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Gold jewellery as an investment is a bad idea indeed

This article is likely to make me very unpopular with the womenfolk in this country.

Because, I am of opinion that one of their centuries old custom — of buying gold jewellery as an investment OR even for their children's marriage many years away — is inherently a bad idea.

Of course, I fully endorse their practice of buying gold systematically from time to time. My only objection is to buying it in the form of jewellery... unless they intend to wear it themselves.


Let me present my arguments against buying jewellery from a long term perspective.

1. One of the biggest problems with buying jewellery for investment purposes is the making charges. These include wastages of gold during jewellery-making process and the labour costs; which can be pretty steep at 10-20% depending on the intricacies of the design. As such, whenever you sell this jewellery, you get back only the price of gold in it. Making charges are a straight loss. This would severely affect the returns from your gold investment.

2. Even if you don't intend to sell and instead gift it to your daughter / daughter-in-law at the time of marriage, making charges is going to be an issue. Over the 10-20 years of you accumulating the gold jewellery, fashion is bound to have changed. No one would like to wear an outdated design. As a result, you would have to return the old jewellery and buy the new one. So you end up paying the making charges twice over. Not a very smart thing to do, I suppose.

3. Whether you sell or swap, you have to ideally do it with the same jeweller. Given the practice in India, if you return your jewellery to a different jeweller, he would accept it only at a discount of typically 5-10%. Again a straight loss. And this is quite likely to happen, as 2-3 decades later you may be residing in a different city, state or country altogether. In fact, jewellers often impose a small cut even on their own jewellery.

4. When you invest in jewellery you are investing in a gold that is essentially impure. 24 karat gold jewellery can be quite fragile. Hence, some metals have to be added to give the gold the desired strength. So jewellery normally comes in 22k or 18k. However, instances of higher levels of impurity are quite common. So buying jewellery comes with a high risk of inferior gold being sold to you.

5. Next, of course, is the margin between the buying and the selling price of gold. Higher the margin, the more you lose. Typically, this buy/sell price difference would be maximum at the jewellers. 

6. In addition, the price of gold at any jeweller's shop is normally at a premium to the international price. And, as there is no standardization, you will find different gold prices across different jewellers. Clearly, you are unnecessarily paying an extra premium for exactly the same product, that is available cheaper elsewhere.

7. Jewellery carries a high risk of theft, whether stored in your home or worn by you. Robberies and chain snatching are quite widespread. In fact, if things turn bad, your precious metal can even put your precious life at a risk.

Add up all these open plus hidden expenses and you will end up with really pathetic returns on your gold jewellery investment.

So what's the solution?

Gold ETF!

Given that it conveniently solves all the above issues, gold ETF scores over jewellery.

Since you prefer to be trendy in everything else... be it fashion, food, phone, etc... why not do the same with gold too. Try gold ETF. It is the latest and the best way to invest in gold for long term.

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