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GaramChai.com >> Jewellers >> Investing in Gold
On
this page, we present an article on Investing in Gold
specifically tailored for Non Resident Indians (NRIs)
and South Asians living in North America. For a comprehensive
listing of Asian Jewellers check our online section.
"Indian
jewellery is usually 24 carat gold and is not meant
to be worn, except on very special occasions. On her
wedding day a typical middle class bride wears nearly
32 ounces of gold. Family wealth is passed along maternal
lines in the form of golden dowries. Wedding guests
also give gold coins as lucky wedding gifts. Gold is
deeply embedded in the Indian culture." - Editorial |
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Gold, for
Indians and South Asians has been a traditional safe-harbor
and a very emotional investment. Families have long invested
in gold and jewellery to bank on at times of need. Gold is also
a symbol of family status and wealth in South Asian communities.
Gold and jewellery are an integral part of Indian and South
Asian wedding just as pomp and grandeur of the ceremony is.
This is perhaps the reason why families also begin buying gold
jewellery right after birth of a daughter. Such investments
in Gold jewellery for the daughter are akin to opening a college
or educational fund or investment done by those in the West
when a child is born.
The mindset
of Non Resident Indians (NRIs) and Global South Asian Diaspora
is no different when it comes to their view on gold and jewellery.
However, what is different for NRIs is that gold did not figure
as a big part of their investment strategy and the little
investment in gold and jewellery is geared more towards the
tradition than being an investment vehicle.
At the
beginning of 2008, writeup and articles in business media,
papers and magazines are positioning gold as a sound investment
vehicle, with analysts predicting Gold moving to $1000, $1500
or even $2000 an ounce. Even if one were to discard the hype,
gold is an investment hedge that should figure in a balanced
investment portfolio. The natural question that comes to mind
is how do I invest in gold? Is it prudent to buy 22/24 K jewellery
as an investment? Are there any other vehicles available to
an average investor interested in precious metals?
Buying
Gold Jewellery for investment
South
Asians and Indians, especially those from a middle class,
have seen their parents buy gold jewellery : chains, pendant,
earrings, gold bangles and the like that their mother or sisters
would wear daily. And some jewellery of more intricate designs
reserved for special occasions like weddings, family get-together
or other functions. Indian men are also known to invest in
jewellery for themselves: chain and gold rings are common
though earrings are not very uncommon too.
Buying
gold jewellery has traditionally serviced two purposes: act
as an investment and an ornament to showcase. The 'physical'
nature of such an investment also means that it is very emotional.
Many bollywood movies and stories have eulogized down-in-luck
families pawning or selling their family heirlooms and jewellery
at times of distress. This mindset of Indians has lead to
an entire industry of making, retailing, recycling, remaking
jewellery. As per one estimate, Indians account for about
xxxx percent of Gold demand, primarily from Indian consumers.
In the past few years, the gold retailing geared towards Indians
has also got modernized, thanks in part to chains like Tata's
Tanishq that has brought transparency to the industry. Sensing
an opportunity, Banks like ICICI also begun to sell gold coins
to customers.
Tips
on buying Indian Jewelery in North America
Given,
the voracious Indian demand for jewellery, it is not surprising
that there are over 250 Indian jewellers in the US and Canada.
Several online dealers have also specialized in catering to
demand from the ethnic community. [refer to GaramChai.com
for the most comprehensive listing of Indian Jewelers in USA
and Canada] I have visited Indian Jewellers in the US and
Canada on several occasions to buy jewellery for self, relatives
and friends and here are a few observations.
Why
buy from Indian jewelers?
High grade
of Indian jewellery. Most western style jewellery is of lesser
'purity;' anywhere between 8 to 18K (Carat)
is common for jewellery sold by American jewelers. Most ethnic
jewellers (Indian, Pakistani) carry 22 or even 24 K gold jewellery.
Higher grade jewelry is naturally a better investment, especially
if one is thinking of recycling or reusing at some point in
the futures
Caveats
on Indian Jewellery in North America
- The
making charge is a large percentage of the cost of an ornament.
Indians and south Asian jewelers charge anywhere from $6
- $20 per gram as 'labor charge' for jewellery. The reasoning
is that it is hand crafted and made in India, Pakistan,
Singapore or elsewhere and then shipped to US, UK or Canada
hence the mark-up. Shopping around helps. I have observed
that this charge is highly negotiable and depends on the
intricacy of designing among other things. Needless to say
if one is looking to Gold as an investment, the markup of
$10 (or whatever) will negate any gains. Even if one gets
the jewellery back to the same jeweller after say a month,
the jeweler will only pay for the prevailing cost of metal
and may not reimburse the making/labor charge. Therefore,
if you are looking at gold jewellery as a short-term, it
may not be prudent. If you are looking at a dual-purpose
intent, sure, why not?
- Gold
jewellery may be taxable. Depending on the state or province
you live in, gold jewellery may be taxable, adding to the
cost of your investment. Some south Asian jewelers try and
bypass this by asking their customers if they would like
to go without a bill/receipt, sometimes offering a 'cash'
discount if paid in cash (leaving no paper trial). Needless
to say, this is not a good option for an individual investor.
Buying
Gold coins for investment
Many kinds
of Gold coins are minted by official government mints around
the world. Most popular investment grade coins include the
South African (Krugerrand), Canadian Maple Laf, American Eagle,
Mexican Peso, Australian Gold Nugget. Other gold bullion coins
include Austrian Philharmonic, British Britannia, Chinese
Panda, Gold Dinar, Russian Chervonets, Swiss Vreneli. These
coins are available from many banks and coin dealers around
the world. In the US, coins are sold by several banks (at
select branches) and from coin dealers. In Canada, only the
Royal Bank (Scotia Bank) is authorized to sell the 'Canadian
Maple' to retail customers. Of course, you can order coins
from the Canadian Mint but those are generally 'collector
issue' coins (meaning more expensive than the pure gold value).
Buying
gold coins for investment in Canada
Royal
Canadian Mint issues gold and bullion for investment
in Canada. Scotiabank
in Canda is an official distributor of Canadian
Maple Leaf gold and silver coins. The process of ordering
coins is a bit cumbersome as one has to do it via a
branch in person. [The website just says: Coins can
be ordered through any Canadian branch of Scotiabank]
Following are the steps the author followed in buying
a Canadian maple in Canada:
- Get
a price quote for a coin from the teller/manager.
You need to be specific about the coin, the number
you want etc. [You will have to ask for specific quote
for say "Canadian Maple Leaf, one ounce gold
coin". For other kinds of investment coins check
the following). Note: It is not every day that a customer
walks into a branch and asks to buy gold coins. Therefore,
not all tellers at the banks are familiar with the
process, so you may have to guide them or they will
get a manager to help.
- The
teller/manager will get the quote from their internal
system (or head-office). This is because the rate
(obviously) changes from day to day.
- The
rate quoted will be in US Dollars (even in Canada,
Gold is traded in USD). The branch will add their
small fee and possibly a shipping fee to have the
coin/s couriered from the main office to their branch
for you to collect.
- You
will have to place an order at the rate quoted and
pay the amount in US dollars. If you don't have US
Dollars, the teller will convert your Canadian funds
to USD (again a small fee may apply)
- The
coin/s will be couriered to your local branch where
you placed the order and you may collect it
Note
on Tax on Gold Coins in Canada
Goods
and Services Tax (GST) of 5% will payable on all gold
coins of less than 99.5% purity, including the pre-1933
European and U.S. gold coins. Gold coins, bars, ingots
or wafers refined to a purity level of 99.5% or greater
(including the Maple Leaf, Austrian Philharmonic and
Australian Nugget gold coins) are exempted from GST.
Provincial
Sales Tax (PST) will be payable on gold coins of less
than 99.5% purity. Gold coins refined to a purity level
of 99.5% or greater are exempted from PST in the following
provinces: Alberta, British Columbia, Quebec, Northwest
Territory and Yukon. |
Note: From a pure investment standpoint if you are considering buying
gold jewellery or gold coins, one would also have to factor
the cost of ensuring it and storing to protect the investment.
Gold
Stocks, Bonds and other investments
For those
who don't want to invest directly in coins or jewelery, several
indirect investment options, including gold stocks, bonds
and exchange traded funds exist. As per Business
Week, The S&P 1500 Gold index has seen a jump in its
trailing 52-week relative performance ranking, possibly the
result of rising inflationary concerns and a weakening U.S.
dollar as a result of the Fed's recent double-barrelled cut
in interest rates.
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