The Hindu Business Line : Investors foxed as banks refuse to buy back gold

Mumbai May 20 Mr Sunit Arora bought an ASSAY-certified 20 gm gold bar from a leading bank for Rs 21,098.08 on Akshaya Trithiya, hoping to get better returns at a later date.

Little did he know that banks do not have a buyback policy linked to their gold-coin sales. "I was told that the coins/bars were not sold with a buyback guarantee and that I should try selling to a jeweller. I wanted to encash it even though the gold rate had taken a dip from the price I bought it,'' said Mr Arora.

What's more, Mr Arora had paid Rs 2,300 premium over the then market rate for the 20-gm bar.

Bankers have a totally different view on this. "RBI guidelines prevent us from buying back the gold coins sold to customers. They can pledge the coins and raise money against it," said a bank official.

Mr Kiran Dixit, Marketing Manager of the Mumbai-based Tribhovandas Bhimji Zaveri, says: "Customers do lose out when they buy gold coins from banks as they are sold at a premium of 8-10 per cent over the market rate. We accept them but pay Rs 50 less per gram."

"It is better for one to consider the commodity futures market or gold exchange traded funds (ETF) for investments in gold," says Mr Kantilal Vora, a commodity market trader. "Gold coins should be purchased as a long-term investment because even jewellers buy them at a discount of Rs 40 to Rs 60 per gm and they exchange them only for jewellery," he adds.

Demat option

Investors can buy gold through commodity exchanges, hold it in the demat form, and sell when prices appreciate.

However, commodity exchanges levy an additional charge for safekeeping and insurance till execution of physical delivery. The ETF also imposes additional charges on similar counts. Still, it is easier to encash ETF investments as they are more liquid.

Of late, gold demand in India, the world's largest consumer of the yellow metal, has been on the rise due to concerns over inflation.

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