How Jewelers Make Money Selling Gold Ornaments at Market Rate?

How jewelers make money in India is by pricing at 24 carat and selling you 18 carat gold. Non gold extras like paint, artificial add-ons are added to gold weight. Buy BIS mark gold for safe deal. Making, polishing, design charges are source of profit. Seller buys back its own gold at lower rate by deducting 10-20%.

Written by Anil Gupta
  By Anil Gupta          Updated  30 Dec, 19

  34    


How jewelers make money is a tricky question when they claim to sell gold at the market price. Jewelry trader will be seen sitting in air conditioned shop, wearing extra-ordinary heavy accessories and driving expensive cars.

Here are some of the Jewelry trade secrets that a common man should understand before buying expensive ornaments which may or may not be pure gold, as claimed by the seller.

Business Secrets of a Jeweler Trade

#1 Jewelry’s Gold Purity is hidden from buyer

You may or may not know this but all gold ornaments that you buy are NOT made of pure 24 carat gold. Jewelry 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 ornaments/accessories purpose.

The difference between 24 carat and the one sold to you is the trade margin i.e. difference between 24 carat and 20 carat gold rate. To be more specific, jewelers sell you 20 carat gold with the price of 24 carat.

The gold ornaments sold in USA are expected to be more pure than what you buy in India. This is the reason ornaments in USA are sold on per piece price instead of gold weight price. Did you know that you can avoid sales tax on Jewelry in USA if you buy and ship out of state.

Most of us don’t check the purity of your gold jewelry while buying because we always get the buy back assurance from the jeweler. This is the biggest catch in this business. As the Jeweler who sold the gold knows its purity, he would be able to buy it back with little doubt.

Usually, the jeweler would buy back their own gold at 10-20% less than the prevalent market rate of gold at the time of buying back.
Example
Current Gold rate: INR 20,000 per 10 gms (1 tola) of 24 carat gold
Polishing and making charges: INR 200 per gm of Gold

If you are buying 10 gms of gold jewelry, the jeweler will calculate the cost as follows:

CalculationAmount
Cost of Gold1*20,00020,000
Polishing & making charges10*2002,000
Total22,000

We assume that the actual gold purity in the jewelry 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:

CalculationAmount
Cost of Gold1 * 16,66616,666
Polishing & making charges10*2002,000
Total18,666

So, the difference between the actual calculation i.e 3,334 (22,000 – 18,666) is the profit margin of a jeweler. Ideally, this is NOT a good business practice and is NOT followed by big jewelry brands.

One should clearly mark the gold purity and charge the buyer with correct price. Unfortunately, this is not the way jewelry industry works in our country and is one of the main reason we recommend buying a BIS marked jewelry.

#2 Making, Polishing and Design Charges are Icing on the cream

Jewelers add these charges on top of the gold rate of the ornament. These vary from INR 50 to 500 per gram of Gold depending upon the quality of gold designer.

The jeweler would save money on ornament production as they produce in bulk but charge you the amount per gram. There are rare instances when you would order a particular design/piece with your specific choice. In these rare instances, the ‘making charges’ would almost double up.

If you don’t believe my words, try and get a customized gold ornament from your favorite Jeweler and you would be able to testify my words.

 

#3 Gold price Hedge

Generally, jewelers buy gold/ready-made ornaments in bulk and at the current market rate in the form of gold-bars.

They stock this gold and sell at a time when the prices have increased. 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.

 

#4 Buy-back at a 10-20% lower than market rate

Thinking of selling your old gold jewelry? If yes, you would most certainly go back to the same jeweler you purchased it from.

He will calculate the buy back price as

(Current market price * gold weight) – 10% of total value

The percentage here varies from jeweler to jeweler but normal trend is 10% deduction. Also, if you try to sell it to some other jeweler, they will deduct 20%.

Now, this percentage is again their income as the jeweler will resell the same ornament after polishing at the current market rate.

 

#5 Weight of extras counted in gold weight

Have you ever noticed that extra accessories like the small round balls or the blue/green paint etc. are also weighed and counted while gold is sold to you?

And what happens to the weight of these extra while selling it back? They are simply kept out and only gold weight is counted.

This is another area of margin for the Jeweler.

 

What if we buy BIS hallmark jewelry?

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

I bet you would have not. This is because, here a jeweler 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 jewelry.

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:

MARKGold Purity (Carat) level
95823 Carat
91622 Carat
87521 Carat
75018 Carat
58514 Carat
3759 Carat

It is always better to buy a BIS hallmark jewelry to be sure of the purity of gold and it.

It can then be sold to any jeweler without worrying about the buy back deductions for obvious reasons.

The jeweler who is buying your old gold will be comfortable in buying the BIS marked gold instead of NON BIS marked one too.


India
 






   34 Useful Questions & Answers from comments



  1. SN OJHA
    SN OJHA 11 Jun, 19 at 5:01 am

    It has become trend on the part of petty shopkeepers to display BIS logo and claim to sell hallmarked jewellery. Can non certified jewellers sell hallmarked jewellery piece? Moreover,how to spot Bis logo on ornaments with naked eyes?


    • Anil Gupta
      Anil Gupta 11 Jun, 19 at 11:12 am

      The best way is to buy from a reputed jeweler as BIS hallmark can also be spoofed.


  2. s
    s 25 Sep, 16 at 5:16 am

    No, above mentioned process is not wholely correct…The profit margin is not so less….its far more than mentioned above…..
    If anyone of you is a businessman, please tell me the minimum profit margin when you sell a pack of general item like a soap or detergent or anything of that sort….its at least 15% from the cost price…..
    Do u know what’s the profit percentage of a person dealing with cloths….it’s more than 25% minimum….and in non branded cloths it may vary from 100 percent to 400 percent…
    And you can’t get even 20 rupee back if you want to sell it back to the dealer….
    Now what you have to say dude…


  3. Anonymous
    Anonymous 12 Apr, 16 at 3:17 am

    Not a single jeweler is practicing the following:

    As per government rules, for studded jewelry (both gold and platinum) the wastage claimed by jeweler cannot exceed 9 % of the net weight of the metal and for non-studded designer jewelry, it cannot exceed 3.5%. For coins, biscuits and medallions, the wastage cannot be claimed beyond 1.25% .
    Source:
    1) http://timesofindia.indiatimes.com/city/hyderabad/Gold-buyers-getting-royally-fleeced-by-jewellers/articleshow/20936218.cms
    2) http://www.lawyersclubindia.com/experts/Wastage-charged-in-gold-jewellery-shops-455476.asp#.Vwy8N_l96M8

    No wonder they are rich. But I do wonder how they sell the jewels with wastage charge as high as 30% openly and manage to get away with it.


  4. Anonymous
    Anonymous 23 May, 15 at 12:13 pm

    And if you dont get good margin
    Its never a good business
    And this business is all about trust
    Instead of having a big fancy shop


    • Anil Gupta
      Anil Gupta 26 May, 15 at 4:08 pm

      True.


  5. Anonymous
    Anonymous 23 May, 15 at 12:11 pm

    you actually showed the margin less
    For example if one tolla is 20000
    Then one masha will be 1666
    If u buy one tola
    The ploish they will add is 2 masha
    That will be 3333
    So hw the price per tola increases the margin does aswell
    And if you are to sell it
    Sell it to the jeweller you buy it from
    Coz then he is bounded to
    To deduct less
    then the new jeweller u going to sell

    And instead of buy some thing with beeds and moti
    Buy jewellery with maximum solid possible
    That way when u go sell it
    You get maximum gold from it


    • Anil Gupta
      Anil Gupta 26 May, 15 at 4:08 pm

      Good example.


  6. Benny
    Benny 25 Feb, 15 at 11:48 pm

    Really helpful article, thank you Anil


    • Anil Gupta
      Anil Gupta 26 Feb, 15 at 8:49 am

      You are welcome Benny.


  7. K. K. Shrivastava
    K. K. Shrivastava 29 Apr, 12 at 8:07 am

    In addition to my earlier comments, I would also wish to clarify that no receipt or authentic documents are being given by the jewelers to the customers in such remote area like Karwi, Chitrakoot, UP, and only god knows that how they are paying their taxes for their earnings.


    • Anil Gupta
      Anil Gupta 30 Apr, 12 at 9:08 am

      They don’t pay any tax!!


  8. K.K. Shrivastava
    K.K. Shrivastava 29 Apr, 12 at 7:58 am

    Thanks Mr Soan for providing a useful information. In fact I also faced similar instances when went to get repaired a set of gold bangles and a chain in a shop at Chitrakoot, UP. On being asked by the jeweler the gold carried by me was broken and cleaned through flame & acid in presence of the person of the jeweler.Then it was weighed as  about 45 grams. I handed over it to the jeweler who after deducting 10% from the total weight, evaluated it, and on exchange he gave me about 40 grams bangles at the rate of 24 carat gold taking manufacturing charges etc. As you mentioned, definitely the bangles would not be of 24 carat for which indeed I have been charged. Thus he charged me twice in addition to the manufacturing charges. When I raised objection, not only he but other villager customers sitting there opposed me saying that all this is customary. What should we do to implement a transparent method in this business because gold jewellery is being purchased by illiterate villagers/ farmers & labourers as an essential item in marriage but they are paying much due to present faulty system.


    • Anil Gupta
      Anil Gupta 30 Apr, 12 at 9:08 am

      Yes, Mr. K.K. Shrivastava. Your points are pretty valid.


  9. Rohit
    Rohit 3 Dec, 11 at 2:26 pm

    A nice well thru article? I m myself a jeweller. I wonder why ppl think jewellers as theives! I m not a sophisticated writer like u but wud try bringing forth some points here despite many punctuation mistakes etc.
    There is no trade as transparent as ours-
    #we weight gold in front of custoners b4 selling,
    # our rates are open in newspaper & on tv
    # Dismonds old by all major reputed jewelleryvstores including ours are authenticated by laboratories
    # gold is the only thong that remains on increment besides other things spent on a marriage.
    # u get gud price even after standard 10% deduction after few months
    # y shud not a business man earn a few % if he is helping you out in ur crisis by buying ur assets. Its a trade not a charity.
    # while buying a car or tv do they give u details like how much is iron, copper, plastic is used & y its price is so much! No! But a jeweller gives all the details.
    # there is no issue of quality as all major stores don’t lower quality , and many provide hallmark jewellery, including ours. If some cheat , its ok, but tell me a trade where bad ppl r not present!
    # have u ever estimated the cost of opening, investing, maintaining a standard jewellery outlet? If yes then u wudn’t have questioned the making , wastage charges!


    • Anil Gupta
      Anil Gupta 3 Dec, 11 at 3:33 pm

      Hi Rohit,
      I respect your thoughts and sentiments. The article here is meant for people to understand how the whole thing works and they should fall prey to people who misguide and sell them the gold at regular rate but irregular weight.
      I appreciate your time and comments.


    • max
      max 3 Jun, 15 at 1:50 am

      Dear Rohit – thanks for trying to clarify – let’s see if you can now answer below in the same order as you have clarified.

      # weighing gold. It is a common practice for jewellers to weigh gold with the stones embedded. Lots of faulty weighing machines are found – even at popular places like Kalyan Jewellers.

      # Rates are for 24k gold. How many times do you publish rates for 22 k or 18k gold that you actually use? These rates are only verbally told to the customer.
      # If it’s so good – why do jewellers tell you that when you return the jewellery or exchange it – you might lose out on the diamond price.
      # So basically when you buy back – you have charged making charge twice and got all your gold back.
      # few %? What if your petrol pump guy told you – Sir, today I decided to sell you petrol at 10% extra. I hope you don’t mind – you are almost out of fuel and I am helping you in your crisis.
      # Car & TV are not investment assets. No one thinks that they will buy a car for 5 lakh and sell it for 6 or 7. But you jewellers promise that at every step. That’s why we need the break up.

      # I hope you read the news – because there are cheating cases against joyalukkas, kalyan jewellers, josalukkas and bhima. google it if you like.
      # If all businesses started charging customers arbitrarily to cover their capital costs – it would be a mad mad world. Government had to start BIS because all jewellers are frauds. Consumers were being cheated at each step. And you have the gall to come and justify! Ha!


      • akhilesh
        akhilesh 11 Oct, 15 at 8:39 am

        Adding to all ur points why jwellers can not clarify how much wastage on different jewellery. Why a necklace had 30% wastage and an earring has 15%?


  10. Andrea
    Andrea 30 Nov, 11 at 9:53 am

    I don’t have time to go in to all the details, but being a jeweller myself, I can’t help but comment; this is a bad article with many incorrect statements. You need to do a bit more homework before you put something like this online.


    • Anil Gupta
      Anil Gupta 30 Nov, 11 at 10:54 am

      Hi Andrea, 
      Thanks a lot for writing in. I can understand your concerns but this is what happens in India specifically where the jewellery market is highly unorganized.
      I know that things are much different and transparent in developed countries.

      Let me know your concerns so that i can address them.

      Soan


  11. Anil Chauhan
    Anil Chauhan 1 Nov, 11 at 11:12 pm

    Thanks for this information! One question: How did you calculate the price of 20 carat gold?


    • Anil Gupta
      Anil Gupta 2 Nov, 11 at 1:08 am

      It is a simple unitary method:
      If Cost of 24 carat gold = 20,000
      Then cost of 1 carat Gold = 20000/24 which comes out to be Rs. 833
      Now, cost of 20 carat Gold should be = 833 * 20 which is 16,666.

      Let me know if you need more information.


      • Aanand841
        Aanand841 16 May, 12 at 10:48 pm

        Good Article, It really shows how Indian customer buy on emotion and customary fashion without much thought on quality.


        • Anil Gupta
          Anil Gupta 17 May, 12 at 2:31 am

          Thanks Aanand for writing in.


  12. Prashant K
    Prashant K 13 Sep, 11 at 12:54 pm

    Thank you so much for sharing the info around now I see how much I lost and now how much will I save henceforth Thank you once again 🙂


    • Anil Gupta
      Anil Gupta 13 Sep, 11 at 1:03 pm

      Thanks Prashant for writing-in and I am glad that the information is useful for you. 🙂
      In fact, It took me some time to make my wife understand the whole concept. She always tries to buy the jewellery and i always insist on buying the pure gold brick (small one) to save money and take the benefit of growing gold rate 🙂


      • Hemssingh hemssingh@yahoo.com
        Hemssingh hemssingh@yahoo.com 28 Dec, 11 at 4:15 am

        i would like to get more information abt gold as i have invested in it n it is 22 carrot of current gold price n while buying bcoz v dont no in detail about the making charges i paid altough i no dat the jewellery shop is a well renown shop so thhey wont cheat but i myself want to know abt making charge of  1 gm  nice to see dis kinds of mesgges on net, all common people r least bother abt this n spend  in bulks on gold regardless of details of gold  actually this is what which should b taken care off what made me to surf abt this


        • Anil Gupta
          Anil Gupta 28 Dec, 11 at 10:09 pm

          There is no fixed amount which can be termed as reasonable making charges. If you buy gold from a wholesaler, they won’t even charge you ‘making charges’. But retailers do charge it make a good profit.
          In India, well know jewellery brands do not cheat on the carat count but they do make money by charging designing and polishing charges.


          • Sdhir
            Sdhir 6 May, 12 at 12:02 am

            Hi
            Thank you for your valuable information. You said a wholesaler would not even charge ‘making’. Can you please suggest a wholesaler or atleast tell in which market & in which city they are. I would be really gratefull to you if i could save some money from my monthly income. Thanks again.


            • Anil Gupta
              Anil Gupta 6 May, 12 at 12:16 am

              Hi Sdhir,
              One such market is Chandni chowk in Delhi. I had done my research for this article in Chandni chowk itself. But, beware, they will never tell you the exact amount of Gold that they are selling you. It may be written as 23C or 23K on the Jewellery piece that you are buying, but it would actually be around 18K.
              So, i would suggest you to buy hallmark jewellery as it will have the same purity of gold that is mentioned over it. This will fetch you the same price when you will sell it in future.

              For your information, 100% hallmark jewellery ornaments are also not pure 24K gold. They are generally made with 18K gold. The benefit in buying hallmark jewellery is that if it is 18K, they will charge you for 18K price of gold. Whereas in non-hallmark jewellery, they will charge you for 23K gold price but give you 18K gold!

              Let me know if you need more information.


              • Sdhir
                Sdhir 6 May, 12 at 1:18 pm

                Hi
                Thanks for your reply. I have made several visits to chandani chownk but have found that it is hard to find jewellery shops/wholesaler selling hallmarked jewellery. Even if they do there is not a single seller who charges 0 making. Personally i feel 0 making is not possible. How can they manufacture at 0Rs. Whats your take?


                • Anil Gupta
                  Anil Gupta 7 May, 12 at 10:31 am

                  Yes, You are right. They cannot sell with zero making charges. So, they make the profit by selling the gold with less purity but charge you the full amount. So, if they sell you the Hallmark jewellery, they have to charge ‘making’ to make any profit whatsoever by selling that piece of gold.


                  • Sdhir
                    Sdhir 7 May, 12 at 3:00 pm

                    I did some research today on the net and found that a retail chain in banglore is charging 0 making on hallmarked jewellery and claim that their gold rate is lower than anyone else as well. How can this be possible. The name of the company is shubh jewellers. Thanks in advance.


                    • Anil Gupta
                      Anil Gupta 9 May, 12 at 2:16 am

                      No idea man. How can one run a business without making any profit at all. They must be doing something with the gold purity to make a profit.