Finance

Top 5 Mistakes People Make When Buying Gold

Buying gold is associated with festive seasons and happy occasions in India. Gold purchases and holding is considered to be a sign of prosperity and good financial health on a household level by many. If an individual is capable of purchasing gold at least once a year, it is a signal of stability and a high discretionary spending capacity.

Here are the top five mistakes people make when buying gold-

  1. Not Checking Purity or making comparisons:

While purchasing or investing in gold, it is of the utmost importance to check for purity. Purity is denoted in terms of ‘carats’. It is also essential to visit sellers whom you trust and have a long term relation with. Cases of fraud and duping of customers is common nowadays, and it is always better to beware of dishonest sellers. Buyers must always check for the purity of gold before paying the cost. Gold can be 97%, 98%, 99%, 99.10%, 99.99% or 100% pure. There are many grades and varieties of gold, and this is where certificates authenticating purity are useful. Globally recognized inscriptions guaranteeing quality aid for checking purity of the gold in question. While buying gold, buyers often visit a single shop and make the purchase after choosing designs and ensuring quality and a good deal. This is a simplistic approach to buying gold. To ensure you get the best deal, always check for spot prices before purchasing gold. Also one must compare the making charges, variety and quality of gold at multiple shops before making a buying decision.

2. Failing to Check the weight:

Gold is often weighed before buying or selling, and a direct correlation exists between the weight and value of gold. Jewellery designs often have precious stones like diamonds, emeralds, stones etc. studded onto gold base structures or the mixing of gold with other metals like silver. While weighing the ornament, it is important to exclude the weight of the mixed metals or studs. If this due diligence is not observed, the buyer may end up paying for the value of gold which has not actually been converted in the jewellery item.

3. Not planning purchases and not timing well:

It is easy to get swayed by market movements in gold prices and general optimism about buying or selling gold. When prices go low, buyers queue at jewellery stores to buy and when prices rise, everyone is in a hurry to sell gold. It is however not wise to sway with every market movement. Buying at the right time and holding the gold or investing it further in gold bonds, gold deposits, gold monetization schemes, gold funds and SIPs is a wiser alternative. In this way, a regular return can be earned and the speculative mode of investing is avoided. Gold prices fluctuate due to the forces of demand and supply. Prices rise when there is high demand, and fall when there is less demand. Investors must be careful to time their entry and exit in making gold investments to avoid losses in holding. Also, a trading strategy does not work well usually with gold, as prices don’t fluctuate to a great extent. Quick entry and exit does not yield very high returns. Buying and holding gold for some time period yields better returns to the investor.

4. Not knowing the origin:

Every piece of jewellery sold charges customers for labor involved in its making. This is known as the ‘making charge’. It is usually calculated as a percentage of value of gold in the jewellery. With advances in the manufacturing of jewellery, machine made products are also available for buyers. Machine made products would not entail a making charge, as there is minimal labor work involved. Buyers often make the mistake of not checking and discussing the origin of the jewellery ordered and blindly pay making charges as a given. This can be used by misleading sellers to profit from the lack of buyers’ knowledge.

5. Not researching:

Every investment decision must be planned after thorough research and strategizing; and gold purchases are no exception. Due to the precious nature of the commodity, it is always in demand for making investments or for consumption. It is a widely researched investment option with many alternatives as well such as- gold coins, gold funds, gold ETFs, gold bullion etc. Buying gold must be preceded by an ample knowledge on the metal to avoid frauds or errors in buying.

Investments are an art and science, and there is no method by which mistakes can be completely avoided. A smart investor always looks out for errors in strategies and is quick to have remedial or corrective courses of action. He is aware of mistakes made and rectifies them to avoid further loss. Patience and perseverance are vital attributes to avoid mistakes in investing in gold.

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Abhishek Ranjan

I am a content writer with interests ranging from restaurants to high-risk investments. I love Belgian chocolates and Swiss watches and I spend my free time wandering around the world. I specialize in email marketing and copy-writing and love glossing over oddities around the world.

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