Buying gold jewellery as an investment is a bad option!
Gold jewellery cost consists of gold price, jewellery making charges and government taxes but while selling it back to the jeweller he considers only the amount of gold and the karat purity of it, added to that he also reduces up to 10 percent as gold loss charges from the actual amount of pure 24 carat gold calculated or estimated by. Gold loss generally occurs when gold jewellery is melted to form a bar or to make a new jewellery piece.
When selling gold jewellery making charges and taxes paid are simply not considered - these making charges can start from rupees 350 per gram onwards to any higher amount depending on the brand of jewellery you buy, type of jewellery, complexity of the jewellery design and fine work involved in it for a good detailed finish.
Buying NIBR gold coins or gold bars from banks or jewellers with good reputation or directly from gold traders in the market is the correct way to invest in physical gold. You can also consider buying gold sovereign bonds often termed as paper gold which further eliminates the risk associate with storing physical gold at home.
To make things understand in a simpler way let assume that today gold price is Rs.30,000 per 10 grams for 24 karat pure gold and we will considered both options of investing in gold coin/bar and gold jewellery as well.
Option A: Purchasing gold coin or gold bar as investment
If today gold price is Rs.30,000 per 10 grams then a 24 karat gold coin will cost you roughly around Rs.31,500 which includes Rs.30,000 as the actual 10 gram 24 karat gold price plus Rs.250 as a coin making charge plus some government taxes. So here you have actually purchased pure 10 gram 24 karat gold having a market value of Rs.30,000 for Rs.31,500.
Option B: Purchasing gold jewellery as investment
As you know jewellery cannot be made in 24 karat gold so let consider 22 karat gold and add a few extra milligrams to your 10 gram gold jewellery weight. Considering a very low jewellery making charge of Rs.350 you still spend Rs.3500 on 10 grams gold jewellery. Now the total cost of 10 gram (plus a few extra milligram) gold jewellery is Rs.34,500 which includes Rs.30,000 as pure gold charges plus Rs.3500 as making charges plus government taxes of Rs.1000 roughly. Here you have actually purchased 24 karat 10 gram pure gold having a market value of Rs.30,000 for Rs.34,500 converting it to jewellery.
Calculating the profit on above gold investment options
For investment option B the gold price for pure 24 karat 10 gram gold needs to be at-least Rs.36,000 plus to book a very nominal profit of a few hundred rupees or break even as jewellery making charges are simply not considered by the gold jewellery buyer and he will also minus gold loss charges further. Against to that in the case of option B you can actually book an approximate profit of Rs.4000 plus for the same market price of gold.
It is important to understand that you will require a significant amount of appreciation in gold price to make profit if you have purchased gold jewellery as an investment against to that of gold coins, gold bars or gold souvenir bonds.