Golden Profit

The business of buying and selling gold and the profits that the gold dealers made out of it became clear to me when my mother bought herself two new pairs of gold bangles few days back. Before that, the concepts of Service Charges, Wastage Charges etc., were thought of by me, to be just a part of the formal procedures when you buy any gold ornament. But now I have realized that that is the only place where the dealer actually makes some profit for himself. You would have seen ads in TV and newspapers, of the jewelery shops boasting of lower price per gram of gold compared to other shops, lower wastage percent, no service charges etc. But do you seriously believe they would offer these discounts if they didn't see any profit in them even otherwise?

Consider that you buy a gold ornament weighing 40 gms. Suppose the cost of gold per gram is Rs.820 that day. The shop charges 16% wastage, i.e. 6.4 gms for 40 gms, but it offers Rs.60 less per gram. For those of you who don't know what wastage is all about, 16% wastage means that for every 100 gms of gold melted to produce the ornament, 16 gms is wasted in the furnace while heating at high temperatures and during the other chemical processes, which the jeweler feels is a loss to him. So he expects you to pay for that wastage, because it is for you that the ornament was made. Technically he's giving you only 40 gms of gold, so the net loss for him by giving that discount is Rs.2400. But he's charging you Rs.760 for 6.4 gms that you never bought, which comes to Rs. 4864. He ends up making a profit of more than Rs. 2400 apart from the profit he would have made normally, without any offer (by selling at Rs.820 per gram and no wastage charges). Of course, that wastage is actually a loss and has to be made up for. But with all the latest technology and machine-made ornaments, you can be entirely convinced that the maker will go to any lengths to recover that lost gold or to make sure that there is no wastage. The strongest argument in support of this is the fact that there are shops giving 0% wastage charges (they make up for it by selling gold at normal rate).

The worst part of this wastage concept is that, when you sell your gold ornament, the shop charges the same wastage charges. This is because if he tries to melt it and make a new ornament out of it, he believes he would lose that much weight of gold by the same assumption. Also, he believes that since it was worn by you for many years, dirt and dust particles would have stuck to it making it heavier when it is being weighed. But this argument does not stand in many cases as the customer would be having his bill and would sell for the same weight he had bought. In any case, the wastage charges would not be dispelled. So, when you sell 40 gms of gold ornament and buy 40 gms of the same gold ornament (newer design say), you would be charged 6.4 gms extra for the gold you are buying, and the gold you are selling would be taken for 6.4 gms less. So 12.8 gms * Rs. 760 = Rs. 9728 is the amount you'll be paying, if you sell and buy the same quantity of gold. I would rather have the old one and feel happy for owning a property worth 40 gms * Rs. 820 = Rs. 32800.

Last but definitely not the least, I would like to appreciate my mother for her good presence of mind in many occasions. The shopkeeper had ten weighing machines in every counter for weighing the new gold, but when the old one was given for weighing, he went to a separate machine. These are subtle things I accept I would miss out and would like to learn from her. She was quick in asking the shopkeeper to weigh the new gold in the same machine. The shopkeeper was taken aback and refused to do it point blank. He said, if she didn't have faith in him, she could go and weigh it in any other shop. But she replied that if he really was true to his word, he wouldn't have hesitated to measure it. Of course, he could have adjusted the machine during all this argument. Finally when he measured the gold, it was found to be 10 mgms lesser and my mother accepted not to make an issue of it (it would have amounted to Rs. 80). But it was his audacity, to try and cheat his customers in every way he can, that angered me. The point of this blog is to make people take some good time before selecting the shop to buy gold the next time they want to (or if they really want to buy gold that bad). A better choice would be to ask someone coming from western countries, to purchase the gold and get the design of your choice made by a goldsmith here. For, in those countries, food is costlier than a gram of gold.