How pure is the gold that you hold?

Posted On Thursday, Feb 26, 2009


A 60 year old father goes to a jewelers shop to encash the gold which he has meticulously saved over years to cover the expenses for his daughter’s marriage. To his horror, the jeweler says that "Your Gold is impure and contains other substances such as iridium and ruthenium" and the jeweler can’t offer him the market rate. The father had no choice but to accept the discounted rate.

This revelation of gold being mixed with impure substances appeared in Times of India, Mumbai edition dated 30th January 2009. It’s indeed earth shaking for all Gold investors in India. We all buy gold or jewelry as a means of securing our future or funding long term liabilities such as daughter’s marriage or medical expenses or son’s education abroad. But we may not be sure of the purity of Gold that we hold and how much value we may have to lose.

Such fact’s can shatter consumer’s faith in Gold, which is always a safe haven for them. The article talks about how jewelers fleece customers by mixing Iridium and Ruthenium with gold of as much as 6% and are getting away with it unless the gold is subjected to extensive purity tests.

For Investors gaining exposure to gold by saving and Investing in the form of jewelry may find this fact hard to digest.

Jewelers were known to add some amounts of Copper and Silver to the Gold Jewelry during making process to harden the Gold. We were also aware of the high making costs we were charged for the jewelry. Over and above this there were high profit margins that are added to the price, making investments very expensive.

Now, the adulteration of gold by adding other elements not only makes it impure but consumers are made to pay for this impurity. And when the consumer sells the jewelry, the jeweler deducts the weight for the portion that’s impure; a double loss for consumers.

Buying Gold in Jewelry form = Gold Price + Making charges + other metals
added to harden gold in jewelry form + Profit Margins + Adulteration

So, Where do you buy your Gold from?

Gold - Which is sure of its purity?
Which has no extra cost over the gold price?

Gain Exposure to Gold of 995 purity sourced from refiners accredited by London Bullion Market Association, in demat form through

Quantum Gold Fund
(An Exchange Traded Fund)

No.CriteriaPhysical Gold (From Jeweller)Quantum Gold ETF (Gold in Demat form)
1Purity of GoldUnsure; can be adulteratedSure; 955 purity Gold
2Availability of Standard PricingNo; may differ from jeweller to jewellerYes; linked to International Gold prices
3Premium paid over gold priceHigh; making charges and profit margins includedNo premium over standard price of Gold
4ConvenienceLow; Physical movement and transfer is involvedHigh; the assets are held in a demat account
5Storage RequirementsHigh, as it is in physical form; locker or safeLow; for the investor, it is stored in a demat account
6Security of the assetInvestor is responsibleFund house takes care of this
7Resale ValueAt a high discount; making charges are deducted againEasily traded on the NSE at a value close to the prevailing price of gold.
8Wealth TaxYesNo
9Long Term Capital Gains TaxAfter 3 yearsAfter 1 year

Above article is authored by Quantum.

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