Gold jewellery is a poor investment, financial gold shines…

Buying gold jewellery for investment? Not a good idea, says this Kotak note. The value of gold, the note said, is only 60 – 70 per cent of the jewellery purchase price. The weak performance of diamonds, which form a meaningful part of the jewellery purchase price, caps gains. Investing in gold in the form of jewellery may not be a smart strategy, argues Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities (KIE). 

Instead, buying gold exchange traded funds (ETFs) or investing in the physical form via gold coins, bars and bricks makes more sense, Prasad wrote in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa. The value of gold, the note said, is only 60 – 70 per cent of the jewellery purchase price. The weak performance of diamonds, which form a meaningful part of the jewellery purchase price, caps the gains, the KIE note said.

“The ‘wealth effect’ may be much lower, given the premiums households pay in the form of making charges and precious stones, which have seen steady price corrections that would have offset part of the gains from the sharp rise in gold prices,” Prasad said.

Gold prices would need to rise 25-30 per cent for households to break even on their purchases, assuming stable prices of precious stones, which may be an optimistic assumption. 

Indian households have bought almost $500 billion worth of gold and precious stones, while foreign portfolio investors (FPIs) have bought $200 billion of equity over FY20211-H1FY26.