Surge in Gold Buying

India which is the second largest buyer of gold in the world saw a massive jump in gold ETF trading on the auspicious Hindu holiday of “Dhanteras”. It is considered lucky to buy gold /silver on this day and most Hindu families buy gold on this day. The buying preference of Indians have seen a marked shift towards gold ETF from the traditional buying of gold coins and jewellery. This is mainly due to convenience and high transaction costs of buying physical gold and jewellery. This Dhanteras gold volume on the major exchanges jumped almost to 4 tons up by 81% from the previous year as $400 million of gold ETF turnover was seen. Indian savings in equities and other alternative assets like insurance etc. is relatively much lower compared to the other markets. This has not been a bad choice for Indian savers over the last decade as gold has handily outperformed other asset classes.

Read about Gold ETFs in India.

There are many ways of buying gold in India. Let us examine the pros and cons of different Gold buying options:

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 jewelery 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 this 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.Here is a listing of the Gold ETFs found in India  currently.

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. Knowing the banks in India, I don’t doubt the story.Here are some pros and cons of buying gold from banks in India.

The best way to buy gold in India is through Gold BeEs ETF for low expenses and liquidity. However if you want to buy physical gold then your trusted family jeweler may the best choice as Banks and Reputed Retailers of Gold charge an exorbitant 8-10% transaction cost one way on gold. Can’t understand why the Banks have to fleece the customers in case of selling Gold. But knowing Indian Banks who love Regulation in fear of competition amongst each other it does not come as a big surprise.

Hindu

The total traded value of gold ETF (exchange traded fund) on the NSE stood at a record value of Rs 1,337 crore, while the BSE recorded a turnover of Rs 894.55 crore, the two exchanges said separately. Dhanteras is considered an auspicious day to buy precious metals like gold and the exchanges held a special trading session yesterday.