All that glitters...

The Festival of Lights, gleam and sheen is almost upon us. Diwali marks the important Lakshmi Poojan when most families invoke Goddess Lakshmi to bring wealth and prosperity into their lives.  Most of us also buy gold on Dhanteras (which falls on November 5), as it is considered to be an auspicious day. However, this year, there’s a bit of uncertainty among investors with regards to the purchase of gold due to its surging prices. 

The steep fall in Indian rupee, driven by global trade war and rising crude price, has resulted in domestic gold prices surging to the highest level in over two years. This is a damning data point as the last three months of a year is the season of highest gold demand in India.

So, should you stay away from gold this year? Not necessarily. Like all data points, you must look at the rise in gold price in the overall financial context. A study suggests that gold purchased on Dhanteras has given average annualised return of 7 per cent since 2005, surpassing inflation, which has risen around 6.7 per cent in the past 13 years.

Thus, it makes sense to invest in gold in the current global and domestic scenario. However, a few aspects need to be kept in mind when purchasing physical gold. 

Purity
Purity of gold is very important and you should check the purity marking, which is measured in carats, on the gold coin/bar/jewellery set. 24-carat gold is considered to be the purest form of gold. When you are buying jewellery from branded jewellers, purity for ornaments is mostly in the range of 18-22 carats. 

Cost
Those of you buying jewellery pieces/sets will have to bear making charges. While it seems like an added burden, considering those purchasing coins/bars do not have to pay making charges and end up paying storage charges, it is here that you can negotiate with the jeweller and ask for a discount. In all likelihood the jeweller, too, will be forthcoming with discounts on making charges as he wants you to make the purchase.

You can also earn interest on gold by investing in government-launched gold monetisation scheme and gold coin schemes. Additionally, gold can be bought online via exchange traded funds just like you buy shares on exchanges.

Ease of sale
Ease of sale of jewellery gold is another key factor which buyers don’t consider before making a purchase. When you try to sell a gold ornament, many jewellers will deduct around 15 per cent from the ornament’s current value. Banks can only sell the gold to retail investors but cannot buy it back. Thus, one must have a close look at the policies or major terms and conditions for selling gold set by leading jewellers before buying it. 

Taxes
Tax is levied when you are selling gold. So, if you are selling physical gold, then a wealth tax of 1 per cent is levied on it. Taxation charges will vary when one is selling gold online. 

Banks / jewellers’ reputation
A certificate of gold purity is issued when buying physical gold or gold coins from banks. The gold coins are given in a tamper-proof packing and the certificates are assurance of the physical gold/ gold coin’s purity and weight. 

However, banks usually charge higher-than-normal gold rates in the market so you should check the price before buying gold from banks. It is advised that you buy gold from a branded jeweller, who is authentic and has a proven track record, if you opt for a jeweller instead of a bank.