Investing in gold?

7 facts you should know

India (NRIs included) is crazy about gold jeweler. With the World Gold Council (WGC)
aggressively marketing social and religious functions as gold buying events, the demand has shot up
in the recent years to record levels. Research shows that over 16,000 tonnes of gold is there in
Indian households predominantly in the form of jeweler. The value of this as per market price is a
whooping Rs 27.2 lakh crore. That is close to twice the foreign exchange reserves held by the RBI.
Let's consider the factors one needs to be aware of and the know-how of investing in gold.
1. Forms of buying gold
any investor has to be aware of the different forms of buying gold. Jeweler, the most traditional and
the dominant form of buying gold in India, is in fact not an investment idea. The reason is that
there are heavy losses in the form of wastage and making charges. This can vary from a minimum
of 10 per cent to as high as 35 per cent for special and complex designs.
Bank coins, again, are not an investment idea as the premium that banks charge for their coins is
around 5-10 per cent. Also, the bank coins have lesser liquidity as they are not bought back by the
banks.
Bullion bars are good modes for investment but the minimum investment here is much higher than
a common investor can think of.
Gold Exchange Traded Funds (ETFs) are a hot option these days. These are like mutual funds that
invest only in gold. They are proving to be an easier and safer mode to buy gold. The charges are
very less and the gold can be accessed electronically. The disadvantage is that one never gets to
"see" one's holdings.
2. Current income
Gold in any form does not give any current income. The only exception is the dividend option in the
gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers.
3. Capital appreciation
historically, gold has been the perfect hedge for inflation. This is based on data from the year 1800
AD. But in terms of absolute returns gold has fared rather poorly giving returns at only 0.8 per cent
above inflation. Real estate and shares beat gold squarely on the capital appreciation front. Real
estate and shares have given returns of about 11 per cent over inflation since 1979 (1979 as that was
the year the Sensex was launches).
In the short run, however, gold is a very strong bet compared to shares that are highly volatile. The
idea for gold investment will be to use it at times when the markets are falling and when the
inflation is very high.
A 5 per cent of the overall investment portfolio can be considered for gold investments (bullion,
WGC coins, Gold ETFs). Jeweler is not an investment as far as personal finance goes. It is only an
expense for pleasure, symbolizing wealth.
4. Risk
Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. Even
when the official figures where showing negative inflation (deflation) during the last year, the actual
prices of food items were increasing. This was reflected in the gold prices too.

The real risk with buying gold is in the opportunity cost of investing in other avenues that can
actually give higher returns.
5. Liquidity
Gold scores the highest in terms of liquidity, compared to all other investments. At any time of the
day and any day gold can literally be converted to cash. Banks would give you a jeweler loan
(remember though that many banks do not give loans on coins, including their own), and so would
your friendly neighborhood pawn shop. They can also be sold in some pawn shops, though many
are cautious to purchase in these outlets for fear of 'stolen jeweler'.
Gold jewelers would exchange your gold possessions for other gold jewels. But the problem here is
that there is going to be making and wastage charges involved again. Here we lose the value (to the
extent of 10-35 per cent) of gold jewels.
An unfortunate social aspect in most families in India related to liquidity is that gold has sentiments
attached and is the last item to leave the house in case of financial difficulties. This negates the
entire purpose of gold having liquidity.
6. Tax treatment
Gold suffers capital gains tax as per the IT Act. So it is better to ask your jeweler for the bill. Close
to 90 per cent of the gold jeweler traded in India is unbilled. This is a serious problem for those who
look at gold as an investment. Only the branded jewelers would automatically give you a bill. At
other places ask for one.
We can make use of indexation benefits when calculating the capital gains of gold. So the tax
payable will not be much.
Gold does not have any other tax benefits.
7. Convenience
Gold scores very high here. But with the per gram price rising, the smallest single investment is
becoming higher. With the emergence of golf ETFs the convenience to hold gold for the short term
has increased. Instead of holding cash for the short term, one can today make investments in gold
ETFs.
Conclusion
Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a
hedge avenue, Indians are yet to consider this market actively as the purchases continue to be
dominated by jeweler. Gold only beats inflation. It fares poorly when compared to real estate or
shares when compared on the basis of real inflation adjusted returns.
Any serious investor, however, is advised to have a certain percentage of investment in gold to hedge
inflation.

Why buying gold is bad for the Indian economy

Gold is an integral part of our lives in India. On the global front, India is the largest
consumer of gold. India accounts for more than 30 per cent of the global gold
market. However, the domestic production of gold in India is minimal. India meets
the high demand of gold from its domestic consumers by importing it. Though the
universal acceptance, liquidity and safe haven against economic or political turmoil
makes gold lucrative, it does not add much of a value to the economy.
Most of the gold bought by us Indians is used for consumption purpose in the form
of jewellery. Even from the investment perspective, majority of the Indians still
prefer the traditional way of holding it in the physical form. Gold ETFs, which were
first introduced in India in 2007, witnessed slow growth in the initial years. Over the
past couple of years, investments in gold ETFs gained momentum.
However, as per the statistics of Gold Council, jewellery accounts for nearly 75 per
cent of the gold demand in India. When we compare this consumption rate with the
global scenario, even the second largest importer of gold, i.e., China lags by more
than 30 per cent in terms of consumer demand. If we compare these demand levels
against the size of economy of major nations, India's GDP is much lower than that of
China or the US. The high consumption rate of gold among Indians is unproductive
for the Indian economy.
The first major problem the Indian economy faces with this high gold consumption
rates is the increasing current account deficit (CAD). India has to pay for its gold
imports using its foreign exchange reserves.
Foreign exchange reserves hold a key especially among the developing countries,
which have to import and use the industrial metals. Higher consumption of
industrial commodities supports industrial production. The goods produced by
consuming such commodities can be exported and the revenues can be used to
fund the current account deficit. Even during its higher prices, the demand for gold

did not go down. The oil imports are a huge burden on India's balance of payments.
But oil consumption is something which India cannot reduce keeping its industrial
usage in perspective. High gold imports and weak rupee have been the biggest
stress points when it comes to narrowing the current account deficit.
Misallocated capital is the second problem faced by the Indian economy due to its
gold rush. Keeping the consumption aside, physical gold (mostly jewellery) is also
considered as an investment among Indians.
However, it is an investment that does not add much value to the productive
capacity of the economy. Investments in the physical form of gold are either stored
in bank lockers or get exchanged for making jewellery. It seldom gets traded for
money. Imagine the same amount being invested in the capital markets. It allows
the companies to raise capital in the form of debt or equity and expand their
business. It can make a huge difference to the productive capacity of the economy.
It not only just adds to the physical goods produced, it also has a potential to
improve employment in a vastly populated country like India.
It is a given fact that over the last decade, gold has given returns which no other
asset class has been able to match. However, the demand for gold among Indians
has always been price independent. Gold is a traditional investment strategy
Indians follow. The effect of high prices has been minimal on the volume of gold
imported. The lower prices may increase the demand in the coming days. It is the
economies of the US and Europe that play a major role in determining the price
movements of gold. By importing gold for our consumption, we Indians are
investing in the international markets and helping their economies.
Over the last few years, the Indian markets are supported majorly by the foreign
inflows. Participation of Indian domestic investors becomes all the more important
for the Indian markets to prosper. Even for the transition of India from a developing
market to developed market, it is important that the domestic investors stay
invested in the capital markets.
The lack of alternative investments is one of the reasons attributed for Indian
investors favoring gold over domestic capital markets. More investors in the capital
markets will also drive more investment options in the domestic markets. More than
looking at it as an alternative investment, we invest in gold and real estate because
we understand it easily.

How to Invest in Gold in India?

What is the

best way to invest in gold in India? What are all the different ways to invest in gold? How
can I / we invest in gold? What are all the various gold investment options available to
Indian Investors?
Let us discuss in detail about how to buy gold for investment purpose.
Gold as an investment option

Before proceeding further let us answer a basic question in our mind. Why to invest in
gold? Should I invest in gold? Is gold a good investment option?
It is your hard earned money. So you need to answer these questions before investing in
gold. Why do people invest in Gold? What are all the benefits of investing in gold?
There are 2 primary reasons why you need to invest in gold.
Investing money in gold is worth because it is a hedge against inflation. Over a
period of time, the return on gold investment is in line with the rate of inflation.
It is worth investing in gold for a one more very valid reason. That is gold is
negatively correlated to equity investments. Say for example 2007 onwards, the equity
markets started performing poorly whereas the gold has performed well. So having gold as
an investment option in your portfolio mix will help you reduce the overall volatility of
your portfolio.
The above 2 points could have given some answers to your question Is buying gold a good
investment?
Return on gold investment
Is it profitable to invest in gold?
This investment proved remarkable from 2006 to 2011.During that time span Gold has
given average return of 29% per annum which was any day better than other investment
options.
However, the long term average return on gold investment is less than 10% p.a.
As one can say technically or ironically but history always repeats itself. Therefore, we may
once again observe the similar less than 10% appreciation pattern in gold prices in near
future.
Still, if you want to invest in Gold and cannot resist yourself from the temptation then these
are few tips on how to invest in gold correctly!
1) Jewellery buying
Our age-old and traditional way of investment is jewellery buying where one can buy gold
ornaments, bars or coins. However, it has its own disadvantages, total buying cost involves
heavy making charges (it can be 10 to 20% of total cost).However, when you try to sell the
same piece to same jeweler, he will buy it below market rates and deduct those making
charges from the total price of your jewel.
2) Investment in Gold coins and bars
Investment in gold coins and bars is also a better option over jewel buying. You need to
decide on Where to buy gold coins or bars?. You should buy gold bars and coins only
from jeweler. Banks also sell gold coins or bars. Then why do we advocate for buying god
bars and coins from jewelers? To answer this question you ask yourself How to sell gold
coins or bars? or Where to sell gold coins in India?
Banks sell gold coins and bars, but they cannot buy it back. Whereas, the jewelers can buy
back the gold coins from you.
How to invest in Physical Gold? The point 1) and 2) could have proved that it is better to
invest in the physical gold by way of gold coins or bars sold by the jewelers. In the next
points 3) and 4) we will discuss about the paper gold investment options in India.
3) Gold ETF:

What is Gold Exchange Traded Fund? Gold exchange traded fund is a type of mutual fund
which in turn invests in gold and the units of this mutual fund scheme is listed in the stock
exchange.
How to invest in Gold ETFs in India? You need to buy Gold ETFs from the stock exchange
by way of opening a demat account and trading account. You have to pay brokerage fee
(which is generally between 0.25% to 0.5%) for buying and selling of these Gold ETFs. You
will have to further pay 0.5 to 1 % charges as fund management charges.
4) Gold Fund of Funds:
What is Gold Fund? Gold fund is a Fund of Fund which will invest in Gold ETFs on behalf
of you. Best part here is that you do not require holding any demat a/c here.
Then how to invest in Gold Mutual Funds? Just like investing in other mutual fund
schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible
through these gold funds.
Still buying Gold fund of fund is little expensive option, as you have to pay
1) Annual management charges for the underlying Gold ETF
2) Annual management charges of Gold FOF Scheme.
Gold ETFs Vs Gold Mutual Funds
With Gold ETFs, you need to open demat account and pay broking charges. With Gold
Mutual Funds, you need to bear the additional charges charged by the Gold Fund of Fund.
If you are buying in less quantity then gold mutual funds may be suitable. If you are buying
in more quantity then you can negotiate for the lesser brokerage charges from your stock
broker, hence gold ETF may be suitable.
5) Equity based Gold Funds:
Here these funds are directly not investing in Gold but investing in the companies, which
are related to the mining, extracting and marketing of the Gold. Besides, its performance is
purely dependent upon the performance of the fund house and the equities they are
investing.
In the other 4 options, your investment performance will be directly linked to the price
movement in gold.
However, investment in these funds is suitable for investors with high-risk appetite.
As these are equity-based funds, equity risk is there.
There are no listed companies in India associated with Gold. Therefore, these funds
trade in international market and quiet susceptible to currency-risk apart from gold-risk
and equity based risk.
Therefore after assessing or weighing pros and cons of each gold investment option, one can
conclude that Gold ETFs and Gold Funds are safest, profitable and most preferred options
among the various alternatives.
How much to invest in Gold?
5% to 10% of your over assets can be invested in gold. If you invest more in gold,
remember in the long term return on gold investment is less than 10% p.a.
Is it right time to invest in gold?
Many times I have faced questions similar to When to invest in gold? or Should I invest
in gold now? There is no right or wrong time to invest in gold. You need to invest in gold

for long term (5+yrs). It is better to stagger your investments over a period of time to
average out the cost of purchase.
How to start investing in Gold online?
You can start investing in gold online either by investing in gold ETF or by investing in gold
funds. Gold funds can also be bought online just like investing in other mutual funds
online.
The above compilation on different methods of investing in gold could have given you more
clarity about investing in gold. Clarity is power when comes to taking investment decisions.
The author is Ramalingam K, CFP CM is the Chief Financial Planner at
holisticinvestment.in, a leading Financial Planning and Wealth Management company.
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What you need to know before you buy your

first ounce of gold
http://www.usagold.com/cpm/goldhelp.html
Question. What kind of gold should I buy?
Answer. We probably get that question more than any other -- pretty much on a daily basis. The answer,
however, is not as straightforward as you might think. What you buy depends upon your goals. We usually
answer the "What should I buy?" question with one of our own: "Why are you interested in buying gold?" If
your goal is simply to hedge financial uncertainty and/or capitalize on price movement, then contemporary
bullion coins will serve your purposes. Those concerned with the possibility of capital controls and a gold
seizure, or call-in, often include historic pre-1933 gold coins in their planning. Both the contemporary bullion
coins and historic gold coins carry modest premiums over their gold melt value, track the gold price, and
enjoy strong liquidity internationally.
Q. When should I buy?
A. The short answer is 'When you need it.' Gold, first and foremost, is wealth insurance. You cannot
approach it the way you approach stock or real estate investments. Timing is not the real issue. The first
question you need to ask yourself is whether or not you believe you need to own gold. If you answer that
question in the affirmative, there is no point in delaying your actual purchase, or waiting for a more favorable
price which may or may not appear. Cost averaging can be a good strategy. The real goal is to diversify so
that your overall wealth is not compromised by economic dangers and uncertainties like the kind generated
by the 2008 financial crisis, or those now unfolding in Europe and Japan.
Q. Why not wait for the necessity to arise, then buy gold?
A. Over the past few years, as concern about a financial and economic breakdown spread, there were periods
of gold coin bottlenecks and actual shortages. In 2008-2009 at the height of the financial crisis, demand was so
great that the national mints could not keep up with it. The flow of historic gold coins from Europe was also
insufficient to meet accelerating demand both there and in the United States. Premiums shot-up on all gold

coins and a scramble developed for what was available. There is an old saying that the best time to buy gold is
when everything is quiet. I would underline that sentiment.
Q. Can you give us a profile of the typical gold investor?
A. Gold owners are a group of people I have come to know very well in my 40+ years in the business.
Contrary to the less than flattering picture sometimes painted by the mainstream press, the people we have
helped become gold owners are among those we rely upon most in our daily lives -- our physicians and
dentists, nurses and teachers, plumbers, carpenters and building contractors, business owners, attorneys,
engineers and university professors (to name a few.) In other words, gold ownership is pretty much a Main
Street endeavor. A recent Gallup poll found that 34% of American investors rated gold the best investment
"regardless of gender, age, income or party ID. . ." In that survey, gold was rated higher than stocks, bonds,
real estate and bank savings.
Q. What about high net worth investors?
A. Traditionally, wealthy, aristocratic European and Asian families have kept a strong percentage of their
assets in gold as a protective factor. The long term economic picture for the United States has changed
enormously over the past several years. As a result, that same philosophy has taken hold here particularly
among those interested in preserving their wealth both for themselves and for their families from one
generation to the next. In recent years, we have helped a good many family trusts diversify with gold coins
and bullion at the advice of their portfolio managers.
Q. You frequently mention gold as insurance. What do you mean by that?
A. Gold's baseline, essential quality is its role as the only primary asset that is not someone else's liability.
That separates gold from the majority of capital assets which in fact do rely on another's ability to pay, like
bonds and bank savings, or the performance of the management, or some other delimiting factor, as is the
case with stocks. The first chapter of the ABCs of Gold Investing ends with this: "No matter what happens in
this country, with the dollar, with the stock and bond markets, the gold owner will find a friend in the yellow
metal -- something to rely upon when the chips are down. In gold, investors will find a vehicle to protect their
wealth. Gold is bedrock."
(Reader note: For a useful review of gold's role in preserving assets under various worst-case economic
scenarios, please see Black Swans, Yellow Gold - How gold performs during periods of deflation, chronic
disinflation, runaway stagflation and hyperinflation.)
Q. What percentage of my assets should I invest in gold?
A. Once again the answer is not cut and dry, but a general rule of thumb is 10% to 30%. How high you go
between 10% and 30% depends upon how concerned you are about the current economic, financial and
political situation. Recently, CNBC television commentator Jim Cramer strongly advocated a 20% gold
diversification.
Q. In your book, you state: "Who you do business with is one of the most important aspects of gold
investing." Why is that?
A. A solid, professional gold firm can go a long way in helping the investor shortcut the learning curve. A
good gold firm can help you avoid some the problems and pitfalls encountered along the way, and provide

some direction. It can help you in the beginning and through the course of your gold ownership both in
making additions to your portfolio and liquidations.
Q. How can the average investor distinguish between the good gold firms and the bad?
A. First, and most important: Check the Better Business Bureau's profile on a company before you do
business with it. Check not only its rating but the number of complaints lodged against it and how those
complaints were handled. A consistent record of complaints can be a warning sign even if the company has
managed to keep an A+ rating. This is a simple and straightforward step every first-time investor should take,
but it is amazing how many ignore it. Second, choose a gold firm that has a solid track record. Ten years in
business is good; fifteen years or more is even better. Third,choose a firm with a commitment to keeping you
informed, i.e., one that is interested in answering your questions now and keeping you informed in the future.
If a sales person gives you short shrift or hits you with a heavy sales pitch take it as a warning.
(Reader note: USAGOLD has been awarded the Better Business Bureau's Gold Star Certificate, its highest
accolade. In addition, the firm has been rated A+ by the BBB with zero consumer complaints. The firm has
been a member since 1986 and accredited since 1991 when the BBB began its accreditation service. To see
USAGOLD's full BBB report, please visit this link.)
Q. Can you briefly describe what you believe to be the biggest mistake investors make when starting out as
gold owners?
Answer. The biggest trap investors fall into is buying a gold investment that bears little or no relationship to
his or her objectives. Take safe-haven investors for example. That group makes up 90% of our clientele, and
probably a good 75% of the current physical gold market. Most often the safe-haven investor simply wants to
add gold coins to his or her portfolio mix, but too often this same investor ends up instead with a leveraged
(financed) gold position, or a handful of exotic rare coins, or a position in an ETF that amounts to little more
than a bet on the gold price. These have little to do with safe-haven investing, and most investors would be
well served to avoid them.
(Please see: Seven Reasons Why High Net Worth Investors Choose USAGOLD)
Q. What about the high profile gold companies that advertise on talk radio and cable television?
A. The same vetting rules outlined earlier apply. Check them out. Too often investors make the mistake of
believing that the gold firm that sponsors their favorite political commentator is also the best place to make
their gold purchases. National media campaigns are expensive and those costs are usually covered in the
prices paid by investors for their gold coins. In some instances that mark-up can be twice the gold value. Take
care that you are not paying too much for your gold and that you are buying the gold items best suited to
meeting your goals.
Q. What is your view of gold stocks?
Answer. Many of our clients own gold stocks and we believe they have a place in the portfolio. However, it
should be emphasized that gold stocks are not a substitute for real gold ownership, that is, in its physical form
as coins and bars. Instead, stocks should be viewed as an addition to the portfolio after one has truly
diversified with gold coins and bullion. Gold stocks can actually act opposite the intent of the investor, as
some justifiably disgruntled mine company shareholders learned in the recent past when their stocks failed to
perform as the price rose. There is no such ambiguity involved in actual ownership of gold coins and bullion.
When gold rises, they rise with it.

Q. What about gold futures contracts?

Answer. Futures contracts are generally considered one of the most speculative arenas in the investment
marketplace. The investor's exposure to the market is leveraged and the moves both up and down are greatly
exaggerated. Something like 9 out of 10 investors who enter the futures market come away losers. For
someone looking to hedge his or her portfolio against economic and financial risk, this is a poor substitute for
owning the metal itself.
Q. What about ETFs?
A. Since, for one reason or another, it is difficult to take delivery from any of the ETFs, they are generally
viewed as a price bet and not actual ownership of the metal. Most gold investors want possession of their gold
because they are buying as a hedge against an economic, financial or pollical disaster. When disaster strikes, it
does not do you much good to have your gold stored in some distant facility by a third party. For this reason,
over the past couple of years the trend even with hedge fund operators has been away from the ETFs. In 2011,
ETF sales plummeted while purchases of physical coins and bullion for delivery skyrocketed.
Q. Please summarize -- What is the best approach for the safe-haven investor?
Answer. If you want to protect yourself against inflation, deflation, stock market weakness and potential
currency problems -- in other words, if you want to hedge financial uncertainties, there is only one portfolio
item that will serve you in all seasons and under most circumstances -- gold coins and bullion. Make sure you
do your homework on the company with which you choose to do business, and make sure that the gold
ownership vehicle you choose truly reflects your goals and aspirations.
Though this interview will help you start safely on the road to gold ownership, it is just an overview. If you
would like more detailed information, I would recommend my book, The ABCs of Gold Investing: How to
Protect and Build Your Wealth With Gold, which covers the who, what, when, where, why and how of gold
ownership in detail. You can also shortcut the learning curve by contacting our offices and asking to speak
with one of our expert client advisors who will be happy to answer your questions and help you get off to a
solid start.

Why gold is a better investment than diamonds

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India, simply put, is infatuated with gold and diamonds. Diamonds are thought to
have been first recognised and mined in India around 6000 years ago as precious
gemstones, and, needless to say, we have a long standing history with the radiant
mineral.
As far as gold is concerned, let's just say that it would be difficult to decide whether
India's love affair is higher with cricket or gold. Gold, as the adage goes, is 'truly
timeless'.
However, we have reached a period of time in history where amazingly, due to
clever marketing and brilliant advertising, it has become difficult to answer
questions as:
Is it better to invest in diamonds or in gold?

What are the benefits associated with diamonds and gold?

How do I compare the true, intrinsic value of diamonds versus the value of gold?
Gold has stood the test of time for thousands of years and continues to make for an
excellent investment today. The same, however, cannot be said for diamonds, which
have been artificially marketed and advertised to lure the public into believing that
they make for good investments.
Gold stands the test of time
Gold is not just a precious metal to India, but a part of its culture. As a metal that
transcends intrinsic values and investment opportunities, gold might be the sole
item that permeates every strata and class of our society. It is equally sought by a
wealthy urban businessman or a poor farmer in a village. It permeates our religious,
cultural and day-to-day lives in numerous ways, which perhaps best explains why
India is the world's largest consumer and importer of gold.
In 2012, India consumed 800 tonnes and imported 951 tonnes of gold. India buys 25
per cent of the world's gold. To put that in perspective, India consumes almost 6
times the amount of gold than the United States.
With that being said, there is also a perfectly logical reason as to why India clamors
towards investing in gold: the yellow metal has stood the test of time as one of the
safest and wisest investment options. There are many reasons that make acquiring
gold such an enticing and smart investment decision.
Gold has appreciated 501 per cent from 2001-2012, which comes out to an
annualised return of almost 18 per cent.
Let's take a look at few figures which show the yearly appreciation in gold prices (in
US dollars):
Year Close

Yearly
appreciation

Total
appreciation

200
$276.50
1
200
$342.75 23.96%
2

23.96%

200
$417.25 21.74%
3

50.90%

200
$435.60 4.40%
4

57.54%

200
$513
5

85.53%

17.77%

Year Close

Yearly
appreciation

Total
appreciation

200
$635.70 23.92%
6

129.91%

200
$836.50 31.59%
7

202.53%

200
$869.75 3.97%
8

214.56%

200 $1,087.
25.04
9
50

293.31%

201 $1,420.
30.60%
0
25

413.65%

201
$1,531
1

7.80%

453.71%

201
$1,664
2

8.68%

453.71%

Annualised rate of return: 18% approx.

Gold is an excellent hedge against economic, political, currency crises, and overall
market declines.
When markets are in a recessionary period, gold is often sold to offset losses. Due
to the fact that gold is the most popular precious metal that cannot be synthetically
produced - unlike diamonds - there is transparency when one buys gold in the open
market. In contrast, the history of diamond pricing can only be defined as murky at
best.
For the better part of the past 100 years, prices have been largely under the control
of cartels and syndicates that have managed to, through some of the most brilliant
advertising and marketing practices, lead consumers to believing that diamonds
have the same type of intrinsic value that gold, silver, and other precious metals do.
We will get to these details later in the article.
Another benefit to investing in gold is that the market for gold is generally fairly
liquid. More importantly, however, the fact remains that gold is fungible, which
means you can trade one large piece of gold for a hundred small ones like you can a
five hundred rupee note for a hundred five rupee notes. These characteristics make
it a feasible potential investment.

Finally, unlike diamonds, whose popularity has only risen considerably in the recent
past, gold has always been synonymous with rarity, wealth, trust, and value since
the earliest of times, dating back to thousands of years ago.
One could simply not go wrong with gold.
More to diamonds than meets the eye?
While gold, for thousands of years, has stood the test of time with its value
appreciating due to its natural appeal and the fact that it cannot be synthesized
artificially, the same cannot be said about diamonds.
A diamond, simply put, is not an investment. Much like how one purchases a car for
its consumption value and usage, one should look to purchase diamonds for its
visual appeal and aesthetic qualities. You're probably not making a wise decision if
you're looking to purchase diamonds for making an investment.
A diamond, by default, is a depreciating asset over time. The market for diamonds is
not liquid. Also, diamonds are not fungible. Unlike gold, which is perfectly fungible diamonds have varying cuts, colors, grades, and sizes. Therefore, it makes it hard to
find similar diamonds with these characteristics. Unlike precious metals like gold
and silver, which cannot be artificially produced, and thus have held value for
thousands of years, diamonds can be synthesized artificially. In fact, it is virtually
impossible to differentiate synthetic diamonds from natural diamonds thanks to
modern technology. Diamonds can be synthetically produced of any desired
chemistry to accommodate any of the '4 Cs', which are: color, cut, clarity and carat.
We have reached a point in time where synthetic diamonds can be made, for all
practical purposes, more perfect than their naturally occurring counterparts.
Furthermore, when purchasing a diamond there is no way to tell for sure whether it
is man-made or natural.
What makes the investment allure of diamonds so weak is that it is much cheaper
to produce diamonds artificially than to mine them naturally. Therefore, the cost of
diamonds is purely a function of how many diamonds are synthesized. This
underscores the natural laws of demand and supply, and the process for how a
product should be priced. When the supply of a product is entirely dependent on its
manufacturer, the price, as a result, is also entirely dependent on the manufacturer.
This is no different to how automobile manufacturers control the price of their
products by controlling the number of cars manufactured.
Because gold is a rare precious metal in limited supply and will always remain so,
one who invests in gold has a certain trust that it will appreciate over time.
So you might be wondering, despite the differences between diamonds and gold,
how much have diamonds appreciated over time? Sadly, the truth is that it's
impossible to know.
The problem with investing in diamonds is that due to the fact that there are the '4
Cs', it becomes very difficult to determine the actual value of a diamond when

purchasing it. Since there is no common, universal marketplace for diamonds, you
cannot compare two diamonds the same way you can compare two gold products.
Moreover, the biggest problem with diamond investments is that it is not easy to
resell diamonds and actually earn a profit. It is not unusual for a retail jeweler to
mark up the price of a diamond to 200 per cent, especially if you are dealing with a
high-end brand. Since the jewelers frequently mark up the values to such an extent,
they prefer to not purchase diamonds back from customers in order to save the
insult for the customer and also to maintain the false notion that the diamond has
gone up in value. Furthermore, jewelers purchase their diamonds from wholesale
jewelers on consignment, meaning they receive stocks of diamonds from the wholeseller at a discounted price but do not need to pay back the whole-seller for a
diamond until a diamond is sold. Therefore, the jeweler does not have much of an
incentive to sell to the customer.
The result is that the customer finds himself in a difficult situation where he is
unable to find a buyer to re-purchase his diamond at a good price. This is a common
occurrence among diamond buyers. There have been stories of individuals who,
because of the steep markup on diamonds, bought a half carat ring for 1 lakh at a
retail jewelry store but were only able to sell it for Rs. 30,000.
Many a time, you hear customers claiming that their diamond has appreciated by a
certain amount. Let's say 30 per cent in 5 years. Now that is a terrific investment.
The problem with that statement is that the customer is purely looking at the
buying price and not the selling price.
Let's look at the same example once again. Let's say the half-carat ring had
appreciated to 1.3 lakh in 5 years. But if the customer is actually looking to sell the
ring, there has to be some really good luck involved. Due to the fact that diamonds
are not fungible and cannot be easily exchanged with each other, it is difficult to
resell them to somebody other than the jeweler that the customer purchased them
diamond from. Due to the '4 Cs' and the complexity of these 4 dimensions, it is hard
to make apples-to-apples comparison between diamonds.
The most-worrying aspect about investing in diamonds is that it wasn't until 1938
that diamonds became synonymous with luxurious, expensive jewelry that
compared with precious metals like gold. Unlike precious metals, diamonds are not
rare. The supply of diamonds far exceeds its demand, and, in addition to that,
diamonds can be made artificially.
In 1938, famous diamond company De Beers started a massive advertising and
marketing campaign in the United States. There were lectures delivered to high
school children that diamonds are linked to romance. At the same time, De Beers
started working with Hollywood film stars and asked them to wear diamonds.
This brilliant advertising led to the notion of women saying 'I want what she has'.
Finally, the company consulted men to decide for themselves what ring they should
purchase for their fiances. Therefore, the idea of the 'surprise engagement ring' was

born. Within a decade, diamond prices surged and suddenly and diamonds became
a jewelry item that men were expected to buy for their spouses.
Conclusion
The difference between gold and diamonds becomes a lot clearer now. Gold is rare,
but diamonds are not. Gold has stood the test of time for thousands of years, while
diamonds only became a serious jewelry item in the last 75 years. The natural laws
of supply and demand dictate gold prices but do not apply to diamonds. Invest
wisely, making sure that your investment goes past what meets the eye.