Buying gold? Just do a purity check

Jewellers and traders have been caught at the wrong end of the stick after a stunning plunge in the prices of gold and silver over the last few days caused heavy losses.

“Their losses will be in crores, depending on how much their trade exposure was. Generally, 30% of gold trade in India pertains to hedging of positions, but many a time, greed overtakes (which spur one-sided bets), which leads to heavy losses,’’ says Vedant Jatia, director (sales) at Indian Institute of Jewellery.

Jewellers had anticipated prices to rise so they had stocked up on the metal for the festive season. But, to their utter shock, prices went the other way. The misery was compounded due to leverage, which eroded their capital in no time.

Traders so far had to pay a margin money of just 5% to take positions in gold and 6% in silver. Meaning, if they wanted to bet Rs100 on the way gold prices will swing, traders had to pay only Rs5. So, while a 5% rise in the price of gold doubled money (Rs5 invested, Rs5 gained), a similar swing the other way obliterated
the capital.

Due to huge volatility in the last couple of days, commodity exchanges like MCX increased the margin requirements to nearly 9% for gold and trebled it to 18% on silver.

Meaning, as prices continued to fall from last week, traders had to either book losses or pay more margins to keep their positions. This forced many to cancel trades and book losses.

To recoup losses, jewellers may be tempted to adulterate gold with other alloys which add weight and colour, experts warn. “One should avoid buying non-standardised gold for investment because it may be dubious in purity and so you’ll lose on resale value. Zinc and copper being the cheapest alloys, there are chances small jewellers may try to adulterate using that,’’ said Jatiya.

Partner, PN Gadgil Jewellers, Saurabh Gadgil advises customers to buy jewellery from trusted jewellers. “It is advisable to go for BIS-hallmarked jewellery. People sometime go to any jeweller just to save a few rupees. It is preferable to go to reputed jewellers who are known for their market standing. An ensured bill is a must before buying gold to avoid any kind of adulteration,’’ said Gadgil.

According to Gadgil, the rise and fall of prices did not affect the jewellers so much as they earned profits only on the making charges. “We buy the gold entirely by cash which is from designated banks,’’ Gadgil said.

On the other hand, Vastupal Ranka, director, Ranka Jewellers said,  “Today, hallmarking of jewellery is done which ensures the purity of carats. Customers should buy hallmark stamped jewellery from reputed jewellers. There has been a major fluctuation in the prices due to the Multi Commodity Exchange (MCX), but we are not at all affected by the fluctuations. Out stocks are well maintained, so we buy and sell the gold at the same rate. If the prices go down, the we will have more turnover.’’

Zinc is used in gold to give a greenish tint, while copper is used to give a darker shade. Silver is used for whitish tone, while iridium and cadmium are usually mixed during the welding process to make bangles or join some parts of gold.

“Adulteration in gold continues across India, especially among small jewellers. Jewellery with gold mixed with cadmium can be hazardous on skin compared with iridium,’’ said Sandeep Kulhalli, vice president, retail & marketing at Tanishq, the Tata Group chain.

Not just wearers, such metals have ill-effects on those who are manufacture jewellery too, they are environment-unfriendly too. They cause skin and lung problems, said Jatia.

The best way to avoid all the hassles is to invest in gold exchange traded funds, where you own ‘paper gold’. There is no risk of adulteration, no risk of theft or loss, said experts.

— Inputs from Priyanka Naithani