I am just back from a visit to the jewellery store. I accompanied my mother in law who dutifully buys a hefty jewellery item every Diwali. For the rest of the year she is quite abstemious, but Diwali is an occasion for splurging.
I enjoy visiting the jewellery shop when someone else is doing the buying. Chatting up the sales guys provides interesting perspectives on the jewellery market and a few tips on investment as well.
Sri Krishna Diamonds and Jewellers is one of the reputed jewellery outfits in Bangalore, on Commercial Street. It is owned by a Marwari family who originally hail from Pali in Rajasthan. The sales guy who attended to us was quite knowledgeable; I later realised that he could part of the extended family. We headed first to the 'stones' section to look at bangles studded with rubies and emeralds. MIL finally made her choice, a ruby and emerald studded pair of bangles costing 2,05,450. I asked the shopkeeper to provide me the breakup.
Here is what it worked out to:
Gross Weight: 53.5 grams (including stones),
Net Weight: 49 grams (the weight of the gold), 916 KDM (i.e. 22 carat), at 2828 per gram = Rs. 138,572.
Making charges: 21 percent = Rs.29,100
Stone weight: 22.5 carats (five carats equal one gram), at 1500 per carat = 33,750
Total: 201,422 plus tax @1% Rs. 2014
Total price including tax: 205,450.
Jewellery serves two purposes, one of them being investment. The only way to judge how much margin I am sacrificing since I am buying the stuff as ornaments is to ask the shopkeeper how much I would get if I re-sold the bangles to him today. Here is what he replied:
If I 'exchanged' the bangle for something else in the same shop, this is what I would get:
Today's price of 22 carat gold, 2828, less five percent, times 49 grams: Rs.131,643
For the stones: 50 percent of the value, i.e. about Rs. 16,500
Total: Rs. 148,000.
That works out to a margin of Rs.57,450 which is 38 percent. Not too good as an investment!
But wait a minute. A true investment does not depend on the item being sold in the same shop, and nor does it involve 'exchanging' for another item. It involves selling for cash anywhere in the market.
So I asked the next in my standard list of questions: "What if I want cash instead of exchange" – in that case he would deduct ten percent on the price of gold and not five.
"What if the bangle were bought in some other shop" and I sell it here. In that case not only would I get ten percent less on the price of gold, but the stones would carry zero value. Hence what I would get would be:
Today's price of 22 carat gold, 2828, less ten percent, times 49 grams = Rs.124,714.
Now the margin works out to Rs.80,736 which is a decent 65 percent.
And people think these things are also a good investment!
Moral of the story: Stones are a scam. The resale value is always zero. Avoid stone-studded jewellery.
The only stones where you can get some resale value is diamonds, but even diamonds are a scam. The resale value is usually a fraction of today's purchase price for the consumer; and even these values are suspect; one does not know the long term future of diamonds.
MIL somehow got convinced not to buy worthless stones. So we headed to the plain-gold bangles section. The making charges for plain-gold bangles are between 12 percent and 30 percent depending on the intricacy of the work.
Plain gold bangles include bangles with minakari work which actually look prettier than stone studded jewellery, and definitely better than chunky plain gold jewellery; the kind of minakari bangles we liked came with making charges of 15 percent. Finally we bought a pair weighing 57 grams for Rs.187,000; the unromantic investor in me told me that the margin on this worked out to 29 percent. If I sell it back today, I will get Rs.142,000.
Obviously, if one buys merely for investment, it is good to head to the gold coins (a.k.a. biscuits) section. 24 carat gold coins were selling at at a buy-sell margin of about 8 percent.
This is still not good as buying what they call 'bullion' in market parlance – just plain gold. The government has apparently banned sale and purchase of bullion in retail. These large jewellers cannot do it. For that I need to head to my favourite shop on Avenue Road in Bangalore (in Mumbai think Zaveri Bazaar). Only cash. No bill. The buy-sell margin in that market on gold is 0.3 percent.
One more thing, if you pay by card, whether credit or debit card, the jeweller will charge you an extra two percent if you are buying coins or biscuits; for ornaments there is no extra charge.
Since we are on the subject of buying gold as an investment, an added piece of advice. Never buy gold biscuits from a bank. The margins are far higher, in the range of 15 percent. Further, the bank will never buy back your gold; you have to sell in the market.
The sales informed me that if you travel abroad you are allowed to bring back upto 50 grams of gold per person. The price is about 200 to 300 rupees less per gram, which works out to a decent 7 to 10 percent. In case you are a frequent traveller or a Malayalee, you are of course already aware of this.
All this I gleaned from talking to the friendly Marwari sales guy, and I thought it was time well spent. My mother in law got her minakari bangles which she declared her grand-daughter will inherit, which thought makes her very happy. The Marwari was quite happy too to have made is 30 percent margin.