Why coins could be your choice of gold this Diwali

Gold holds an allure for buyers that goes beyond its ornamental value; for many Indians, it is a primary long-term investment. Some parents begin buying gold for their child’s future right from birth, others accumulate gold over the years.

Be it as jewellery or coins and bars, investing in physical gold provides a reassurance that securitised gold doesn’t seem to be able to.

But try not to be tempted only by the emotional appeal of buying gold; you also must be aware of the nuances involved in such transactions. The positive sentiment with which you purchase gold needs to translate into a positive experience at the time you may sell it.

What are your options?

When one is buying gold jewellery, you pay not just for the gold but also for the design and making of the ornament. Design is what jewellers use to distinguish their product from that of others and it is something that they will charge you for. Plus, there are making charges involved in crafting gold into jewellery; these too are an added cost.

The break-up of design and making costs is not known to you, but you may be able to negotiate them down at the time of purchase. At the time of resale, usually you will only receive the value of the gold and will have to forgo what you spent on making charges or design costs.

Making charges are applicable not just to gold jewellery, but also to gold coins of all denominations.

“There is a negligible manufacturing cost associated with coins; however, the cost of overheads is least when compared with buying a piece of jewellery. It’s also about convenience for retail investors who want to have the security and surety of owning gold,” says Rajiv Popley, director of Popley Group, a gold and diamond jeweller.

Stick to hallmarked gold

Gold is an emotional purchase and the average Indian individual finds merit in using it as a saving tool that can be redeemed anywhere in the world at the market price (less cost). This is where hallmarking helps.

Buying pure gold jewellery, which is hallmarked, is one of the ways you can invest in gold for the long term. Hallmarking refers to the practice of marking the purity and fineness of gold and is done through the Bureau of Indian Standards. Unfortunately, not all jewellers and gold sellers across India hallmark their products so you must be mindful in choosing those who sell hallmarked gold.

Your other option is to invest in coins and bars. Gold coins and bars are the purest form because of minimal workmanship and the fact that they are devoid of intricate designs and come with no other material added to it, such as precious stones. It means you can calculate quite accurately the price you will receive at the time you sell it if you know the market price of gold.

Coins are available in small denominations like 0.5 gm or 1 gm and you can buy large 100 gm or 1,000 gm bars too.

It also makes sense to buy gold coins if you intend to accumulate gold over a long period of time.

Coins and bars are also hallmarked and stamped and you must check that they indeed are before buying.

What should you look out for?

First, you should know that smaller the denomination of the coin, the more expensive it will be relative to the market price of gold.

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

For example, take October 12, when the market price of 24K gold of 99.9% purity was Rs 52,230 per 10 gm. However, the price of a 1 gm coin was at least 10%-15% higher, depending on where you bought it from and the price of a 10 gm coin was at least 6%-15% higher.

“The coins come with different designs and the ones which have a more detailed and intricate design have a higher making cost associated with them,” says Neha Jesrani Kapadia, an independent jewellery designer and founder of Design Jewels.

When you decide to start making regular investments in gold through such coins, it may also be prudent to do an in-depth survey of the various price points for the denomination you are looking for. Some wholesale gold sellers will be cheaper than retail jewellery outlets.

Purity matters

The level of purity could also result in a change in price. Purity is measured by the karat and fineness. Popley explained that there are three preferred levels of fineness, 995, 999 and the super refined 9,999. However, coins and jewellery may be of lower fineness too and it may not be shown upfront.

Check what you are paying for. It could be that a higher cost is on account of greater purity. Ensure that the gold is hallmarked.

“Sometimes when gold coins or jewellery is melted to make a new ornament, it’s possible that a 22k hallmarked piece melts to a lower purity,” Kapadia warns.

Certain jewellers are known for being trustworthy and delivering purity and so in a position to charge a premium for the coins and jewellery they sell.

What should you do?

Diversifying your long-term investments to gold may be useful if you are certain to utilise the metal for end-use rather than just leaving it as a coin or bar. There is flexibility and a sense of reassurance in having the ability to hand over hallmarked gold to a jeweller who can craft it into ornaments when you desire rather than on liquidating other assets that may or may not have delivered the return you seek or may even be earmarked for other purposes.

Don’t forget to do your due diligence on price and quality before you set up any kind of gold investment plan.

Also, understand that buying physical gold satisfies the emotional tug of owning gold (for end use) rather than the objective of earning an investment return.

The long-term return on gold has usually just matched long-term inflation and in some periods been lower than that. Moreover, the costs involved in buying and storing physical gold make it less efficient as a pure investment.