Smart ways of buying gold

Goldsmiths offer better value than banks

MUMBAI: As we enter Navratri — with Dussehra and Diwali in hot pursuit — banks have already started rolling out packages and discount deals targeted at people looking to buy gold on these festive occasions.
 
Banks such as Corporation Bank, HDFC Bank, Indian Bank, ICICI Bank, IndusInd Bank, Bank of India, Kotak Mahindra Bank et al are offering gold coins in various denominations:  starting from 2gm, and going up to 500gm. They also offer 1kg gold bars.

But, before you opt for the bank and buy that gold, it is worth your while to check up on how the bank coins are priced vis-à-vis other gold retailers, and even the international price of gold. Almost all banks claim to have imported the gold coins from the same PAMP refinery in Switzerland.  

They all come in the same tamper-proof packet, with an ASSAY Certificate stating that it is 24-karat gold with 99.9 per cent purity. The price of the coin, however, varies from bank to bank.

On a day when HDFC Bank sold a 50gm coin for Rs55,309, the same 50gm gold coin cost Rs51,023 at Corporation Bank; Rs53,855 at Kotak Bank; and Rs51,555 at Indian Bank. This price comparison tells us that the public sector banks offer a better deal.

All the prices discussed above were recorded on a day when the international price for 50gm of gold was Rs47,875.
Regarding the disparity in pricing, a public sector bank manager says, “The rates offered by one bank differ from another because some keep a higher margin.”

“In addition, sometimes a bank may have bought coins when the rates were low and may offer customers coins at a competitive price,” says Srinivasa B, senior manager of precious metals at Corporation Bank.

Then, of course, there’s the trust factor: People tend to feel safer buying gold at banks, rather than from a jeweller, even though the same coin with all the necessary packaging — to prove its authenticity — can be bought from a branded jeweller.

The day the above prices were recorded, a 50gm gold coin from a branded jeweller was priced at Rs49,980.

Considering that a branded jeweller has to meet expenses that come with running an air-conditioned showroom and paying employees’ salaries, the jeweller’s coin was still Rs1,500-5,500 cheaper.

The reason banks cite — for this higher price — is that that they [banks] offer a 24-karat 99.9 per cent coin sourced from the best refineries of the world. “Don’t compare our rates with that of 22-karat gold,” one banker told DNA.

But, the price of gold coins offered by banks still turns out to be higher, even when compared with 24-karat gold. “The jeweller sees huge volumes and, hence, he can afford to keep a lower margin,” he added.
 
Another point of note is that banks are currently not allowed to buy back the gold coins sold by them. So, one would have to sell the coins to a jeweller, who will not take into account the premium you paid to the bank.

“The jewellers accept the coins readily. But the price may not be the same when you sell,” the banker said.
 
On the other hand, if you buy a coin from a jeweller, he will pay you back the same amount you paid for the coin.

Rajiv Popley, director of Popley Group, says, “You can sell our coins  anywhere in the world and we will buy them back at the full price.”

According to Popley, his coins come with a guarantee certificate, along with the Popley’s logo imprinted on it, and the weight and purity mentioned. “The coin comes in a laminated seal pack, which once opened cannot be repacked,” Popley added.

There is also a premium charged for special coins having the figure of a god or a goddess embossed on them. For example, a normal 5gm gold coin would cost you Rs5,503.5, while the same denomination coin having an imprint of Ganesha or Lakhsmi would come at Rs 5,647.5.

This higher price takes into account the cost of etching or embossing the figure.

Most banks offer a discount for large orders. “The discount depends on the quantum of the gold bought. If the deal size is bigger, the bank saves on the costs incurred to sell a single coin and hence discounts may be offered.

We would consider a 100-coin deal a bulk order for a retail client and offer him a discount accordingly,” says Srinivasa.
 
If you are the kind who feels comfortable buying gold coins from a bank, take all the above factors into account before you finalise the purchase. “To check the trading price of gold at a particular point, log on to www.bulliondesk.com,” suggests Popley.
 
Several branded jewelers also have a customer care number, where one can call and check the rates for the day. Some banks also update their gold coin prices on their website, so it’s worth checking them prior to a purchase.

“Even though there are local shops offering gold coins, people come to us to buy coins. They know that there exists a difference in the prices. While buying gold it is confidence that works: it is the faith that people have in a bank that makes them purchase coins from a bank,” says Srinivasa.
 
For people looking at investing in the yellow metal, a better option is a gold Exchange Traded Fund (ETF). This is a mutual fund whose price is linked to the trading price of gold.

The units of this fund can be bought in the same manner one buys shares from stock exchanges. Currently, Benchmark Mutual Fund, UTI Mutual Fund and Kotak Mutual Fund offer gold ETFs, wherein one can buy one unit equivalent to 1gm of gold. So to accumulate gold, one can buy gold in Demat format, and sell it whenever they need to.