Don’t invest in gold jewellery. Invest in coins & ETFs

February 27, 2009

Commodity Online
MUMBAI: The recent boom in bullion market with gold touching above Rs 16,000 per 10 gm in Indian market has attracted a lot of investors to gold. However, many of the new investors who want to put their money in gold are not aware of in what form they should buy gold for investment purpose.

Several of the neo-investors think that they can buy gold jewellery and keep them as an investment. But, experts do not support this view.

In fact, many jewellery owners now come out with advertisements urging people to invest in gold jewellery.

According to experts in the field, no investor should buy gold jewellery for investment purpose. Investors have better options like gold coins, gold ETFs and bars if they want to put their money for investment.

Jewellery and diamonds attract VAT at very high levels. Before being fashioned into bracelets and necklaces, investment grade gold bullion (0.9999 or 24 carat) coins, bars and government gold certificates are stamp duty and VAT free.

Jewellery is not. This is an added cost on top of an already large mark-up. Typically, 9 carat, 14 carat and 22 carat rings, bracelets and necklaces have mark ups of hundreds of per cent over the real value of its component precious metals.

A very large necklace containing 1 ounce of pure gold (0.9999 pure or 24 carat) will normally cost well in excess of 250% of the actual market price for gold. If gold is trading at £560/oz, this means the necklace will likely cost at least £2,000/oz plus the VAT.

A gold bar which also has 1 ounce of pure gold (0.9999 pure or 24 carat) will be sold at the trading price plus a small mark up of around 5% or £588 and no VAT.

While these considerations start at purchase, there are also draw backs when it comes to selling the jewellery bought as an investment.

Unfortunately for the vendor, re-sale jewellery would not normally realise more than 30% of its original cost price. In fact, most jewellers do not consider buying back items they have sold, forcing the owner to seek a new buyer in pawnshops or online sites such as Ebay.

This massive instant depreciation is not seen in asset markets including the gold market itself. A gold certificate, bullion coins or gold bars can be bought at 2% to 6% over the live market gold price.

Days or years later, the same gold certificate can be sold automatically to a bullion broker or government mint at almost 100% of the market value. This can take place at around 1% below the actual market price or slightly above the market price.

This means that the spread between the buy and the sell price for investment grade gold bullion is marginal. In comparison, the spread between the buy and sell price for rare stones or jewellery is very high making a positive return on investment extremely unlikely.

Unlike diamonds and jewellery, gold bullion coins, bars and certificates can also be placed in a pension fund. There is no local or international jewellery or diamond market place where goods can be traded on a daily basis on an exchange.

This lack of an efficient market or price discovery mechanism makes the price of jewellery and rare stones subjective and subject to the whims of individual jewellers and valuers.

International experts don’t recognise jewellery or gemstones as investments exactly because they are not correlated with equity markets.

Unlike, jewellery and rare stones, investment grade gold bullion (0.9999 pure) displays and inverse correlation to property and equity markets.

Jewellery and rare stones are not investments. Some quality jewellery pieces and top quality very rare stones may retain their value in the event of a continuing and deep recession however the vast majority of jewellery pieces and rare stones will fall in value.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold to find out more. You may Sell Gold to us too.

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