Buying gold jewellery for investment? Not a good idea, says this Kotak note

The value of gold, the note said, is only 60 - 70 per cent of the jewellery purchase price. The weak performance of diamonds, which form a meaningful part of the jewellery purchase price, caps gains.

Investing in gold in the form of jewellery may not be a smart strategy, argues Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities (KIE). 

 

Instead, buying gold exchange traded funds (ETFs) or investment in the physical form via gold coins, bars and bricks makes more sense, Prasad wrote in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa.

 

The value of gold, the note said, is only 60 – 70 per cent of the jewellery purchase price. The weak performance of diamonds, which form a meaningful part of the jewellery purchase price, caps the gains, the KIE note said.

 

"The ‘wealth effect’ may be much lower, given the premiums households pay in the form of making charges and precious stones, which have seen steady price corrections that would have offset part of the gains from the sharp rise in gold prices," Prasad said. 

 

Gold prices, the Kotak note said, would need to rise 25-30 per cent for households to break even on their purchases, assuming stable prices of precious stones, which may be an optimistic assumption as per them. 

 

"Indian households have bought almost $500 billion worth of gold and precious stones, while foreign portfolio investors (FPIs) have bought $200 billion of equity over FY20211-H1FY26," the report said.

 

Meanwhile, the value of gold holdings of Indian households, the Kotak report said, has risen from $694 billion in 2014-15 (FY15) to $2,113 billion by the end of FY25.  

 

 

Firm gold prices, according to a note by the World Gold Council (WGC), led to a fall in the overall demand for gold jewellery in the October 2025 quarter (Q3-CY25) across all major global markets. While the two market giants – India and China – each saw a seasonal q/q uplift in demand, the y/y picture was decidedly weak, WGC said. 

 

"Gold jewellery consumption is 18 per cent lower year-to-date (y-t-d) at 1,095 tonnes, although so far remains comfortably above the 2020 low of 894 tonnes. The value of gold jewellery bought globally y-t-d has reached $112 billion, a record for our data series and 14per cent above the $99 billion from 2024," WGC said in its Q3-CY25 review note. 

 

 

ETF demand

 

Investment demand, particularly gold ETFs, according to the World Gold Council (WGC), is likely to remain strong and offset any weakness in other areas such as jewellery and technology in the year ahead. 

 

Global gold ETFs, according to WGC, have seen $77 billion of inflows so far this year, adding over 700 tonnes to their holdings. "Even if we move the starting point back further to May 2024, collective gold ETF holdings are up by approximately 850 tonnes. This figure is less than half of what we have seen in previous gold bull cycles leaving ample room for growth," the WGC note said.    (Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt. Ltd.)