From Prerna Katiyar, in an ET Article:
Unfortunately, most of us think quite like Mr Gupta. That is, if we had purchased gold at, say, Rs 10,000 (per 10 gm) and if today it has touched Rs 13,500, it’s a clear cut 35% gain, no matter from where we bought it and what is the purity level, only to be wronged when we actually go to sell the yellow metal in the market. Gold is trading at an all-time high of $1,000-plus an ounce in the international market and has touched the 13,500-mark in the domestic market. This is encouraging people to liquidate their possessions, just like Mr Gupta. Few jewellers even claim that in the past few months, they have seen more people coming to sell gold rather than buying it.
There are some misconceptions as to buying gold. The common one being that a person wouldn’t be duped by ‘his own’ jeweller just because he has been buying gold from the shop for a long time. Take the case of Ms Anamika Singh who had purchased a gold chain (billed for 22 carat) from their ‘old common’ jeweller in her vicinity. Recently when she got the gold chain’s purity checked by a caratage machine, it was just 18 carat — a loss of 18%, it’s like paying Rs 100 for Rs 82.
According to a Bureau of Indian Standards (BIS) 2006 survey, 90% of non-Hallmarked jewellery failed the purity test. In few instances, the shortage of purity was as high as 45%.
Speak to most of the non-Hallmarked jewellers, and we find that it’s common to deduct anywhere between 10% to as high as 25% from the total market value.
Buying gold at a jeweller (in the form of jewellery) is horrendously irrational. Because:
Buying raw gold must be useful then?
This increasingly leads me to believe that buying Gold ETFs is a better thing to do. You can buy and sell very close to the current market price.
How to buy? In your online brokerage site, you can choose the symbol GoldBEES in NSE (there are Kotak, Quantum and Reliance Gold ETFs too) and buy. (You can also tell your broker if you have an offline account) Prices are linked to 1 or 1/2 gram of gold, in rupees.
The underlying gold is stored carefully by the ETF issuer and they take care of security etc. You don’t have to worry about purity, the issuer guarantees it. And if you need to have physical gold, just sell the units and buy gold in the market. The difference is not likely to be much.