depend on the market value whatsoever.
~ I want to make money!Well, what if you had answered yes to the above questions? Yes, you would shamelessly sell that ring and whatever other jewellery you had just to make a tidy profit.
Other than informing you that you are rather outrageously greedy, I would suggest that you invest in gold.
Now if you have decided that you want to buy gold for the sole purpose of making money, and someone suggests jewellery, run (away, not towards!).
Turn your sights towards gold coins and bars. I know what you are thinking. Why would anyone want to own something so bland and ugly? Simple. Because the idea is to make money on it, not adorn yourself with it.
The reasoning
When you buy something as an investment, selling is an important aspect to be considered.
Reselling jewellery is not as simple as going to the jeweller and getting a good price. The jeweller will consider a number of factors.
- The design
He will start with the design. If it is outdated and oldfashioned, he will pay less. An antique may fetch you a good price. I have a friend who claims that his grandfather purchased an antique - heavy diamond studded gold necklace - for Rs 12 lakh around 30 years ago. Today, he estimates it at Rs 8 crore. But, he also adds that the "family will never sell it."
- The workmanship
If the work is extremely intricate and takes tremendous labour effort, that too should fetch a good price. Once again I ask, would you sell such a piece?
- The weight and price
Other than the design and the work, the jeweller will consider the the weight and the current cost of gold.
- The purity of gold
Now this is uncomfortable. Don't be too sure that the jeweller from whom you purchased it has not cheated you. He may have stated the purity as 18kt while in reality it may be much less.
In India, it is safe to assume that 80% of jewellers sell jewellery with lower karatage than stated. Would you be any wiser?
Only when you go to resell it will you find out that you were cheated. A jeweller buying a piece from you will not take your word for it. Even if the purity is mentioned, he will not go by it. He will test the piece himself.
Testing is done by two methods:
i. The touchstone acid method
To determine whether a gold ring is, say, 18 karats, he will rub the touchstone with the ring.
Right next to this mark, he will make another mark with what he knows is 18-karat gold.
He will then put a drop of 18-karat touchstone acid on the two marks and watch to see if the first mark burns off.
Burning indicates that the gold is inferior to 18 karats. It it does not burn, then the gold is equal or superior to 18 karats, but the exact standard is still unknown.
ii. The scientifically-proven Karatmeter
This metre tests the surface of the jewellery and will state the composition of gold and the alloy.
~ No, this does not mean you can't buy jewellery
Go ahead. Splurge.
But do yourself a favour and take a few precautions to ensure that you are getting your money's worth:
i. When you buy gold, take a receipt from the jeweller stating the price, weight and karatage (purity of gold). Keep the receipt.
ii. There are certain jewellers who hallmark their jewellery.
Hallmarking is a process in which a mark/ stamp is applied on the gold by a government-recognised association.
This indicates that it has been officially evaluated and certified and conforms to the purity stated.
The Bureau of Indian Standards (BIS) and the Bullion Exchange are two such bodies. On the BIS web site, you will get a list of such jewellers.
iii. And, of course, there is branded jewellery like Titan, Carbon, Nakshatra, which should be authentic.
Remember, jewellery is predominantly a fashion accessory. Not a wise investment.
Incidentally, I still have to explain this to my aunt.
Tomorrow: Why gold bars are a good investment
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