I have grown up seeing jewellery shops and the owners sitting in air conditioned shops and wondering how do they actually earn selling gold? I always had the thinking cap on because my mom told me that they charge you as per the market rate of gold and i always wondered how can they make money if they sell at the rate at which they bought to make money?

Business model of a Jewellery trade

There are various ways a jeweller earns by selling a gold ornament and we will talk about them here.

1. Cost Hedge: Generally jewellers buy gold/readymade ornaments in bulk and at the current rate. They stock this gold and sell at the current prevailing rates. Normally, gold's rate increase and they make money selling it to you at a higher current gold rate than what they purchased it on.
   
   This source of margin is not a big one unless there is huge increase in gold prices over the period of buy and sell.
2. Gold Purity : You may or may not know this but all gold ornaments that you buy are NOT made of pure 24 carat gold. Jewellery is mostly made with 20 or lower carat gold and mixing other metals. 24 carat gold is also NOT self sufficient to hold itself together for jewellery purpose.
   
   This is the margin i.e. difference between 24 carat and 20 carat gold rate. To be more specific, jewellers give you 20 carat gold with the price of 24 carat gold.
   Sounds rubbish but have you ever checked the purity of your gold jewellery while buying? Most of us don't do it because we always get the buy back assurance from the jeweller. This gives us a sense of satisfaction that the gold should be good as the jeweller is ready to buy it himself!!
   
   The catch here is that he only knows the quality and the carat count of his own gold. The normal trend here is that jeweller buy back their own gold at 10% less than the curent market rate of gold.
   

   Example

   Current Gold rate: INR 20,000 per 10 gms (1 tola) of 24 carat gold
   Poslishing and making charges: INR 200 per gm of Gold
   
   If you are buying 10 gms of gold jewellery, the jeweller will calculate the cost as follows:
   

   	Calculation	Amount
   Cost of Gold	1*20,000	20,000
   Polishing & making charges	10*200	2,000
   Total		22,000

   
   
   We assume that the actual gold purity in the jewellery is 20 carat. Hence the actual cost of gold should be
   INR 16,666 for 20 carat of gold .
   Hence, the actual calculation as per ACTUAL gold content in the ornament should be:

   	Calculation	Amount
   Cost of Gold	1 * 16,666	16,666
   Polishing & making charges	10*200	2,000
   Total		18,666

   
   So, the difference between the actual calculation i.e 3,334 (22,000 - 18,666) is the profit margin of a jeweller. Ideally, this is NOT a good business practice and is NOT followed by big jewellery brands. One should clearly mark the gold purity and charge the buyer with correct price. Unfortunately, this is not the way jewellery industry works in our country and it is one of the main reason we recommend buying a BIS marked jewellery.
3. Making and Polishing Charges :Making and polishing charges are another source of income for jewellery sellers. They add these charges on top of the gold charges of the ornament. These vary from INR 50 to 500 per gram of Gold depending upon the gold designer.
4. Used Gold purchase at a low rate : Thinking of selling your old gold jewellery? If yes, you would most certainly go back to the same jeweller you purchased it from. He will calculate the buy back price as
   (Current market price * gold weight) - 10% of total value
   
   The percentage here also varies from jeweller to jeweller but normal trend is 10% deduction. Also, if you try to sell it to some other jeweller, they will deduct 20%.
   
   Now, this percentage is again their income as the jeweller will resell the same ornament after polishing at the current market rate!!

What if we buy BIS hallmark jewellery?

Yes, BIS hallmark is a good tool to know the purity of gold while buying. But have you ever bought BIS hallmark jewellery with the same pricing as the NON-BIS marked jewellery?

I bet you would have not. This is because, here a jeweller cannot cheat you with the carat count but still need to make profit. Hence, they will charge higher on polishing, designing and making charges of the jewellery.

Please note that BIS mark does not mean that the gold is 24 carat pure. There are different marks for different levels of purity as:

MARK	Gold Purity (Carat) level
958	23 Carat
916	22 Carat
875	21 Carat
750	18 Carat
585	14 Carat
375	9 Carat

It is always better to buy a BIS hallmark jewellery as you are sure about the purity of gold and it can be sold to any jeweller without worrying about the buy back deductions for obvious reasons. The jeweller who is buying your old gold will be confortable in buying the BIS marked gold instead of NON BIS marked one too.