Buying Non-ornamental Gold in India

Since ancient times gold is one of the most sought after items in India. There was a typical tradition even in olden days to gift pure gold in the form of strings so that it can be utilized for ornamental purpose. Gold is a symbol of wealth and money where people can preserve and pass it on to the next generations. Mostly we think of ornaments when buying gold but sometimes it can also be purchased as a financial product through gold exchange-traded funds like ETF and CEF for fetching profits. Gold is often called as “crisis commodity” because in case of financial uncertainty it comes as a rescue to save the individual from difficulties. There are various reasons to hold gold but to keep it as a future investment there is a more direct way of owning it through physical means that is buying gold coins and bars.

Why buying ornamental gold is not a good idea for investment?

Buying non-ornamental gold in IndiaGenerally, we make investment on gold to fetch good returns. Buying ornamental gold for the purpose of investment is not a good idea because while purchasing we may have to pay extra making and designing charges whereas while exchanging or selling there will be heavy losses in the form of wastage. The loss may even go up to 35% in case of complex outdated designs and the liquidity of such ornamental gold becomes a huge problem. So theoretically speaking, jewelery is a good valuable thing for purchasing but not a good investment to make returns.

Things to note while buying non-ornamental gold:

Keeping the gold with us in the form of ornaments does not grow itself unless it is kept in some form of investment. Non-ornamental gold such as minted coins and bullion bars make good investment because the resale value for such pure form of gold is always considerable when compared to ornamental gold. Hence before buying non-ornamental gold it is important to have a proper understanding of the following aspects:

1. Make the right choice of gold:

Over centuries, many countries have produced gold bars and coins in their mints offering different sizes and purities. Although they may vary in physical dimensions, most of the gold refiners adhere to the common standards regarding purity and weight. To invest in gold bullion, it is important to consider the profits and liquidity before choosing the right one among many gold bar options that are offered by refiners and mints worldwide.

2. Hallmark recognition:

One important thing to keep in mind while buying non-ornamental gold is hallmark recognition which directly impacts the liquidity of gold. To protect the rights of consumers, the government has made hallmarking of jewelery as mandatory under Bureau of Indian Standards (BIS) Act. All the ornamental or non-ornamental gold will be evaluated and tested for fineness or purity at official Hallmark centers and then certified based on the national and international standards. So, it is important to check for the Hallmark emboss to make sure the quality is 24 karats or 999.9% pure.

3. Buy at trusted places:

Purchasing gold at designated places like MMTC and banks is always viable than buying at non-authorized centers. However, if prices are compared between the local jeweler and some banks, people might find that the price difference is significant for the same weight of gold. Besides, there will be considerable variation even in terms of purity. Many buyers think that this extra premium for banks is worth it because there is a guarantee for the quality of gold. Hence it is up to the individual to decide whether the difference in price is worth buying in authorized centers or not.

4. Cost differences:

When two gold bars having the same amount of weight and purity are compared, there will be substantial cost difference between them. This difference in premium is due to the variation in the brands or refiners and their fabrication costs. Many investors prefer banks and big jewelry shops for buying gold coins and bars over local jewelers even though the cost is higher because of their reliability and trustworthiness.

5. Fractional gold premiums:

Gold coins and bars in bullion market are available in different sizes, so the buyers can decide to purchase based on their investment needs. Generally gold coins are obtainable in the standard denominations of 2, 4, 5, 8, 10, 20 and 50 grams with 24 carats fineness. When it comes to bars, there are many types under cast and minted bars that are categorized based on the weight denomination, shape, decoration, fineness and the country manufactured. Many investors would not recommend purchasing in smaller proportions because the premiums on fractional gold are significantly higher than the bigger sizes as the expenses are generally associated with minting cost, appearance and distribution.

6. Gold Liquidity:

The liquidity of gold is less when compared to other metals like silver because it is less affordable for the larger middle-income sections of the society. It is relatively easy to get fair market value in return for good quality of silver bars or coins than for gold bullions. Hence, before making an investment it is important to think about the marketability of the purchase especially for higher denominations of gold. An investor should keep in mind that authorized MMTC centers and banks will only sell gold to the buyers but do not purchase it back from them. The investor can only sell his bullion products to the independent jewelers, gold distributors, other individuals or investors.

7. Fractional gold premiums conflicts with liquidity:

We all know buying fractional gold is much costlier than larger ounces because fractional price includes extra minting expenses and distribution costs. For instance buying a 100 gm gold bar is much cheaper than buying 10 bars of 10 gm gold. However, investors have to make a note that liquidity of fractional gold is easier than bigger weights because selling a 100gm or 200gm gold bar is much difficult than disposing 10gm bars.

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