Home Potpourri Gold Jewelry As An Investment: Financial wisdom or misguided tradition?

Gold Jewelry As An Investment: Financial wisdom or misguided tradition?


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India is the world’s biggest market for gold; it’s bought both for cultural reasons and as an investment

The Indian and Chinese middle classes believe that as well as being an adornment, gold jewelry is a sound investment.

Across Asia millions of newly middle class families are making personal finance decisions for the first time. We look at the big issues facing them.

For the past three years, the Mohan family, like millions of others across Asia, has been hoarding gold with any cash its members can spare.

“We purchase one coin or two coins a month,” says retired Indian Navy officer Alok Mohan.  It’s an investment decision based on traditional culture. The couple’s daughter is approaching “marriageable age,” they say, and they’ll need to give jewelry as gifts.  Like millions of Indians, Mr Mohan feels that ancient financial wisdom has been vindicated by the recent surge in gold prices.

The Mohan family believe their gold coins, and the jewelry they will eventually get made, are a better investment than anything else out there.

Gold has edged above $1,500 an ounce and has continued to rise in value despite the global economic slowdown – up five-fold in a decade.  India is already the world’s biggest gold market for cultural reasons, with prices around the world affected by seasonal demand around the Diwali festival and the wedding season.

The growing middle class in China is catching up fast. Mainland China’s Communist-led government deregulated gold ownership over a decade ago, and demand for jewelry has doubled in the past seven years, according to the World Gold Council.

With the global economy sluggish, returns on gold can be better than shares or equity.

Precious metal

But if Asian families believe they’re making an investment rather than just buying pretty necklaces or rings, they are deluding themselves, say experts.

“Jewelry is a very bad investment,” says Harsh Roongta of the price comparison website ApnaPaisa.com, based in Mumbai.  He says that there are other ways to benefit from gold than investing in jewelry

Prices of necklaces, bracelets and rings reflect the cost of making them – which can add up to 30% on the price of the actual gold in these items.

If you want to benefit from the price of gold, he recommends various investment products and funds that are linked to gold instead.  Several index funds and exchange-traded funds based on gold are now available to consumers in India and beyond. These funds are managed by companies that invest in gold bullion or firms that are mining for gold, and pay out the returns. This allows customers to benefit from rising gold prices, because the value of the funds goes up.

The gold bubble?

However, in reality the price of gold is going up because Asian governments are hoarding the shiny metal, not the investments of ordinary people.

“It’s actually the governments in the big emerging markets who historically have surpluses in the US dollar,” explains Darius McDermott, managing director of Chelsea Financial Services – a UK investment broker. “They are looking to diversify.”

This means the rise in gold prices may continue. But George Soros, the billionaire investor who recently put money into gold, offered a sober warning in an interview with Reuters last year. “I’ve called gold the ultimate bubble,” said Mr Soros. “It may be going higher, but it’s certainly not safe and it’s not going to last forever.”

That means that even if you buy gold or invest in gold-linked funds, it shouldn’t be the only place you save your money.  “As an investor, we want to be careful that we don’t have all our money in one asset class,” says Mr McDermott.

Investments you can wear

The Jagtap family no longer invest their savings in gold jewelry as they do not feel it has resale value.  Of course, investing in gold-linked funds or putting your money into other stocks means saying goodbye to beautiful jewelry you can wear.

Sulbha Jagtap, a 40-year old office worker, looks at her husband ruefully as she explains why the couple no longer invest their savings in gold jewelry.  “He feels that gold does not have the resale value,” she says.

Her husband Nitin explains that apart from a smaller number of items for Sulbha to wear to weddings, the household savings have gone into more profitable investments like mutual funds and fixed deposit schemes.  “I agree that there are some emotions that come in when we purchase gold,” Ms Jagtap, with a tinge of regret.

Original article appeared in http://www.bbc.co.uk by Mukul Devichand Mumbai, India.  Gold chart image from http://www.goldprice.org

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I am a Graduate Gemologist trained at the Gemological Institute of America (GIA) in New York City, USA. I hold an MBA degree from Cranfield University, United Kingdom, and a Bachelor degree in Mathematics. My earlier profession was a banker until I found jade in Myanmar (Burma) in the early 90s. I have traveled to the fabled Hpakan Jade mines, and Mogok, the world’s famous rubies and sapphires mines in upper Burma, with my second son. Three of my children are also Graduate Gemologist, GIA, NYC and they deal in diamonds, gemstones and jade. 我是在美国纽约市的美国宝石学院(GIA)接受过培训的宝石研究学家。 我拥有英国克兰菲尔德大学的工商管理硕士学位和数学学士学位。我以前的职业是银行家,直到90年代初我在缅甸接触到玉石。我曾经和我的次子一起去过缅甸上流传说中的哈帕翡翠矿山和莫谷矿山, 莫谷矿山是世界上著名的红宝石和蓝宝石矿山。我的三个孩子都是纽约市GIA毕业的宝石研究学家, 他们专门处理钻石,宝石和玉石.