Gold continues to hold an enduring, insatiable fascination for many Indians. A large section of gold lovers in the country prefers to buy physical gold (coins, bars, jewellery) over paper-based options such as gold exchange traded funds (ETFs) and e-gold.

Come the festival season, and sellers of all hues feed the frenzy for the yellow metal, promising big discounts. The Indian postal department also joined the bandwagon a few years ago. This Diwali, India Post is offering 7 per cent discount on 24-carat, 99.99 per cent purity gold coins of weights ranging from 0.5 grams to 50 grams. The coins, manufactured by Swiss company Valcambi and sourced from Reliance Money, are being sold in post offices across the country.

Not so cheap

With gold prices rising sharply and currently hovering around Rs 31,600 per 10 grams, the 7 per cent discount offered by the post office sure seems attractive. But is this really the best deal? We think it is not.

This is based on our enquiries with various vendors — post office, banks, retailers — on the selling price of 24-carat gold coins on November 7. The price (after discount) offered by the postal department was higher than the quote of most banks and gold retailers.

For instance, the discounted price of a 5-gram 24-carat gold coin on November 7 was Rs 17,598 at the post office. This was 6.6 per cent higher than the lowest quote of Rs 16,505 by a Chennai-based mid-sized jeweller for a 5-gram gold coin of the same specification.

The post-office price was also higher than that of big retailers in Chennai such as GRT, Joy Alukkas and Tanishq and banks such as State Bank of India and Bank of Maharashtra (see table).

So, what explains the higher selling price in the post office despite the steep advertised discount? This is due to a high listed price (displayed market price) on which the discount is offered. To illustrate, on November 7, the Chennai-based mid-sized jeweller had a base rate of Rs 3,174 for 1 gram of 24-carat gold. To this, it added a 4 per cent mark-up (including value added tax of 1 per cent) to arrive at its selling rate of Rs 3,301 per gram, and used this rate to fix prices for various weights. On the same day, the market price mentioned by the post office was Rs 18,922.5 for 5 grams of its 24-carat gold. This works out to Rs 3,785 per gram. After a 7 per cent discount on this, the selling price was Rs 3,520 per gram. This explains the higher price.

Quality difference?

Are we comparing apples with oranges? Is the gold sold by the post office and banks superior to that sold by retailers and hence can it command a higher price? The post office and banks advertise their trust value, and the high-quality and purity of the gold retailed by them. They stress upon the tamper-proof packaging and assayer certificate.

But retailers maintain that the gold sold by them is also of similar high quality, with similar safeguards. In fact, retailers say that since the post office and banks only sell and do not buy back gold coins, many of these coins eventually find their way to retail stores, which in turn sell them. So, how can the purity and quality of the coins be any less, they ask.

Unlike the post office and banks, retailers both sell and buy gold from customers. But when they buy, retailers usually offer to pay customers in cash only if the gold was originally purchased from them. If the customer had purchased the gold from some other seller, the retailer usually offers only to exchange the gold against new purchases. This means that it may not be possible for customers to sell gold coins purchased from the post office and banks for cash. They may only be able to exchange them with retailers against new purchases. While the exchange will happen at the prevailing base rate, the new purchase will be charged at the market rate including mark-ups.

The bottom-line, as a retailer put it, is to ‘do some homework before you buy’. Scout around for the best gold rates in your city and be satisfied with the quality before you make a purchase. A retailer you trust may be able to offer a better deal.

> anand.k@thehindu.co.in

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