Gold Buisness

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You are here: Home / Investment Planning / Gold Jewellery-Are you getting
the right value?
Gold Jewellery-Are you getting the right value?
November 28, 2013 by Basavaraj Tonagatti 2 Comments
Whatever may be experts opinion on gold and at whatever price Gold may
jump, we Indians never ever stay away from buying gold jewellery. It is
considered as one of the major cost in Indian marriages. 50% of
gold jewellery are bought for weddings or wedding anniversary.
The size of the gold market in India is estimated at around $15 billion. But
sadly it is one of the worst regulized sectors in India, where you can’t
guarantee the quality and price. So let us explore what caution we need to
take care.

Who decides the world gold price?
Five banks sitting in London fix the price of the gold for that particular day
This is the tradition since 1919. Banks involved in this price fixing
are Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC
Holdings and Societe Generale. Price is published twice in a day (at 10:30
GMT and 15:00 GMT). London is the place where the largest volume of gold
trade takes place in the world. This price will be followed by other
countries. Price of gold changes daily, due to hundreds of factors, ranging
from the opening of a new gold mine, to the changes in interest rates of one
currency or another. The gold market is probably the largest and most free
market in the world among commodity market.
So the major flaw starts from here itself.
How to convert gold price in India?
In India we follow the USA price. In USA gold is weighted in terms of troyounce which we need to convert into grams. Jewellers internationally use
pennyweight which is equivalent to 1.555 grams.

1 troy ounce =31.1034768 grams.
Suppose in USA gold is trading at $1238/troy ounce, then first we need to
convert it to grams.
$1238/31.103478=$39.803/gram.
Then we need to convert this gram value to rupee by considering the current
dollar rate which we may assume at $1=Rs.62.
So the value of gold in India will be $39.803*Rs.62=Rs.2,467+Import Duty.
This import duty is based on a gold tariff value which is currently at $440/10
grams and this is will be fixed by Govt from time to time.
So such imported gold will be used for jewellery in India. Now in India the
same value will not be considered as the price of gold.
Why price difference in Indian Gold Market?
As of now there is no regulation to fix the maximum retail price of gold from
any regulator. So it is entirely the wish of retailer to fix his shop’s price. The
difference in sales tax is also the reason for different price quoting from state
to state. Also price difference will be there from city to city as they follow
different gold associations. The rate may vary from among associations also
based on holding price, gross margin or gold reserve.
Who decides the Gold Price in India?
Gold rates for the next day are based on end of day (EOD) price of MCX spot.
But the determination of the gold price will again change
from jewellery associations or big jewellery shops. If there is a holiday to
MCX Spot on previous day then the base price will be arrived at from last
trading day’s closing price.
This does not mean that there will not be any change in price during the
day

If there is a lot of fluctuation in MCX Spot Exchange then the rate will

be adjusted accordingly by these jewellers.
How Gold ETF price is fixed?
As per SEBI information dated 21st April 2006, below formula will be used to
arrive at Gold ETF market price.
The domestic price of gold = (London Bullion Market Association AM fixing in
US$/ounce X conversion factor for

converting ounce into kg for 0.995 fineness X rate for US$ into INR) +
custom duty for import of gold + sales
Tax/octroi and other levies applicable.
But the trustee of mutual fund company reserves the right to change the
source for determining the exchange rate. The mutual fund company shall
record it writing by mentioning the reasons for change.
So this is all about price. You noticed that there is no standardization of gold
pricing regulations. But now when it comes to quality, charges or any other
expenses are also not regulated well in India.
How to identify the purity of Gold?
Content of gold in any metal is measured in Karat (not Carat-is related to
diamonds as a measuring of weight). Pure gold or 100% gold is called as
24 Karat Gold or 24K Gold. This 24K gold is so soft that it can’t be used for
anyjewellery purpose. Hence to make it bit hard some other metals such
as copper, silver, cadmium etc added to it. Based on the adding of these
other metals to gold purity of gold changes from 24k to 22K, 18K or 14K.
Below is the explanation of the same.
24K Gold=100% Pure+0% Other Metals.
22K Gold=91.7% Pure+8.3% Other Metals.
18K Gold=75% Pure+25% Other Metals.
14K Gold=58.3% Pure+41.7% Other Metals.
12K Gold=50% Pure+50% Other Metals.
10K Gold=41.7% Pure+58.3% Other Metals.
Who certifies the purity of Gold in India?
In India Bureau of Indian Standards (BIS) certifies the purity of Gold. This also
called as Hallmark of BIS. So if you have this seal on the ornaments then it
shows the purity of gold. In this first will be BIS Standard Mark, fitness mark
specifying the content of gold purity, Hallmark center’s mark, year of making
(usually BIS will decide the code for that particular year like “A” denotes 2001
or “B” denotes 2002 and finally certified jeweller mark.

For detailed list of certified jewellers in India, you can visit www.bis.org.in. It
is always advisable to prefer the hallmarked gold jewels than normal. For any
complaints about jewellers, you can visit www.bis.org.in.
KARAT METER-Few big gold jewellers currently maintaining this machine. It
costs around Rs.15 lakhs. So smaller players can’t afford such
machines. Jewellers claims that this will also tell you the exact purity of gold
and other materials in anyjewellery. But recently BIS cautioned buyers
of jewellers not to believe this test also. Because it only guarantees you the
surface fitness but not indepth quality analysis. Hence jewellers who claims
to be tested by such machine can’t be believed. The same appeared on
Hindu paper dated 25th Dec 2007.
So how the price of gold jewellery priced in India?
Usually if you notice any gold purchased bill then you must come to know
the below contents.
1) Actual Gold Weight and its purity (like 22K or 20K) -This state the cost of
the actual gold contain in Jewellery.
2) Wastage Charges (value of rest of jewellery apart from pure gold)-This
depends on the ornament you are buying. In some cases this wastage may
be as high as 25% to low as 8%. You need to pay this charge as it is the
wasted part of any ornament during the process of manufacturing such as
while cutting, soldering or melting.
3) Making Charges-This is the labour cost. It again depends on the design or
ornament. The more skill work involved means more labor charges. Hence it
also differs from shop to shop.
4) VAT (Value Added Tax) -This is the tax you need to pay on the value of your
buy to state government. Hence once you buy any item then it is obligatory
from the buyer’s point of view to pay these expenses.
From above ingredients of the bill, you noticed that actual gold weight and
VAT are the only certain costs. Other costs depend on shop to shop. Hence
the samejewellery may cost you differently in different shops. Below is an
example of typical bill.
Let us say an ornament weighing 10 grams and the price of the gold of 22k
declared by shop is Rs.2,500. Making charges will be Rs.35 per 1 gram of

gold cost and wastage charges @ 12%. Then the actual cost of ornament will
be as below.
Cost of an ornament=Actual Cost of Gold+Wastage Charges+Making
Charges+VAT.
The cost of an ornament= (10 gram*Rs.2,500)+(12% of Rs.25,000)+
(Rs.35*10 gram)+VAT @1% of the total value.
Cost of an ornament=Rs.25,000+Rs.3,000+Rs.350=Rs.28,350+VAT @1%
Rs.283.50=Rs.28,633.50
This is how the buying process works out with lots of loopholes and
unregulated market. So what are the steps we need to take care while
buying gold?
1) Always ask for Cash Bill but not estimated bill.
2) Every cost needs to be calculated separately.
3) Verify the gold rate what they are quoting. If the price slightly differs then
no issue.
4) Check for Hallmark on each item you buy.
5) You can negotiate on wastage and making charges. So try your luck
6) Few jewellers claim they are not adding any wastage or making charges.
But in reality such trade never exists. So what they will do is, they
sell you gold at higher rate than the actual rate.
7) Better to go with big shops as they maintain brand. Because few shops
claiming to be selling hallmark gold may cheat you with quality.
8) If stone studded jewellery purchased then see whether the shopkeeper
deducted the weight of stone from ornament.
9) Check for 100% buyback will be offered by jeweller or not.
10) Finally if you have any complaints you can metrology officials at help line
number-1860-425-3333
Image courtesy of [Master isolated images] / FreeDigitalPhotos.net

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About Basavaraj Tonagatti
I am a Certified Financial Planner by qualification and currently living in
Bangalore. I am using this platform to spread knowledge about Personal
Financial Planning. Hope you too join me in spreading this awareness :)
Comments

1.

jains says
November 28, 2013 at 5:14 PM
Shubh Jewellers is an example of confused pricing – they advertise no
additional charges (no wastage, no making charges) but their bullion rates

are higher than market gold rate. however, the inflation in price (8%) is still
lesser than typical making charges (14%). This is my experience while
checking couple of items in last 6 months, your mileage might vary – I am
not endorsing or complaining – just supporting the article that pricings are
confusing to understand!
Reply

Basavaraj Tonagatti says

o

November 28, 2013 at 6:32 PM
Jains-Yes you are right. It is better to pay inflated prices of 8% over the
making charges of 14%. But when TV9 conducted the reality check they
failed purity gold check also by some margin. Yes, prices are confusing to
understand because it is not regulated well.
Reply
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