This holiday season, don’t be surprised if your trusted jeweler offers you an app link to buy digital gold instead of gold coins.
Previously, only government-accredited gold refiners such as MMTC-Pamp, Augmont, and SafeGold offered digital gold through links with financial services firms and jewelry brands.
Now, some jewelers have released their own versions of digital gold, which may lack external checks and balances from a custodian, which ensures gold of equal value is held in vaults after a customer’s digital purchase.
“Currently, digital gold is offered through third-party links. However, as we have good fortune, we offer our own digital gold, which is paper gold and silver. A physical certificate will be mailed to the buyer.
“There are some jewelers in Kolhapur, Akola, and others who were willing to offer this form of gold hoarding. If financial dealers can offer it, they are jewelers who have been trading gold together for decades,” said Sanju Khushlani, founder of InstaLaxmi.com, which helps jewelers build a backbone to offer gold.
Jami Asish, a jeweler who runs Jami Bhimaraju & Brothers in Berhampur, Odisha, told Moneycontrol that he plans to launch a digital platform for small gold buyers who may not have the funds to buy a necklace right away. This will help them accumulate gold little by little.
“As long as he has a surplus, he can add 1 gram, 2 grams, 4 grams and fulfill his dream of buying gold,” Asish said while visiting a gold business meeting in Mumbai.
However, the problem with digital gold deals run by jewelers is that there is no guarantee that the gold purchased was actually purchased and stored in a vault. This is all the more true as the Indian government has increased gold import tariffs to 15% to curb imports and conserve foreign exchange reserves.
India imported 1,050 tons of gold worth US$55.7 billion in 2021, more than double the 430 tons imported in 2020. The value surpassed the previous record of US$53.9 billion set in 2011.
Gold refiners claim that the gold is stored in vaults abroad, saving on import duties while offering price increases and making it easier to buy and sell online.
However, if digital gold purchased from jewelers is later converted into a jewelry purchase, it will be subject to applicable gold costs and fees.
“A 3% GST is used twice: once when the digital gold is ‘sold’ to the consumer and again when the jeweler sells the finished piece of jewelry to the consumer at the final value.
Becoming a jeweler after buying digital gold has been one of the main focuses of jewelers offering this product.
What he means is that digital gold is essentially a product of buying gold. But you can’t buy gold immediately by giving money. Think of it like a systematic mutual fund investment plan where you buy fixed amounts of gold by number each month. After that, a large amount of gold will be set aside for you every month. At the end of the 12th month, you can use your accumulated money to buy physical gold or gold jewelry that has been reserved all the time. This means that the so-called SIP buys gold jewelry from you at the end of the term for an equivalent (cumulative) amount. That, to some, is the lure of digital gold. ETFs, on the other hand, simply offer cash upon redemption, just like a mutual fund or a stock.
“Gold ETFs don’t offer physical, tangible gold after redemption, and you have to go through a third party to turn paper or digital gold into jewelry.
If the ultimate goal is to buy jewelry, you better pool money or opt for gold accumulation plans.
All LLCs have limits as part of gold savings plans or gold savings plans offered by jewelers. Only up to 25% of a company’s declared net worth can be offered through a gold savings plan or accumulation plan. These should not be valid for more than 11 months.
Another way to accumulate paper gold is through the use of gold government bonds or exchange-traded funds (ETFs)
“Although conceptually digital gold appears consumer friendly as there are no storage or purity issues, retail investors should treat it with caution as there are no regulations.”
The Securities and Exchange Board of India banned brokers from selling digital gold in August 2021. But gold purchases are currently unregulated and digital gold is a lot like cryptocurrencies in terms of changes in regulation.
Prevention is better than cure.