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Regular-article-logo Saturday, 23 August 2025

Cash in on gold

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Sounak Mitra And Srikumar Bondyopadhyay Study The Popular Trend Of Buying Gold Coins From Banks Published 01.06.09, 12:00 AM

Gold has always been a favourite of Indians and it is not without reasons that Indians are the world’s largest purchasers of the yellow metal.

“When I heard that large Indian banks such as ICICI and HDFC are selling gold coins with an accompanying certificate of authenticity, I was tempted and purchased two gold coins of 5gm each last Diwali from an ICICI Bank branch,” said V. Raman.

New channels

After banks and other financial institutions and corporations started selling gold coins a few years ago, sale of gold coins picked up appreciably in the country, where gold jewellery has traditionally been the preferred purchase of households. vb

India Post, the postal services department, started selling gold coins in October last year and within three months over 10,000 customers bought nearly 25,000 (precisely 24,850) units.

Banks and other corporations selling gold bullion coins also reported brisk business.

The State Bank of India, which is now selling gold coins through its 20 branches in the Bengal circle, is planning to increase the number of branches to 64 in the current financial year.

These new sales channels, gold traders hope, will attract the country's middle and lower-middle classes to the yellow metal.

Rising demand

Indians are definitely buying more gold coins now than ever before and this behaviour is in sync with the global trend. The global demand for gold coins surged 396 per cent during the October-December quarter last year from a year ago.

The World Gold Council expects revenue from gold coins sales in the country to cross Rs 1,000 crore in the next three years from the current level of Rs 300-500 crore.

Purity assured

Banks, post offices, micro finance institutions and some big corporations like Reliance Money and MMTC are selling 24-carat gold coins with 99.99 per cent purity authenticated by an accompanying assay certificate.

This has helped in allaying fears of buying impure gold from an otherwise uncontrolled, unorganised bullion market, which still accounts for 80 per cent of the country’s total gold market.

Investment focus

People’s demand for gold for investment purposes is growing faster than their appetite for jewellery.

According to the World Gold Council’s estimate, gold demand for investment purpose was 109.5 tonnes — 29 per cent of the total gold consumption of 660.2 tonnes in 2008.

In 2004-05, investment demand for gold in the country was only 15 per cent of the total gold consumption.

The downside

However, buying gold coins from banks or corporations is neither easy nor economical.

To buy gold coins from a bank you need to fill up a form for every purchase. This form requires mentioning your PAN. Thus, if you don’t have a PAN, you cannot buy a gold coin from a bank.

Secondly, banks will not buy back the gold coin once sold. You will have to approach a local jeweller to sell the gold coin you had purchased from a bank.

Thirdly, banks sell gold coins at 10-20 per cent premium over the market price.

“I was assured of the purity of the two gold coins (5 gm each) that I had bought from ICICI Bank. The bank charged me Rs 8,150 for each of the two coins. That time I assumed that the bank’s price was the going rate for gold in the market. Back home, I checked the price of gold and got a shock when I realised that the going rate of gold of the same purity was a good Rs 1,300 less than what I had paid,” said Raman.

The price of gold coins also varies from one bank to another (see chart). For example, if you buy a 50-gm gold coin from ICICI Bank or HDFC Bank, you will have to pay more than Rs 86,000. But you can get the same coin from the SBI at Rs 78,000 — a saving of Rs 8,000. In other words, the price at which you buy a 50-gm gold coin from ICICI Bank or HDFC Bank, you can buy with the same amount a 55-gm gold coin from the SBI.

The price difference is less for lower weight coins. At the 5-gm level, the price difference is between Rs 600 and Rs 700.

In short, if you want to buy a gold coin, buy it from a public sector bank. Public sector banks charge a lower price than their private sector counterparts.

You can get gold coins of the same purity but at a lower price from a reputed jeweller. Big jewellery companies such as Tanishq, Gitanjali, Ddmas, Popley all sell gold coins. Shop around a little and you can get a bargain price.

The benefits

However, there are some benefits of buying gold coins from a bank.

If you buy it from a reputed jeweller, the company will give you an assay certificate assuring the purity and authenticity of the gold. But you may face problems when you want to sell it or pledge it for a loan. Except for the seller jeweller, others will insist on re-assaying the gold content in the coin by melting it and may not give you the full value of the coin.

But for gold coins purchased from a bank, you can take a loan on the full value of the coins and the bank won't melt the coins to re-assay the gold content.

The demand for gold coins and gold biscuits has surged in the last few years because under a new income tax provision, gifts in kind don't attract any tax liability.

As a result, gold coins and biscuits have become popular as gifts during certain celebrations.

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