Gold doesn't glitter always

Next time you buy gold coins from commercial banks, you would do well to remember this. If you wish to cash out your investment, you will not get the full value of the coins.

Despite banks' assurance of the 99.99 per cent purity of the gold they sell, investors suffer a 4 to 7 per cent loss. The buyers of gold coins are mostly jewellers and the price they offer to pay is for just 93 per cent of the weight of the gold.

The investors take the hit even if they deal with a corporate like Tanishq, a branded jewellery maker. Tanishq buys the gold coins if the investors want to convert them into jewellery. The loss suffered is about 4 per cent.

This loss is over and above the additional amount that an investor pays tobuy a gold coin from banks. The gold coins bought from banks are 5-10 percent more expensive than from un-branded jewellers as banks levy assaying and other administrative costs.

Chitra Pandya, HDFC Bank's head-liabilities product-management, said: "A customer wouldn't mind paying a small premium on certified gold coins. There is also a certain cost attached to the fact that you can hold on to the asset as long as you want."

According to Pandya, a customer does not buy coins today and liquidate them at a jewellery house tomorrow. "When a customer buys gold and liquidates it five years later, he/she recovers more than the cost borne at the time of the purchase," he said. An investor, who recently had to sell gold coins bought from a bank, asked: "What is the point in buying gold coins from banks, if I can't get the market value for them?"

One senior bankers who did not wish to be named said: "The real issue is that the jewellers take gold investors for a ride and there is no government regulation or mechanism that can put an end to this."

ICICI Bank's senior general manager-retail, V Vaidyanathan, said: "Banks offer gold coins to encourage customers to invest in it than convert them into ornaments."

According to an investor, when one buys a gold coin or a gold biscuit from a local jeweller he gets the market price for the full weight of the coin when he sells it back to the same jeweller. "It should not matter whether I decide to liquidate my investment in gold after one month of after ten years. The problem is that banks don't buy back the gold coins they sell," he said.

ICICI Bank sells round shaped coins in five grams and eight grams of 24 Karat and 99.99 per cent purity. IndusInd Bank, too, has launched similar coins, which come in the 5-10 gm range with fineness of 99.9 per cent. The larger 50-gm is for the high net worth individuals.

HDFC Bank too sells 24 carat and 99.99 per cent purity gold. However, unlike others, HDFC Bank does not sell gold in coin shapes. The bank s 5-gram gold is available in bars.