Planning to buy gold jewellery on Dhanteras, Diwali? Remember, it's not an investment

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When we attended a traditional wedding last week, it was heartwarming to see many well-dressed people taking cheerful pictures with family and friends. “Is her jewellery real?” one friend asked. The other said, “Considering how much of it she is wearing, it is unlikely.” The third quipped, “How does it matter? Everyone wears costume jewellery these days.” That, to my mind, is a very welcome development.

We have spent years investing and locking money in things we believe are assets. Gold and precious jewellery are on the top of this list. I still have many friends who tell me they are buying jewellery so that money is saved, not spent. Some would swear that they have never bought it for themselves, only as an investment. Would this investment be available to liquidate if there is a need? I did not dare ask this question because I already know the answer. Selling the family jewels is a sign of crisis and impending bankruptcy, and household honour would not permit sending those distress signals. Jewellery in most households comprises items of consumption, often mislabelled as investments.

There is a bit of history as to why gold and gold jewellery are seen as assets. Till a few years ago, women did not receive a share of the family’s wealth. The obsession for a male child, the crushing patriarchy that reduced the role of woman in the household, all ensued from this unfair legal position. Therefore, the girl’s father gave away what he deemed as her share of wealth at her wedding, mostly in the form of gold. This streedhan was also her protection as she did not typically earn an independent income. We now live in ‘modern’ times, when salaried parents with no inheritance give their well-educated, well-earning daughters gold at their weddings. We refuse to let go of that historic ritual even when times have changed.
There is another piece of history to contend with. In the era preceding the nationalisation of banks, and in the years of unexpectedly bankrupting banks, farmers and businessmen with seasonal incomes from harvests and revenue needed assets that could readily be converted to cash. Gold offered this easy facility. It could be pawned or sold to any of the local moneylenders. This case for gold is now weak with the increase in financial inclusion. The lower income groups that run both these risks—lack of access to household wealth and no safety of earned income—still use gold as a saving device. They, perhaps, represent the only social class that can logically argue for using gold as an investment. The others, I guess, are in denial.

So, what explains the surge in gold jewellery that women have been wearing somewhat opulently and extravagantly in the new, liberalised era? India’s liberalisation created an opportunity to build wealth for its population that is very entrepreneurial in orientation. However, we also hate paying taxes. Property and gold are two markets that continue to accept cash and tax-evaded income that can be stashed away as assets. What is the common household doing with its eager participation in a market so dominated by illegal activity? In the new era of celebrating ends over means, ill-gotten gold is worn and displayed, bragged about and envied.


However, not all buyers of gold are spending unaccounted for money. A significant percentage spends post-tax income on gold and many also consider it an asset and investment. A small percentage at the top of the pyramid has so much wealth that it doesn’t care to count the cost of jewellery that it buys and wears routinely. Our modern value systems celebrate the display of wealth.There was a time when the rich actively hid their wealth as if it were a shame. Or, they did not seek unwanted attention to their money. There was also a time when frugality was considered a virtue, and spending, evil. We now live in modern times when both these barriers have been broken. We earn more than we need to run the household and spend it happily on whatever we fancy, without any qualms about posting pictures on social media bedecked in jewellery that signals our wealth.What is the point I am trying to make? Wear that jewellery, but don’t mistake it for an investment. Gold is not the best of assets to hold as it earns nothing. The transactional costs in selling gold, especially jewellery, are very high (damages and making charges). The appreciation in its value mostly reflects inflation and the real return is too small to matter. So treat gold jewellery as an item of consumption like clothes, shoes, bags or accessories.

This is why the point I made at the start of the story is valid. If costume jewellery has begun to rule in today’s celebrations, it is a sensible development. Instead of locking a large amount in gold and pretending it is an investment, we may have begun to treat jewellery as a consumption expenditure. There is no need to attach too much value to something that is just ornamental. We now have businesses that rent jewellery for special occasions. It’s a welcome development that keeps it moving and earning some income, while the user just pays rent.

Is there a place for gold in the portfolio? Yes, if you were to flee and begin your life elsewhere. You could restart anywhere in the world if you had gold because its value is universal. However, you need to pause and consider the probability of that scenario. Would you allocate a large portion of your wealth based on such doomsday predictions? Or would you allocate a small portion of your assets to gold? Your real wealth is between your ears; to use it, you only need to be alive and thinking.

Look at your wealth and see how much is locked in gold and jewellery. Ask if you are overdoing it. Find out why gold seems important to you. Give up rituals that no longer make sense. You probably shouldn’t be asking if you must buy a gold coin every year for your daughter’s marriage. If you wonder whether gold ETF, gold bond, gold fund, or gold certificate are better, ask yourself if you are solving an asset allocation problem or nitpicking with product choices.

The Author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING