Buying gold and silver from banks? Think again
Moneylife Digital Team 16 May 2011

HDFC Bank sells silver at over Rs70,000 when the National Spot Exchange sells it for around Rs53,700 and the local jeweller sells silver for Rs55,000! And gullible customers are buying

Banks have hit upon a new idea to get a larger share of your wallet-retailing gold and silver. While the banks claim that buying gold or silver from them is a wise decision, if you want to buy gold or silver don't go to your bank!

Buying gold or silver from a bank may give you the satisfaction about the purity of silver as a bank is more reputable than the jeweller next door, but it also means that you pay much more.

HDFC Bank was the first bank in the country to sell physical silver. You will be surprised to know the rates that HDFC Bank is charging for gold and silver compared to the rates at the local jewelers, or even the National Spot Exchange Limited (NSEL). Silver is available at jewellers at between Rs55,000 and Rs56,000 a kg, whereas HDFC Bank is offering the white metal at Rs74,040 a kg. Those keen can buy e-silver from the National Spot Exchange at Rs53,700 a kg. It's the same for gold too. Jewellers are quoting around Rs22,300 to Rs22,500 per 10gm and one can also buy e-gold from NSEL at Rs22,300, however, HDFC Bank is quoting around Rs25,943 per 10gm.

But why this huge price difference?

When asked about the price issue, a spokesperson for HDFC Bank said, "It is true that we charge more than the market price, but this is because of purity, 24-karat gold made in Switzerland with Assay certification, that signifies the highest level of purity as per international standards and convenience." Some top jewellers challenge this, saying there is no difference between the gold and silver they sell and that sold by HDFC Bank.

The prices are only half the story. But what if you want to sell it? Will HDFC Bank buy back the gold and silver? No, and you will be in for a shock when you try to sell it in the open market.

If you bought silver from a bank today for Rs71,000, and you needed to sell it the same day (to a jeweller, as the bank will not buy the gold back from you), all you will get is, say, Rs54,000! Of course, you get to keep the certificate! The jeweler, on the other hand, will buy back the gold or silver from you on any day and at the prevailing price. Some jewellers also give you a certificate for the gold you buy, thus diluting a key selling point of the bank.

So, while buying gold and silver, give the banks a skip. Opt instead for a credible jeweler, as even in the case of jewellers, we found a lot of price variation with branded stores charging a premium. Do your homework well before you buy gold. It will help you if you read the Moneylife definitive study on gold. (Read,Gold: All told). And, of course always buy standard, hallmarked gold. If you do decide to go to a jeweler to buy gold in bulk, do negotiate. It is likely you will get a discount. In our conversations with a couple of brokers, we were offered a discount on bulk purchases.

Based on our interactions with thousands of individuals every month, we find that instances of mis-selling of investment-related services and products are growing at an alarming rate and the prime source of mis-selling are private banks. (Read, 'Customers need to be vigilant as bankers are turning bhayankar')
Customers don't know any better, as their trust the bankers blindly. No wonder, that HDFC Bank can claim to Moneylife that "in spite of higher charges we sold over 1,200kg of gold against 850kg last year during Akshaya Tritya. This year we sold around 600kg silver against 95kg last year."

Banks are making tonnes of money mis-selling financial and other products to their own gullible customers.

Rajan Makhija
8 years ago
India is one big mob country where no rules apply.No one is accountable. All Goondas are politicians who own all industries and educational institutions.
9 years ago
Today I wanted to buy gold of 50 gms. Th eprsoel banker called me and told the price to be Rs.1,45,000. When consulted HDFC bank the person told it is Rs.1,45,150. This means additional Rs.150. A cheque was issued to the value of Rs.1,45,150. After going to bank he says it is Rs.1,45,290. The additional value is for sales tax.

I could not make out why the price went on incresing and hence cancelled teh transaction
1 decade ago
Now a days Banks are indulging in many bad practices. e.g. Banks are mis-using depositors money to buy huge properties for their own business like opening new Branches and HO and admin offices. and they pay Depositors megre interest. They spent heavily on their Executives and Managers. They spend unnecessariy on Advertising and Hoarding and entertainments.
Banks can easily pay depositors much higher say 15-20% p.a. But now a days Banks are indulging in many malpractices. e.g. Banks are mis-using depositor’s money to buy huge properties for their own business like opening new Branches and HO and admin offices. Besides they pay Depositors meagre interest. They spent heavily on their salaries, perquisites, tours & travels, star hotels and entertainments Executives and Managers. They spend unnecessarily on Advertising and Hoarding and sponsoring entertainments programs.
They finance heavily to Real Estate and Construction and development activity. Whereas these sectors need no funds as they are mostly own by people having surplus funds and are mostly self financing.
No body can book a flat or shop without paying advance money.
So unless there are some vested interest from bank executives these sectors are not to be encouraged.
Similarly entertainments businesses also need no urgent financing aid.

1 decade ago
RBI must instruct banks to back GOLD at least at bank selling rates, then only its worth to buy from bank ensuring liquidity and confidence. Banks must buy at a guaranteed same rate plus 10% if sold within 1 year.
rocky rocks
Replied to MAK comment 6 years ago
The RBI itself is the Biggest mob of this country .
I don't know how you don't know that even RBI is printing the currency which should be backed by gold but it's not.
So it means that they can print any amount of money they want and circulate in market which will??
Which will ensure taxes as much as they want.
A 100₹ circulate in market and each and every time makes 5-18% in taxes.
Who gets them??
1 decade ago
Another interesting fact is that a substantial potion of these overpriced metals are sold to borrowers in the SME segment. These poor fellows who have a Term Load / Cash Credit / Overdraft account in the bank have no other option but to oblige the Bank Babu's...
1 decade ago
Reading the article only makes me wonder why people would possibly want to buy from a bank. With rates being charged in the manner that they are is this not DAY LIGHT robbery ?? The banker should be made to disclose that the prevailing rate in the market & the fact that he is charging so much .Now does a customer have the option of complaining to the Omsbudsman or the RBI . A situation which they could and should have addressed by now. Just what is it thats stopping them from making this an issue wherein the banks would have to declare prevailing rates. This should be taken up and for the public made a issue that gets rectified. Ever so often banks staff say somthing that is not easily proved and now the bank mangement should be made to say the truth . The fact that this Gold & silver will not be re purchased is enough of a dampener , to put off many customers .
1 decade ago
banks should repurchase the gold they sold
1 decade ago
we will be very soon seeing banks selling salt, chilly, sugar, atta in their branches and banking will become also one of their side business where today margins seemed to be pathetic when compared to the earnigs from their selling mutual funds, insurance, gold, silver etc...
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