Why Gold Jewelry is a Bad Investment

Asad Dossani
India is the largest consumer of gold jewelry in the world. This is no surprise, given our history and culture.  It is often handed down as a store of value, and treated as an investment. But it turns out that investing in gold jewelry is a bad idea.

When I was getting married, I tried to convince my wife to accept gold ETFs or futures, instead of jewelry. As you can imagine, that did not go down well. So we ended up with a bunch of gold jewelry. And if you're a married person, you're probably in the same boat.

Why exactly is gold jewelry a bad investment? Here's a few facts I remember when shopping. First, whenever we bought jewelry, we'd be charged 15% above the value of the gold. This is the making charge - i.e. what you pay to turn a gold bar into jewelry.

Next, we also sold some of our older gold jewelry. When doing this, we'd receive around 15% below the value of the gold. This represents the cost of taking the old jewelry, and melting it down to recover just the gold.

And so, the round trip cost of investing in gold jewelry is around 30%. This is incredibly high. Who would ever make an investment with such high transaction costs? Even transacting in real estate is cheaper than this.

If you want to invest in gold, you're much better off buying a gold ETF. A gold ETF is investment that tracks the price of gold, with minimal expenses. It behaves like a stock, and you can buy and sell it anytime.

Now of course jewelry has some benefits that ETFs do not. For example, you can wear jewelry and it looks good. But since when did we evaluate investments on such criteria?

Instead, I prefer to think of jewelry as a consumption item, rather than an as investment. For consumption purposes, buying gold jewelry is perfectly fine. But as an investment, it makes no sense.

Historically, we were limited in our gold investment options, so jewelry was the best choice. But today, we have much better options for investing in gold.

So next time there's a wedding in your family, suggest swapping gold jewelry for gold ETFs. And when people resist your idea, mention the 30% transaction cost associated with investing in gold jewelry. Hopefully we'll change at least a few minds.

What's your preferred method of investing in Gold? Share your views in the Club or share your comments here.

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11 Responses to "Why Gold Jewelry is a Bad Investment"
krishnan v. c.
31 Jul, 2015
Very humourous but the truth; You cannot convince the women.Gold as an investment and a safety valve is what we use it for. Gold as Jewellery does have a cost as you have said.Like 
dharmvir kushwaha
29 Jul, 2015
pl. give more information on ETF.how does one go about investing in ETF?Like 
naveen jain
29 Jul, 2015
Hello Sir Iread ur article that is reality but people tendancy is gold is easily change into cash any problems. and it is reality . Like 
Pramod Phadke
29 Jul, 2015
Even buying Gold ETF is a bad idea. About 3 years back, Billie Bonner used to write a column for Equity Master. When USA started printing currency notes on a large scale, he suggested that people should buy gold as its price in US$ terms would go up. No such thing has happened. In fact gold price has started going down recently. Since the experts and/or economists also have no clue, it is best for the common man to avoid gold ETF or jewelry. Anybody from Equitymaster reading? Any comments on this post from them?Like 
Saad Pathan
28 Jul, 2015
I m now 74 yrs old ready to pack up !!!! I have already passed my guaranty period !! Now let us come to point in discussion I m really amazed that I was against buying gold jewellery as inwestment s[nce late 50's as I was considering Sonis as biggest swindlers of Aam Admi , the reason being when we want to buy gold jewellary it was passed on to people stating it was made out of 22/23 carrat when person in need want to sell the same thing to another soni he will pretend to test and declare solomanly it is 18/19 carrat and pay accordingly ( no such thing as HALL MARK in india at that time), plus other permiisibal deductions if person used to insist he paid for 22/23 carrat he will be declared liars or ask to go to the soni from whom he purchased . poor fellow had to go to the same sony from whom he purchased , The first thing he will be asked does he have the "Bill" ? If the " Bakra" is known to sony for may be generations " sony" will make a show of weigh the "Daginas" and declare it weighs 8 gms and pay the customer for about 7 gms or so . When the customer or his "Bill" says he paid for for 10+ gms he will be told he is right but what about wear and tare , plus what about joints eic " which U know is made out of 14/15 carats gold for strength etc..... right?" poor fellow has to agree and walk out of his trusted "sony" with what ever he gets feeing happy that he made atleast 5/6 % profit over what he paid ..... But the actual fact may be Gold prices have increased 55/60/70% or more during his holding so where does the rest go ..... In big fat "TOND" or pocket of "Sony".. Got the pic .... Wonder where the Old world has gone !!!!!!!!!!!! PL. ignore spelling mistake of 'An old Idiot ' Tally Ho. Like 
K Sengupto
28 Jul, 2015
it is true that gold jewelery has such a high cost of investment, but it is like this for years and it will only change when all Indians are educated and gainfully employed. Middle class Indians as well as the poor continue to think it as as an investment because other avenues are not easily available, are not reachable and difficult to comprehend. Hence if we want to wean away the masses from this type of investments then the more profitable mode of investment must be advertised and explained in the language the common people understand. K SenguptoLike 
Harish Nayak
28 Jul, 2015
Dear Hunter, Gold Jewellery is for experiencing happiness. Ladies always love gold. ETF does not create that happiness which lady wants to experience. In the marriage , as part of the celebration, gold jewellery given to lady. Bit wrong example to compare with ETF.Like 
John
28 Jul, 2015
I want to buy gold from Dubai in bar form(1 gm - 10 gm) for investment. Is this a good bet. I feel it is a good bet for the below points - 1) purity 2) no making charges 3) no tax 4) no selling of old jewellery involved. please give expert comments.Like 
Mubashir hussain
28 Jul, 2015
Hello sir, Your article is very much realistic I wish our ladies understand it at the earliest. Thank you for opening our eyes. Mubashir. Like 
TSPREMKUMAR
28 Jul, 2015
Thank you USFUL INFORMATIN Like 
s hasan
28 Jul, 2015
Investment in gold coin/brick is more reliable than jewelry and that 30% losses avoidableLike 
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