Gold Ornaments vs. Bullion – What to Choose While Investing

Gold is highly valued metal throughout the world. Gold is the ideal diversifier for a portfolio. It brings stability to a portfolio and works like an effective divestiture as well as preserver of wealth. Gold is universal standard and the value of any object can be assessed against it. Gold maintains long-term value and keeps its purchasing power. It has more demand in a down economy.

Many people, particularly those from India consider gold as one of the best investing options. According to a study on investors in India, gold has been the second most preferred investment option among Indians, after deposits in banks. If you are planning to invest in gold (not speculate), you need to know whether to invest in gold ornaments or bullion.

Currency of one nation may not have value in another country. Similarly, when there is any change in the system and the currency is recalled, it loses its value. The currency coins or notes become antique items, useful only for the coin collectors. This is not the case with gold. Recently in Kerala, gold treasury was found in a Padmanabha temple. The treasury has value because it is in gold, silver and other precious stones. If it was currency or regular metal minted coins, it has no value.

Benefits of gold in portfolio:

  • A good portfolio is one that consists of assets like stocks, bonds, mutual funds, real estate etc. which don’t move up and down together.
  • Gold plays an important role of diversifier due to its low or negative correlation to other asset classes. It means – if stock prices are low, prices of gold can rise high.
  • Gold acts as a great diversifier to decrease risk and protects the portfolio in times of uncertainties such as war, political unrest, financial dilemmas.
  • Gold is a hedge against inflation. Stocks can give good results, debt products like bonds give predictable but low returns; Gold’s role is to protect your money against inflation or continuous rise in prices year after year.
  • While fixed deposit rates can be at artificially lower rates because of central bank influences, gold is determined by global markets and is likely to reflect the current situation better and hence a better bet for protecting from inflation in most situations.

Thus, investing in gold is considered as one of the best ways to safeguard your wealth, protect against inflation and benefit from capital growth.

Two ways of holding or storing gold – Gold Bullion and Ornaments:

Gold bullion:
Gold Bullion is a recognized weight and fineness of gold that can be purchased. Gold trading is efficient only as bullion with least losses or transaction costs. Commonly available gold bullion is gold bullion bars and gold bullion coins.

Gold bullion bars are available in various sizes. Generally, gold bullion coins are issued in standard weights such as ounces and in grams ranging from half a gram, 1gm, 2gm, 4gm, 5gm, 8gm, and 10gm. Many other weights exist such as the 100oz, 1oz, 1kg, 500g, 100g, 10 tola, 5 tola, 10 tael, 5 tael etc. (1 ounce = 31.103 grams, 1 tola = 11.66 grams, 1 tael = 50 grams). These coins generally consist of 99.99% pure gold, which is preferred for most pure investment purposes. Gold mines output format for fineness is .9995, .9999 etc.

Gold ornaments:
Gold ornaments are luxurious and fashionable items which are chosen for wearing and highlighting the social status. While there are non-investment benefits of ornaments, they are not the best way to maximize returns from gold.

The metric for purity of gold is karat. The maximum is 24 karat with 99.99% purity. Being soft in nature, gold is mixed with different metals for making an ornament. We can see different varieties of gold ornaments with different values of karat in it. Generally, gold jewellery like necklaces is made of 18 karat gold and rings from 12 to 14 karat gold. Gold coins on the other hand can be of even 24 karat purity.

Gold Bullion Vs. Gold Ornaments:

  • Gold bullion bars/coins are easily available from a wide variety of sources like banks, post offices, online, jewellery shops, nationwide retailers etc.
  • Gold bullion are easier to handle and trade and they carry a recognizable brand, usually that of a country and are issued according to the country’s legitimate rules.
  • When investing in gold bullion coin, the resale value of the coin is much higher (full value) than the ornament, as it is pure or physical form of gold. The melting charges for low purity gold (like in case of jewellery) are high. When reselling it to the gold jeweller, he will incur these costs into the price.
  • Gold bullion is easily tradable and marketable without transaction cost, and thus high in value.
  • Ornaments purity cannot be assessed easily and comes at a price while gold bullions can be quickly and easily sold for cash when need arises. Thus, there is an increase in liquidity which is considered as the most convenient way to meet financial emergencies.
  • Most importantly, parting with gold jewellery is difficult, as it involves personal as well as family attachment and emotions. Whereas, there is no such issue in case of gold bullion.
  • Pure gold can be converted into 18k or 22k gold, impure gold is not practically possible to convert to 24k gold.

Gold bullion coins give higher returns than gold ornaments. Thus it is not advisable to invest in gold ornaments. It is like investing in 6% interest rate fixed deposit while another 9% fixed deposit is available. So, investing in gold bullion makes better investment option compared to gold ornaments.

Summary

  • Gold has an ability to retain and appreciate in value in the long run
  • Gold plays an important role of diversifier due to its low or negative correlation to other asset classes
  • Investing in gold is considered to be much safer than other investments
  • Gold trading is efficient only as bullion with least losses or transaction costs
  • Gold ornaments are meant to give pleasure, not for investing
  • Gold jewellery are mostly used in traditional purposes like weddings, gifts etc.
  • Parting with gold jewellery is difficult, as it involves personal as well as family attachment and emotions. Whereas, there is no such issue in case of gold coins.
  • Pure gold can be converted into 18k or 22k gold, impure gold is not practically possible to convert to 24k gold
  • It is advisable to invest in gold bullion rather than gold ornaments which are easily tradable and marketable without transaction cost
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