Hallmark Gold : Pay for what it’s worth!
Gold, being a precious metal, has huge significance, as it has ever increasing value, and many currencies are pegged against it, making it one of the most important financial instruments. However, in India, the significance increases multifolds considering the fact that apart from its face value, gold also commands a significant emotional and cultural value.
Are there different levels of Gold purity?
Gold being the metal that it is, due to its malleable nature, it has very little practical use case in its natural and the purest state. To make it usable, the purity is toned down by a predetermined percentage. Gold purity is measured in Karats (K). Higher the karat value, the purer the gold. Some of the common gold purity levels are as follows:
24K (100% Pure) : 24 karat is the purest form of gold. However, due to the malleable nature of the metal it is not fit to make jewellery or utensils. Gold of this purity is usually used for storing in the form of bullion (Coins or bar). As per the regulation by the Reserve Bank Of India (RBI) maximum available LTV is 75%. That means whatever is the current gold rate for 24K gold, a borrower can secure debt up to 75% of the value of the gold. Example for a 24K gold of value INR1000, a maximum of INR750 can be secured as a loan against it
22K (91.7% Pure) : Gold of 22 karat purity has a healthy balance of high purity and metal strength, which makes it the perfect choice for making ornaments. In India this is the most preferred option for retail buyers. As mentioned above, the LTV rule holds true for gold of 22K purity too. A maximum of 75% LTV can be availed
18K (75% Pure) : 18 karat is another preferred option for retail buyers as this too can be used to make jewellery and utensils while offering a decent enough purity level. 18 karat gold is becoming increasingly popular due to the affordability factor considering increasing gold prices. A customer can also secure a loan with a maximum LTV of 75% for gold ornaments with a 18K purity too.
14K (58.3% Pure) : 14 karat gold has 58.3% of gold by purity standards. Ornaments or jewellery made from 14 karat gold offers high sturdiness while retaining decent quality of gold
10K (48.7% Pure) : Ornaments made from gold of 10 karat purity level have lower than desirable purity level of gold from a customer point of view. Although availability is not the issue, however, customer preference is low in India.
Is there a determinant for Gold Purity?
Now, to a naked and untrained eye, determining the purity level of the gold by simply looking at it is almost impossible. Hence, there are various agencies or government agencies that certify the purity of the gold metal/ornament. In India, the apex agency is Bureau of Indian Standards (BIS) that rates the purity of gold.
There is another purity standard for Gold, i.e. KDM - a KD gold means that the purity level is 92% however, the same is not certified by the Bureau of Indian Standards (BIS). Hence, the demand for KDM gold has stagnated considering the fact that people prefer buying Hallmark certified jewellery because of the trust that it commands.
What is the difference between KDM and Hallmark and which one shall I choose?
For a common person with limited knowledge of gold and its purity may have a question - What is KDM Gold? KDM Gold is nothing but gold with 92% of purity level. KDM and Hallmark both signify Gold’s purity levels. While KDM is the more outdated version to determine gold’s purity, Hallmark is more preferred by the buyers just because of the different level of purity it can certify, and the reliability of BIS.
It is solely the customers choice or preference. However, one must ensure that they are paying only for the quality of gold that they are buying.
Can a customer be cheated and what should one do to avoid cheating?
As mentioned earlier, there’s no way to determine the purity level of gold just by looking at it. And there’s a high probability for the customers to be cheated by cunning businessmen and fraudsters. A customer can be sold low quality gold while being charged for a higher quality. This happens more often than you may think, especially while buying jewellery of a smaller value, i.e. small gold item like a ring, pendant, etc. Example - A jeweller has charged a customer for 24 karat ring while the real purity was 18 karat, essentially resulting in the customer overpaying for the gold that they bought.
To avoid this, BIS has introduced Hallmark. Hallmark on gold jewellery determines the purity level of gold used to make the jewellery. There are different types of hallmark signs like 958, 916, 875, 750, etc. all indicating different purity levels. Example - BIS 916 hallmark indicates 91.6% purity level of gold i.e. 22 karat.
How to check Hallmark on Gold?
Gold ornaments certified by the Bureau of Indian Standards (BIS) have a hallmark sign on them indicating the purity level. The hallmark stamp on gold is usually placed in such a place that is not in the line of sight to someone looking at the ornament from afar. Only after carefully looking for the symbol can someone find it. For example, in case of chains, it is usually placed on the locks, for bangles, the BIS Hallmark symbol can be found on the inside. Along with the Hallmark symbol, purity level is also marked like 916 gold, 875, 750, etc all indicating different purity levels.
Is there a difference between Hallmark gold Price and non Hallmarked gold? How to ensure that you’re not overpaying?
Gold price is dynamic, it changes every moment and on all days. However the retail price of Gold is usually fixed at the stores for the day. To ensure that the buyer is not overpaying for their purchase, they must make sure to check the latest gold rate for the day. It is also imperative to know the rate for the purity level. As higher purity means higher price. Also, ensure that the price and the purity level matches. A retailer may offer a lower price to increase sales, which would be great from a buyer’s perspective, however one must ensure that they’re not paying more than the market price for the day or simply search for hallmark gold rate today on the internet to know the latest gold rate, and more importantly one should check the actual value based on the purity level before making a buying decision.
Investing in Pure Gold : is it worth the premium?
Before making an investment in any financial instrument, the first thing that the investor must do is have a clear understanding of the objective of the investment. When it comes to investing in Gold, the buyer must first decide if they want to buy Gold solely for investment purpose, or if they plan on using the gold in the form of jewellery.
Irrespective of the form of investment, if you consider the price trends, there is a clear indication that the prices are bound to increase, and the buyer will essentially make returns, however the magnitude of returns may vary, which is outlined below. Let’s understand both the scenarios:
- Gold purchase only for investment : If the purpose for buying gold is to store it only to sell at a premium for what you paid for, essentially making returns. Then the buyer is set with buying pure gold 924 karat). That too in the form of bullion i.e. coins or bars. Reason being, purchasing gold jewellery in 22 karat or below although has less price than the 24 karat gold, however there are additional costs like making charges, GST, stone charges, etc. that the buyer pays while acquiring the jewellery, which while selling is not taken into consideration, and this diminishes the overall return on the investment. Hence, buying pure gold in the form of coins or bars makes much more sense since there is no making charges, labour, stone charges, etc. that comes with it.
- Gold purchase for personal use : if the objective is to make returns while also utilizing the gold for personal use, then buying gold jewellery is the best option. Here the buyer gets a lot of flexibility, regarding the purity of the gold they want to purchase, and the type of jewellery they’d like to use. Buyers can use the gold while still enjoying the increasing value of their asset. However, one should keep in mind that there are additional costs like labour charges, which they’d end up paying extra as while selling the gold, these costs are not taken into consideration and only the actual metal value is paid to the seller. Also, to avoid any shocks regarding the actual purity level while selling the gold, the buyer should always make sure that the buyer should only buy jewellery with gold hallmark sign which indicates the purity.
Conclusion
As one of the most valuable and culturally significant metals, gold is used both for investment as well as personal purposes. However, due to its nature, there is almost no way to determine the purity level without proper scientific tests. To ensure that the people are not cheated, the government backed institution Bureau of Indian Standards (BIS) has introduced hallmark standards which indicate the purity of gold.
When investing in Gold, it is essential to decide whether the primary goal is to make financial gain or is it for personal use and financial gain is secondary. For investment purposes, it makes more sense to buy gold in bullion form, as it does not attract extra charges like making, labour, stone charges, etc. hence enhancing the net returns on your investment. Whereas, if enjoying financial gain is secondary, while using the same for personal use is primary - it makes more sense to buy gold jewellery/utensils as it offers usability, flexibility in options, and purity. However, this comes at a price of making charges, etc. which depreciates the net returns on your investment.
