My Secret for Buying Gold Cheap

Hello friends. This is Vijay Bhambwani here.

In this video, I am going to discuss a topic which is very close to our hearts, especially people who save money and traditionally believe in holding some physical gold.

In my videos since 2019 that I have started recording videos for Equitymaster, I have been an advocate of allocating a certain amount of your capital to safer investments like bullion, gold and silver. And my first choice has been physical holding.

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Of course, that's not to say that ETFs or sovereign guaranteed bonds are not an option, but it's just a matter of priority. And there are certain myths prevalent in investors' minds that physical bullion turns out to be more expensive than a bullion in electronic form. And this video is about dispelling some of those myths.

Today, in this video, I am going to specifically talk about gold. Silver is something that we can do in a later video.

Now, how do you buy gold cheap? By cheap I don't mean lower than market prices or lower that prevalent prices, but lower than what you would have expected and definitely cost effective as far as comparison to ETFs are concerned. A couple of points before we get into where to buy gold in a cost effective manner.

Number one, where not to buy from? Banks are not a good place to buy gold from. Number one, they don't update their prices as fast as market prices change. Therefore, they tend to basically be like a typical bank, which, when you receive inward money, remittances from overseas, note how you get the lousiest possible exchange rate after your foreign exchange is converted and given into your Indian savings or current account. So banks have the most hostile rate for a buyer where gold and silver coins, bars are concerned.

Number two. They're branding, their name and emblem of the bank, the logo of the banks is embossed into the gold coins and bars. You can basically get away from it. So these are branded gold coins and bars. There's a disadvantage as well. I'll come to it in a bit.

Number three. They are only authorised by the RBI to sell you the gold. If you want to book profits, they do not have the authority to buy back that gold and silver, which they themselves have sold to you. Big problem. Why?

Point number four. So you go to Zaveri Bazaar, which is the bullion market. Now, Zaveri Bazaars exist in every city in India. Whether it's a tier one, tier two, tier three city, there will be a Zaveri Bazaar there.

So when you go to Zaveri Bazaar and you try to sell gold or silver that you have purchased from the bank, the guy is gonna tell you, look, they have markings, the logo and the emblem of the bank, which we need to take off, which would mean melting. And you are going to pay the melting charge, which means an extra loss, both in terms of labour charges that you pay and secondly, making charges. And obviously they're the little bit of wastage and other slippages in prices which are prevalent every time you buy and sell. So this is not a good thing to do. Don't buy a gold and silver from banks.

Number two. What you should not do is buy gold, which is not 99.99% pure. The best gold that you can buy is 99.99% pure because if you buy any other kind of gold, the spread, the difference between the buy and the sell price will be wide, which means transaction costs will eat into your profits.

Now that we have clarified these issues out of hand, less get to the point as to how you can buy gold cheaper than what you think should be available.

Dispel the myth that buying gold in physical is a loss making deal. It's not. Check out the price on the MCX on your mobile phone or on your computer, add GST and delivery charges, and that's something that you should, ideally should, be paying for your gold. But is that what is really prevalent in Zaveri Bazaar all the time? The answer is no. An emphatic no.

As a matter of fact, in 2020 after the lockdowns were kind of imposed, around July or August when Zaveri Bazaar started humming back to life, I remember the CEO of Equitymaster Rahul Goel, having a phone conversation with me, and I told him, Rahul, gold and silver are actually trading lower than the MCX price. Why?

Well because there are times when people would want to raise cash. People, especially farmers in India who are living in remote villages, the poor people who do not have banks in their villages, tend to use gold as an avenue for saving, and when they want to buy seeds or fertiliser of maybe a daughter's wedding, or a son's education, or whatever, or make a new house, xyz reasons, they sell gold.

So there are times when gold is bought and there are times when gold is sold. So I can assure you, remain assured, if you know a trustworthy jeweller who you can rely upon, ask him and he will confirm this for you, there are times when physical gold is trading at a discount to the MCX price. Yes, it's possible and it happens every year, a few times a year. I'm gonna even give you the times.

So you can actually get physical gold cheaper than the MCX price and do remember, the MCX price does not include GST and transport cost. They're extra. So when there is selling pressure, the physical gold is into backwardation, inversion. It's like the future price being traded lower than the spot market price in the derivative segment.

Now, an example of when gold could actually be cheaper than the MCX price. You know, if you're a Hindu, you will instantly realise that there is a period called shraddha paksha. Now, this is approximately a month long period of mourning, when we Hindus mourn for our ancestors who have departed and we basically resort to a lot of penance, a lot of intro inspection, a lot of prayers, rituals, donating food to the poor, etcetera.

This shraddha paksha, this period is by traditional Hindus, treated as a period which is not conducive to starting new businesses, buy new assets, invest money anywhere. And therefore, the demand for gold and silver, both for a store of value and for jewellery purposes, falls sharply. Chances are you will be able to buy gold cheaper than the MCX prices in the shraddha paksha.

Then there are some years, do note, I'm saying some years, not all. There are some years when immediately after Diwali because all the festive buying is done, immediately after Diwali, the price of gold falls, especially if the jewellery industry has overestimated the demand for jewellery and gold for Diwali and imported a lot of Gold and unfortunately, in Diwali that particular year, sales have not been very great and therefore they want to offload that gold. Prices come down. So yes, these are periods you will get gold cheaper.

Third period. If it all we have poor monsoons, you have a season where the farmer is now completely distressed, he must now digging to his savings because he knows that he has to put food on the table for his family, in spite of the fact that the crops are going to be terrible, by dipping into his savings. Do not ever underestimate the power of rural India to determine the prices of gold. This is something people make a huge mistake about. If you ask me, do city slickers impact the price of gold or are the rural guys in the villages and a smaller tier cities, responsible for the price of gold?

I would bet every day on the week and twice over on Saturdays and Sundays that it is rural India which impacts the price of gold. So when rural India is in distress, either in a year of drought or in a year of floods, gold prices are going to come down and then you will get them cheaper when the MCX.

Now I've shared my secret sauce with you why I say that physical gold is the number one priority here because a smart guy knows how to find and buy gold cheap. Now, just a few benchmarks for Mumbai, Delhi, Kolkata. I am not qualified to talk about other cities because you will have to find this yourself.

What is the difference between buy and sell price for 10 gm of gold in Delhi, Mumbai and Kolkata? Depending on who you ask, if you are asking a wholesaler in these three metropolitan cities, it could be as low as Rs 120 for 10 gm. It could go up to Rs 150 for 10 gm. So between 120 and 150 depending on who you ask. You can't get a finer bid and offer spread, than this in the physical segment.

You still want to go for paper gold, which is ETFs or sovereign guaranteed bonds, government bonds, sure, those options are always available to you. But the reason why we buy gold is because we want complete peace of mind. And if you're buying peace of mind, to diversify your money from paper assets to bullion and you're gonna buy bullion in paper itself, is somewhat of a contradiction of sorts.

So I've shared this method with you. I hope this video helps you. More on this later. Depending on your feedback on this video, I could make more.

On this cheerful note I bid goodbye to you, not before reminding you to click like on this video if you liked what you saw. Subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put up out here. Good, bad or ugly, I'd love to hear from you in the comments section and hey, please help me reach out to fellow like-minded investors and traders by referring my video to your family and friends.

Friends, I thank you for your patience and watching my video. Till we meet again in my next, this is Vijay Bhambwani signing on for now. Do take care. Thank you.