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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.

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