Buying gold and jewellery this Dhanteras: Things to avoid, things to know

(From let to right): Ashish Pethe, Chairman, All India Gem & Jewellery Domestic Council, Poonam Rungta, CFP and Rajiv Popley, Director, Popley Group

Despite the rising popularity of gold exchange-traded funds, the lure of physical gold, gold coins and gold jewellery is unmistakable during Dhanteras and Diwali. With hallmarking mandatory in 282 districts of India, physical gold buying has become smoother than before. Then again, should you buy gold coins, bars or jewellery?

Moneycontrol put together a panel of experts to advise readers on how best to buy physical gold this Dhanteras and Diwali. Meet Rajiv Popley, Director, Popley Group; Ashish Pethe, Chairman, All India Gem & Jewellery Domestic Council; and Poonam Rungta, a certified financial planner. Pethe, additionally, was on the expert and advisory committee formed by the Ministry of Consumer Affairs to implement the mandatory hallmarking of gold.

The three experts were in conversation with Khyati Dharamsi and Kayezad E. Adajania. Their responses have been edited for clarity.

Now that we are past the Covid-19 lockdowns and the pandemic is waning, is demand for gold back?  Tell us about the  trends you see.

Rajiv Popley: Yes, morale is high, which is very important. The Gold industry saw a lot of distress during the Covid-19 pandemic. But this year, we feel that we have actually come out of all that grimness. And gold being the metal of the season, is being taken up very well. Gold sales have picked up from Raksha Bandhan onwards. Also importantly, Covid taught us that gold is a long-term investment. It is one of the safest investments in uncertain times.

People are looking at more value-for-money material; more plain gold jewellery. People are interested in buying jewellery that they can wear, not something that they put away in a safe deposit locker. People are buying wearable jewellery. After Covid-19, I think people want to gift gold to themselves. They want to enjoy their lives with the good things. That’s very evident from all the gold buying we see around us.

Ashish Pethe: Another trend that I am seeing for the past couple of years is that even youngsters are coming back to gold. They have started investing in small amounts. Even double-income households have started putting some money aside for gold purchases.

Has the mandatory hallmarking of gold (in 282 districts where you buy gold from) instilled more confidence in consumers?

Pethe: Because of the lack of hallmarking centres across India, we had to restrict the mandatory hallmarking to 256 districts, initially. And now, after the addition of more centres, 282 districts are covered under mandatory hallmarking. But we have to appreciate that although out of more than 700 districts, less than 300 have hallmarking centres, the fact is that almost 85-90 percent of the jewellery manufactured in India is already getting hallmarked.

Also read | Is mandatory gold hallmarking helping or hurting consumers?

And the reason for that is we have, I think, six to seven large manufacturing hubs in India; for example, Mumbai, Rajkot, Ahmedabad, Delhi, Kolkata, Kerala and Bengaluru. These hubs have a good number of hallmarking centres and the maximum quantity of jewellery is getting manufactured there. So, even before mandatory hallmarking came about, hallmarked jewellery was being sold in all these markets.

The quality of jewellery available across India is slowly getting uniform. Therefore, consumer confidence has gone up.

Is it possible to be mis-sold non-hallmarked jewellery?

Pethe: If you buy gold in any of the 282 districts that have mandatory hallmarking, you cannot be sold a single piece of jewellery that is not hallmarked. Even a tiny 2-gram piece or a small earring has to be hallmarked.

In fact, the law stipulates that each jeweller has to have a magnifying glass of at least 10x magnification so that the consumer can check the hallmarking. And he also has to keep a chart ready explaining the marking for, say, an 18-carat gold piece and so on. And he has to display his own registration number.

But in the remaining districts of India, you could still get non-hallmarked jewellery…

Can gold be a part of a financial plan? Does it really help?

Poonam Rungta: We, Indians, love jewellery. But you should not mix jewellery with investments because in our country, nobody goes and sells their personal jewellery in case of a need when you want to liquidate your investments. Therefore, buying pure gold as a bar or e-gold or paper gold is the best way to buy gold as an investment.

Remember, we are sentimental about our possession of gold. We think of it as very personal; we usually do not liquidate even in the worst of financial times. Treat gold like any other asset, like equity and debt, and hold around 10-15 percent of your investment portfolio in the form of gold, whether in physical form (pure gold) or gold ETFs.

How should people buy gold during Dhanteras and Diwali? Many Indians splurge on gold, and buy it for good luck.

Rungta: Yes, people do buy gold on Dhanteras and Diwali. Keep in mind that gold prices rise during such festive occasions, because the price of gold is also a function of demand and supply. But most of the time, the heart rules over the head and people still buy gold on Dhanteras. People buy gold during this time for celebrations, personal satisfaction and happiness. So, you cannot really stop them… but we do guide them. I see a change in behaviour slowly and steadily. People have become price conscious.

Our suggestion is that if you must buy gold for good luck on such occasions, then do so. But buy a small quantity. The rest of it, you can buy later.

Pethe: There are two Indias in India. One India is financially and digitally literate.

But there is another India that is outside of this world. So, for them (the other India), gold has many faces. Gold is an asset, a saving for them. It’s a sort of insurance for bad times and a hedge against inflation. They cannot invest in real estate because of its prohibitive cost. They don’t buy equity shares because many are financially illiterate. For this common man, gold serves many purposes.

They buy gold on such occasions and accumulate it for the future. For instance, Dussehra, Dhanteras, new year’s and so on. These are habits that have been inculcated, so people start saving in gold and save up for any calamity that may strike them in future.

I think even if you buy jewellery, it’s fine because it finally becomes an asset after a long period. The making charges you spend today become insignificant over a period of time. For example, if you had bought gold jewellery, say, 20 years back and had spent Rs 200-300 per 10 grams of gold as making charges, and gold prices have moved 2.5 to 3 times in this period, the making charges become insignificant. If you need to sell this piece of jewellery, it can be sold.

Tell us about the making charges in gold. It has been observed that sometimes making charges can be as high as 25-30 percent. The problem with high making charges is that people lose this amount when they sell their jewellery.

Popley: Jewellery is a piece of art. There's a lot of effort that goes into designing a piece of jewellery. We use advanced technology and labour as well. And this varies from piece to piece.

It’s a matter of choice what a customer wants to buy, depending on the design or technique that has gone into the piece. For simple, value-for-money, jewellery, the making charges can be as low 5-10 percent. But if you want a designer piece, it usually comes with use of advanced technology and has a labor cost attached. For instance, bamboo jewellery is hand-crafted and comes with a lot of labour hours. Whereas if you buy machine-made jewellery that is produced en masse, wastage is minimal and labour is cheap. And the making charges are minimal.

Is it easy to sell gold to jewellers? Moneycontrol had recently done a story that highlighted the perils of getting cash for your jewellery.

Popley: In fact, gold is the easiest commodity to sell, because if it is hallmarked, it comes with a certain standard. Gold rates are transparent.

When you sell the jewellery back to the retailer you bought it from, there is absolutely no hesitation at all. All the retailer has to do is identify the piece of jewellery and be assured the value with the purity that he has sold to you.

The problem comes when you sell gold to a jeweller  you hadn’t bought it from in the first place. If you have hallmarked gold jewellery, you can literally sell anywhere in the country. As a jeweller, as a trader, one will be happy to buy gold at competitive pricing because it's an open market subject and you are free to even compare prices in the same manner.

Is it therefore safer to buy gold coins during Dhanteras and Diwali, on account of their low making charges and being close to pure gold?

Rungta: Gold coins make sense, not from the lower making charges but from the purity point of view.

As we know, gold bars and coins come with the purest quality of 24-carat, while jewellery cannot be compulsorily made with pure gold. It has to be mixed with some other metal to give it that solid listing for making or converting into jewellery, so it could be 22 or 18-carat or 16-carat. The making is less on bars and coins because there is no artisanship or intricate designing.

Moreover, gold coins lend themselves more to investment rather than consumption.