Buying gold? Just do a purity check
After suffering huge losses following the crash, jewellers are likely to adulterate your yellow metal
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 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 Rs 5. So, while a 5% rise in the price of gold doubled money (Rs 5 invested, Rs 5 gained), a similar swing the other way obliterated 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.
Ghanshyam Dholakia, director, KK Jewels advises buying jewellery from trusted jewellers. "It's safer to buy BIS-hallmarked jewellery and a certified diamond than substandard jewellery which have no resale value," Dholakia said.
Adulteration is more likely to happen at smaller jewellers, avers Mehul Choksi, chairman of Gitanjali Gems.
Alloys like zinc, copper and silver are mainly used in India to adulterate gold, which is a very soft and malleable metal that can't be moulded easily. Iridium and cadmium are other harmful alloys that are at times mixed with gold.
A jeweller has to maintain 22 carat gold standard to sell it as standardised gold. Carat measures the purity of gold alloys and is the measure for a diamond's weight too. Indians prefer more of 22 carat gold jewellery whereas abroad, 12-18 carat is more popular. "Every jeweller has its own equation of making gold jewellery as long as he sells a BIS hallmarked one," said Dholakia.
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's no risk of adulteration, no risk of theft or loss, said experts.
After suffering huge losses following the crash, jewellers are likely to adulterate your yellow metal
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 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 Rs 5. So, while a 5% rise in the price of gold doubled money (Rs 5 invested, Rs 5 gained), a similar swing the other way obliterated 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.
Ghanshyam Dholakia, director, KK Jewels advises buying jewellery from trusted jewellers. "It's safer to buy BIS-hallmarked jewellery and a certified diamond than substandard jewellery which have no resale value," Dholakia said.
Adulteration is more likely to happen at smaller jewellers, avers Mehul Choksi, chairman of Gitanjali Gems.
Alloys like zinc, copper and silver are mainly used in India to adulterate gold, which is a very soft and malleable metal that can't be moulded easily. Iridium and cadmium are other harmful alloys that are at times mixed with gold.
A jeweller has to maintain 22 carat gold standard to sell it as standardised gold. Carat measures the purity of gold alloys and is the measure for a diamond's weight too. Indians prefer more of 22 carat gold jewellery whereas abroad, 12-18 carat is more popular. "Every jeweller has its own equation of making gold jewellery as long as he sells a BIS hallmarked one," said Dholakia.
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's no risk of adulteration, no risk of theft or loss, said experts.
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