Skip to main content

Physical Gold Investment – Jewellery, Bullion And The Wearability Factor

 Conventional wisdom in India: Gold jewellery is an investment. Though quite a many folks (I included) treat jewellery as consumption item and only bullion and various digital forms of gold as investment.

If things were that black and white.

Keeping the argument between physical gold - gold jewellery and gold bullion. Let’s set aside the digital forms of gold as of now. Assume you have enough digital assets and now want to possess little bit physical gold.

Do numbers favor jewellery or bullion as investment? Bullion will mostly win hands down.

UNTIL…

We bring in the wearability factor of gold jewellery. One can don, correction - flaunt jewellery multiple times, for many years to come while bullion only serves as a collectible, to be stored in some locker. Maybe one can look at the bullion once in a while and marvel at the dazzle – but that’s about it. You can never don/display it like jewellery.

But wearability, or the show off factor comes at a cost. Issue at hand – what is the cost, and are you ok paying it?

Three factors determine the cost: the money which you won’t get when surrendering the jewellery or bullion for cash:

-          Making charges, plus taxes therein

-          Taxes on the value of gold itself

-          The buyback price, which, mostly is lesser than the sell price of the day. Consider this as the margin which buying dealer makes

Of this, the making charge will be the key component. Even gold bullion will have making charge, not to forget taxes and sellers profit margin. The catch - when it comes to jewellery, making charge in higher, and can have wide variations. The more appealing a jewellery is to your (and others) eyes, assume making charge will be (much) higher than the 8% advertised by jewellers.

Let’s do some numbers.

Bullion first. MMTC PAMP website (https://www.mmtcpamp.com/gold-silver-rate-today) gives daily gold bullion sale price and buyback price. The difference can be anywhere from 10% to 15%. Essentially, taxes, making charge, profit margin et all take away this much off the table even when you sell gold bullion.

Now jewellery. Thanks to online jewellery sale websites, we can now check in detail the cost components. I referred to Tanishq as reference point as market perception is their making charges are the highest. I checked few items and noticed taxes and making charge of gold jewellery can be as high as 30%. Essentially, we are paying nearly 15% extra as compared to bullion. Let’s mark this up by another 5% assuming there will be further deductions when selling the gold jewellery for payment and not exchange. That brings us to 20% of the value of jewellery as “wearability cost”. Some more numbers:

-          Total cost of jewellery: say INR 2,00,000/-

-          Lifetime (assume 10 years) wearability cost: INR 40,000/- (20% of the above)

-          Annual wearability cost: INR 4000/-. There you go – check your willingness to afford this cost!!!  


Want to go in more detail? Get the actual making charge, taxes and buyback policy of the jeweller once you have shortlisted the jewellery piece you are going to buy and do the numbers.

What did I conclude after doing the numbers – knock off at least 20% of jewellery cost as consumption outlay. Nothing wrong in treating the balance as investment.

Comments

Post a Comment

Popular posts from this blog

Lump Sum Equity Investing – The Capital Protection Way Part II

Long ago, here  I posted how I would go about investing a sizable amount in equity index funds. I assumed in this blog that for next 5 years, equity markets will enter their worst phase and deliver poor returns – in fact negative returns of 10% annualized for next 5 years. Such a bad phase would result in equity fund corpus down by nearly 41% in absolute terms. Have the equity markets done that bad historically? Not at all. The worst case 5 year equity markets performance, basis Nifty 500 Index TRI has been in covid times @ minus 1.4% annualized for March 2015 – March 2020 period. Essentially, our assumption of minus 10% annualized ROI for 5 years was way too bad than actual worse case seen. Let us redo the numbers basis some realistic data: -           Actual worst case 5 year CAGR seen:   Minus 1.4% -           Assuming things can go even worse than this sometime in future, we c...
Post a Comment
Read more

Why SIPs Work Only When You Are at It For Significantly Long Time

No, this blog is not about how a SIP  running for long periods (10 years?) lets one weather the market cycles and average your buying cost. Enough has been said about it and that remains. By the way, there’s no standard definition of “LONG PERIOD” as such. It’s left open to investing entity!!! This blog is more towards accumulating capital, as (HIGH) returns really matter only when they are earned on reasonable amount of capital. Even extraordinarily high returns on piddling capital (savings) don’t amount to much in absolute numbers. And it takes time to build up capital if you are doing it gradually, even after taking impact of compounding. Let the numbers come to our help. But first, we need to establish some benchmark to evaluate how long should one run a SIP, alongwith a projected rate of return. Here’s a simple benchmark for SIP duration – my investment should double at the end of SIP period for a particular rate of return. I will consider that duration as “LONG TERM”. ...
Post a Comment
Read more

War And Equity Investments

Uncertain times are upon us. There is a shadow of war post killing of tourists in Pahalgam. So far, equity markets have not shown any signs of cracking up despite of high expectations of armed conflict with our wayward neighbour. Is it the calm before the storm as far as equity markets are concerned? It is anybody’s guess that if a protracted war does happen, economy will take a hit in near term, which in turn will impact our daily lives, including equity markets. When and how this will happen is again anybody’s guess. Should you take a relook at your equity investments in such a scenario? Nothing wrong in being a little conservative in such times. Here’s what I think can be considered:     -           Scenario I: You have designated INR 100 for equity investments and are fully invested. While you do have money in non equity investments, in case of equity market downturn, YOU WILL NOT PULL MONEY OUT OF SUCH INVESTMENTS AND DEP...
Post a Comment
Read more