Buying physical gold or silver? CA warns it’s getting costlier, more complicated

Gold and silver have always held a deep emotional and financial significance in Indian households. From jewellery and heirlooms to coins and bars, these metals symbolize safety, stability, and wealth preservation. But Chartered Accountant Nitin Kaushik (FCA, LLB) cautions investors to look beyond the glitter.

“Gold feels safe because you can touch it,” he says. “But for most people, physical gold isn’t an investment — it’s an emotional purchase. And emotionally driven investments often come with hidden costs that quietly erode your returns.”

Kaushik, who advises clients on wealth preservation and taxation, highlights three major challenges that physical gold and silver investors often overlook — along with smarter digital alternatives that can help strike a balance between tradition and efficiency.

Challenge #1: The spread trap

Buying physical gold or silver means paying the retail price, which includes the dealer’s margin, 3% GST, and, in the case of jewellery, 5–8% making charges. When you sell, however, you receive the wholesale price — a built-in loss right from day one.

Kaushik illustrates: “If you buy gold at Rs 1.22 lakh per kg and sell at Rs 1.18 lakh, that’s an instant Rs 4,000 loss — before the market even moves.”

This price gap, called the buy-sell spread, means investors need prices to rise significantly just to break even. Over multiple transactions, these spreads can quietly wipe out 10–15% of total returns.

By contrast, digital gold, Silver ETFs, and mutual fund-based metal funds have much smaller spreads — typically Rs 0.5 to Rs 2 per gram (Rs 500–Rs 2,000 per kg). They also skip making charges and provide easier liquidity. While investors may pay a small annual storage or management fee, overall costs are far lower than physical buying and selling.

Challenge #2: Storage and safety risks

Physical gold must be stored securely — often in bank lockers that charge annual fees ranging from Rs 1,000 to Rs 10,000, depending on location and size. Over years, this adds up to a considerable cost.

“There’s also the emotional cost of worry,” says Kaushik. “You can’t fully relax when your wealth is sitting in a locker. Theft, damage, or misplacement are all real concerns.”

Digital metals, however, remove that burden. Investments in Gold ETFs or digital gold platforms are backed by insured and audited vaults. The investor owns the metal electronically, with full transparency and no personal storage obligations.

A Rs 10 lakh investment in digital gold, Kaushik points out, carries zero storage risk and full liquidity, allowing investors to buy, sell, or redeem instantly — even in small quantities.

Challenge #3: Purity and resale deductions

Purity is another blind spot for many buyers. Even BIS-hallmarked gold can face deductions of 2–5% at resale due to testing charges or doubts about alloy content. Jewellery, with its design and making costs, fares even worse — resellers often deduct 8–10% from its market value.

“Even hallmarked jewellery may not sell for full value,” Kaushik notes. “And in the case of silver, purity issues are even more widespread.”

Digital investments, such as Gold ETFs and Silver ETFs, eliminate these issues. They are fully backed by 99.5% or higher purity bullion, stored in SEBI-regulated vaults, and verified by independent custodians. This ensures guaranteed purity, price transparency, and instant transactions without physical verification hassles.

“Owning” gold

Kaushik, in a separate post, had estimated that 10–15% of an investor’s capital can be lost to hidden costs, including GST, maintenance charges, locker rent, and resale deductions. “When you add these up,” he explains, “you’re already losing a year or two of potential returns before your investment even starts to work.”

By comparison, Gold ETFs charge only 0.3–0.4% annually as management fees. They’re liquid, easily tradable, and fully backed by physical reserves. Similarly, Sovereign Gold Bonds (SGBs) offer the added benefit of 2.5% annual interest and zero capital gains tax if held to maturity (eight years).

Smart investing

Kaushik emphasizes that while physical gold has cultural and emotional appeal — especially for weddings or gifts — it’s rarely the best financial investment.

“If the financial system collapses, physical gold has its argument. But for 99% of investors, digital gold or ETFs offer better transparency, convenience, and returns,” he says.

Smart investing is about minimizing friction and maximizing clarity. Gold and silver remain excellent portfolio diversifiers, but how you own them determines how well they protect and grow your wealth.

Investors should note

The upgraded investment ecosystem — from Gold ETFs to digital platforms — gives investors lower costs, higher liquidity, and guaranteed purity, without the hassles of storage or resale uncertainty.

For modern savers, gold is no longer just a status symbol — it’s a strategic asset. As Kaushik concludes:

“Gold and silver will always shine. But to truly benefit, you must invest smartly — with discipline, transparency, and an eye on the hidden costs.”