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November 28, 2013

# Gold Jewellery-Are you getting the right value?

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  troy-ounce 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 any jewellery 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 jewellery, 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 any jewellery.  But recently BIS cautioned buyers of jewellers not to believe this test also. Because it only guarantees you the surface fitness but not in-depth 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 same jewellery 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 jewellery or not.
10) Finally if you have any complaints you can metrology officials at helpline number-1860-425-3333

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1. Sir what is 100% buy back policy?

• Abhijeet-100% buy back means whether they buy back the gold which they selling you TODAY.

2. Thanks for the information I’m a college student it’s very useful

3. Very useful article! People like me who never carries any idea about gold can refer your article as the starting point to know more details on gold purchasing.

• Purushothaman-True and that is the reason Jewellery shops eyes on such customers.

4. Can hallmarked jewellery with all 5 symbols marked be fake.I.e it can have lower quality of gold than declared.
As I have bought gold jewellery of 916 fineness and prices of two sellers were 23900/10 gm and 24800/10 gm with hallmarking.so why there is so much variation in gold rate.plz and this is so confusing.

• Ravi-The price variation is because they follow the different benchmark to arrive at their rate. Also, if the lower priced gold is really lower in your city, then he may be charging you something more in the name of making charges or wastage. Check the different and you will get an idea behind such lower gold price gimmick.

5. Different brands set different rates for same purity of hallmarked jewellery. Why ? While there making charges are also very high ranging from 250 to 650 per gram in different showrooms.And there buy back policy also differ that forced us to sell hallmarked from the buying shop.So there is no profit of buying hallmarked jewellery if we can’t sell that at any place while not deducting any big amount.

• Ravi-Our concentration while buying a gold is on price, but we less bother about the other costs like making charges and wastage. The shop which claims to be selling at lowest price will increase their other charges to compensate their profit.