Buying Gold this Indian Festive Season

Indian consumers are one of the biggest buyers of gold due to cultural and historical factors and consumer around 300 tons of gold each year. Indian banks are starting to make inroads into the gold jewelry and coins market which has been historically a bastion of the traditional gold jewelers. Indian consumer preferences are slowly changing with many people shifting to buying gold ETFs and gold coins instead of gold jewelry. Indian Asset Management companies have introduced gold ETFs to capture the rising preference for non-physical possession of gold. Almost all Indian Mutual Funds have gold ETF in their portfolio.

The high prices of gold have failed to dampen the enthusiasm for gold amongst India’s increasingly wealthy classes. While Silver is also bought during some auspicious days such as “Dhanteras”, Gold rules the roost as far as precious metals are concerned. Traditionally Gold has been bought from jewelers in the form of jewelry by Indians, however sophistication of the Indian Financial Industry has increased the gold buying options for Indian investors.

Read our Guide on buying gold ETF in India

Now Indian banks are too getting into the act by giving discounts on buying of gold coins. The advantage of buying gold coins from these banks are that they have greater authenticity than buying from gold jewelers. The biggest banks like ICICI are giving discounts of 3-8% on purchase during the 2012 festival season when the bulk of the buying takes place. Note Dhanteras is considered auspicious for buying gold and almost all Hindu families buy some amount of gold during this day. For those of you wondering how banks are managing to give discount of up to 8%, note that these banks have a huge margin of 10% inbuilt into their gold sale price.

Investment Options for Buying Gold in India 

1) Family Jeweler – This is the traditional way of buying gold for Indian people and still accounts for a majority of the purchases. A Trusted Jeweler is a common thing found amongst rich and middle class Indian families. Most of the jewelry and gold buying is done from this person. However the disadvantages of this form of gold buying are many. The purity of the gold is always a question and the margin charged is generally much higher. Also the bid-ask spread is more than an ETF  since you would get a much lower selling price for your gold. However this continues to be the dominant form of gold buying in India despite the potential risk of cheating.

2) Gold ETFs – Gold Exchange Traded Funds (ETFs) have become quite popular in the last couple of years with a number of asset management firms in India launching these ETFs. In fact Gold ETFs are the most popular asset ETFs in India currently. The asset size of these ETFs has increased sharply with the increasing popularity of gold as an investment asset.

3) Buying Gold Coins and Bars from Banks, Reputed Jewelers etc – Nowadays Banks and Reputed Jewelers like Tanishq are also selling Gold Coins and Bars with branding and assurance of purity. However the margins by these sellers are too big and much more than charged by ETFs or traditional jewelers. Note the margin is as high as 10% for these banks just for quality assurance. I don’t recommend buying gold from banks. Note there have been complaints regarding banks refusing to buyback their own issued gold coins citing flimsy reasons.

Hindu

It’s raining discounts for gold purchases this festival season, as banks and other financial institutions are selling the precious metal coins at up to 8 per cent lower prices than the prevailing market rates. For online purchases, the top private sector bank ICICI Bank is offering discount of 3-8 per cent on 24-carat gold coins of various denominations under its ‘Pure Gold’ offer. State-run banks like Punjab National Bank and Oriental Bank of Commerce are also giving hefty rebates of 3-6 per cent on single physical purchase of a bunch of coins of any denomination by a single purchaser on a day.

Also Read on GWI:

Indian Diamond Jewellery Manufacturers, Brands, Companies List.