By Firoz.T.Totanawala
The Bangalore Metro Reporter
1st November 2010 Issue
ALL THAT
GLITTERS IS NOT GOLD
THE GREAT
GOLD FRAUD REVEALED
THE REASON
Come Deepavali and we
witness crowds flocking to Jewellery stores like they flock to the sweet and
crackers’ shops. Many such festival seasons are a premium season for purchase
of Gold and Silver and thus flourish the Jewellery market.
GOLDEN ENTRY
Never was anyone
bothered about the functioning and practices of the Gold market, until the
entry of Shubh jewelers into the segment. The entry of ‘shubh’ a unit of Rajesh
Exporters, into the retail market of jewellery changed the entire scene in the
gold market. The Shubh chain started its business with a bang by exposing the
unfair trade practices of gold merchants and their continuous cheating of
millions of customers who as a rule, had showed unadulterated faith in these
gold merchants. It revealed out statistics, facts and figures highlighting the
continuous cheating of the established and prestigious gold merchants and further
to prove their sincerity and integrity, Shubh started offering jewelleries at
the original cost of gold, without collecting wastage, making charges etc.
Shubh’s
advertisements, has indeed in a way provided some insight into the trade and
fact of the gold merchants charging more than the due, from the consumers.
“Todays price of Rs.
---- per gram, we don’t charge profit, No making charges, only 9.9 percent
wastage” and many such misleading advertisements feature in Media almost
everyday. People simply do not believe their eyes and make a beeline to the
jewellery shops. But, only after they purchase and get the bill, a few among
them would realise that they have been taken for a ride and that they have paid
more price than the prevailing rates. Nobody can understand the arithmetic of
jewellary business. No jeweller will sell the raw gold at the rates advertised
by them.
THE MYSTERY
Nobody and absolutely
nobody can understand the inside out of the gold business particularly the
jewellery market. Nobody can say whether the gold they purchase is of the
required quality or quantity. Nobody can comprehend why the jewelers who
manufacture gold ornaments (silver included) in their factories or workshops
collect wastage and making charges which will be a minimum of 10 to 15 percent
of the total weight. Nobody can understand the collection of charges for a
binding agent at a rate which is ten times more than its original cost.
Besides, the purity
of the gold also always remains in question. Till today, nobody has taken on
the gold merchants who have become a law unto themselves. Neither the
government nor the consumer activists have taken the trouble to fight this
perpetual cheating for the simple reason that nobody could understand the
business in all its complexities.
GOLDEN QUESTIONS
The basic questions
that are unanswered are,
1)
Why should
the gold merchants levy wastage ranging from 10 to 20% on the total weight of
the jewellery?
2)
When the
items are sold straight from the shelf, why should they levy making charges?
3)
Why the gold
merchants levy charges for bonding agent (like KDM) on per gram basis?
These basic questions
are for all the big jewellery merchants. However, in order to understand the
fraud we must first understand the functioning of a traditional small time
goldsmith or agents who make the jewelleries through such goldsmiths.
THE ORDINARY
GOLDSMITH
Take for example, an
agent, (there are in thousands eking out their living by taking orders from
their acquaintances to make gold ornaments) takes an order for a jewellery of
100grams. The fact is that he has to go to a goldsmith and provide him at least
130 grams of gold simply because no goldsmith can make 100 grams articles with
100 grams gold. The goldsmith makes the items and returns the excess gold to
the agent. The goldsmith charges around one percent as wastage because it is
natural that some gold or gold dust will become wastage in the process of grinding
or chiseling the gold while making the item. However, this quantity will not be
more than 0.25%. Further, the gold dust collected in the shop again will be
retrieved by the goldsmiths after some time. Even then, if we must calculate
the wastage, it simply cannot be more than 0.5%. The goldsmith however calculates
the wastage at a minimum of one percent of the total weight of the item. In
addition to this there are making charges. The goldsmith of course has to be
paid labour in the form of making charges depending on the design and the
labour involved. For some intricate or delicate designs, the making charges
will naturally be more.
Whatsoever, the
wastage at goldsmith shop cannot exceed one percent. The agent who took the
order for 100 grams item had to invest for 130 grams and also bore the interest
on his investment. Then there is the cost of his running to the goldsmiths
often and often as no goldsmith will deliver the items on the promised date. In
many cases, the agents also have to bear the fluctuation in gold market.
For all this trouble,
they charge another 4 to 5% as wastages and also make money by charging heavily
to the cost of the binding agent. So, in a way, the agents charging 4 to 5%
wastage can be justified in the face of price fluctuations, risks and their
livelihood. Here too there are agents who cheat people by giving ornaments of
less purity with high wastage, but, this is an exception rather than a rule.
Moreover, many people prefer their trusted agents to get their ornaments made
because of the faith and no amount of enticements or inducements can make them
to change their jewelers.
THE EXTRA ORDINARY
GOLDSMITHS
However, this can not
be applied to leading and big jewelers and the basic question we asked apply to
them.
THE WASTAGE STORY
Let us take the first
question- why charge wastage between 10 to 20%? It is the open secret that
these “Big” merchants prepare the ornaments in their factories or workshops. As
the ornaments are manufactured in bulk and as they do not depend on the local
goldsmiths, they will not suffer any loss in gold. Besides, the items are made
in large quantities and therefore the wastage is either nil or minimal. Even if
one assumes loss of gold dusts while grinding, it will remain in the premises
itself and they are aware of many processes to retrieve the gold. As such there
can not be any question of wastage. Even to conclude if we assume that there
still was wastage; it can not be more than 0.25% by any stretch of imagination.
Also sometimes, these ‘big’ merchants import fancy items like chains, bracelets
etc. and charge huge wastage up to 20% in spite of the fact that they buy such
products as per the weight and purity of the ornaments. Even the making charges
are paid by the importers. By any stretch of imagination, the big merchants can
not collect wastage charges which will be 10 to 20% of the rate of the
ornaments itself.
To put it plainly, if
a person wants a 100 grams item, he will have to pay for 110 to 120 grams depending
on merchants. Even if the wastage charges have to be levied, it must be actual
and not on his whims and fancies. Further, this too is applicable to the ‘Made
to order’, items and not the bulk manufactured ornaments.
Interestingly, the
‘Big Merchants ‘do not charge profit Margin! All they charge is the wastage,
making charge etc. They pose as if they do not need profit and theirs is a
service based business. This is simply unthinkable. How could a big merchant
who invests hundreds of crores to start the business, forego his profits? If
you look at the interiors of these jewellery stores, one can establish the fact
that crores are spent for interior decoration. In addition, these shops are in
posh roads and areas where they shell out skyrocketing rent prices. In Bangalore alone, there
are dozens of ‘Big’ shops who have invested hundreds of crores into the
business. Obviously, these merchants are in gold business not for charity but
for profits and that too huge profit proportional to their investment. But they
still do not charge any profits simply because their wastage and making charges
etc are exorbitant. They are assured of a minimum profit of atleast 20% on the
business
THE MAKING CHARGES
Apart from the
wastage, they make big money from the making charge business. The making
charges really do not subscribe to any standard yardsticks. It depends on the
whims and fancies of the merchants. Sometimes, they charge the making charges
on per gram basis and sometimes, the charges are in lumpsum. When they charge
‘wastage’ for making ornaments, where is the question of making charges again?
One can understand the making charge in respect of ‘Made to Order’ items as it
may consume more labour because of a specified designs etc. But this can not be
said in cases of mass produced ornaments in factories or workshops. Making
charges in addition to wastage beats any known levels of logic or reason.
THE BONDING FRAUD
Further, the bonding
element charges which vary between Rs. 50 to 100/- per gram are shocking. Earlier
the ornaments were soldered with lead, but now, everybody uses cadmium, for
bonding. Cadmium, popularly known as KDM does not harm the gold and as such,
when the ornaments have to be sold by the consumers, the ‘normal’ wastage will
not be applied. The cost of KDM is around Rs. 10,000/- per Kilo Gram, where as,
the merchants who use for soldering charge between Rs. 50/- to 100/- per gram
of ornament towards KDM charges. In a way the KDM charges are bonus over the
profits to the merchants.
STONES ARE NOT GOLD
In most ornaments
precious stones are used which have its own rate depending on the quantity and
quality. While a few stones like diamond, Topaz, Pache etc. command high rates,
other stones like pearls, American diamonds etc. have much lesser value. The
merchants charge separately for the stones and also weigh the finished items
which include even the stones fixed to it. This means, they calculate the
weight of the ornament including the stones. Thus, they get the cost of the
stones and also per gram gold rate for the stones since they are included in the
final weight of the ornament. It would also fetch them additional wastage and
making charges which they charge per gram of the ornament.
By any means, the
merchants make money more than the fair margin of 20% in any business. This is
why they do not ‘bill’ profit majority as they are making more profits in other
heads like wastage, making charge etc.
PURE EYEWASH
And what about the
purity, the less said the better. Only recently, the Central Government made
the BIS Hall mark that is 22 carat implying 91.6 purity as mandatory. Thereafter,
these big merchants bang around that they are giving pure gold of BIS Hall mark
quality. But the facts are to the contrary.
It is the ‘purity’ of
gold that leads to multibillion frauds. Seldom, the purity of gold sold; adhere
to the BIS Hall mark made mandatory by the Government after realizing the frauds
on the people. It is an open secret that pure gold of 999 purity is very soft
and ornaments can only be made of it by adding copper. The quantity of copper
used in ornaments decides the purity of gold. Normally 8.4% of copper is added
with pure gold that is 24 carat, and that implies usage of balance 91.6% of
pure gold for making ornaments and this is the standard ornament gold purity.
As the purity of gold is described in carats, this ornament gold will be 22
carat. And this is the Hallmark specification. There are also 20 carat, 18
carat and even 16 carat ornaments available depending on the copper used.
FOOLING THE
INSTRUMENTS
Coming back to the
purity, there are instruments which test the purity of gold. Many big merchants
proclaim that consumers can test their purity of gold purchased through these
equipments. For a nominal rate, the purity test can be done and the report
obtained. The merchants also issue certificate for the jewellery purchased indicating
the weight and purity. In most of the cases people do not care about the
certificate and all they want is the purity and they are satisfied as they have
personally seen the purity test.
But people by and
large do not know that the procedure of purity test. The purity of the gold can
be accurately ascertained only by melting and by no other means can it be
ascertained. In the case of purity test done at the merchant’s stores, the
instrument runs rays over the surface of the ornament and gives the result. The
rays do not pierce through the inner body of the ornament and this is a fact.
Therefore the purity of the gold cannot be true and accurate. However, no
individual consumer opts for a melting test but only those who purchase gold
from the people insist and perform the melting test.
Of course, merchants can
also fool consumers in purity test also. Presently the gold is mixed with some
other powder/metals in addition to the usual copper. Erodium powder is a common
element that is added to ornamental gold and it can still pass the purity test.
As stated earlier about 8.4% copper needs to be added to pure gold and here the
merchants also add about 4 to 5% of Erodium powder bringing down the gold
content to almost 86.5% equivalent to 20 carat gold. Yet, this powder added ornament
can easily pass the purity test of 22 carat and the genuine purity test of gold
mixed with Erodium powder can be obtained only by melting.
THE LATEST MIX
Of late another metal
called Boss metal is also used for mixing with gold to make the ornaments.
Unlike the powder, the Boss metal provides softness to gold and there will be
no change in the colour. The quantity of Boss metal mixing is usually very high
that is up to 20% and interestingly the ornaments made by mixing this metal in
addition to the copper also pass the 91.6% (22 Carat) purity test. And here
too, it can be ascertained only through melting. Eventually, one pays for 91.6%
purity and gets ornaments of about 70% purity.
In case of genuine
91.6% gold, the consumer will be paying about 120% cost which includes wastage,
making charge, KDM etc. In case of Erodium powder, the consumer pays 130% for
86.1% purity and 140% for Boss metal mixed gold ornament of 70% purity. Can
anyone understand these calculations? Definitely not. All one needs is an
ornament with reasonable charges. Nobody can make out head and tail of the gold
business.
It is because of
these unimaginable profits that the big merchants make hundreds of crores. They
therefore afford to spent crores on advertisements and establishment expenses,
open one after the other glittering stores with exquisite interiors and
continue to fool innocent consumers repeatedly reminding them that they do not
charge profit.
All said and done,
whether one understands the Gold business or not, one thing is certain that the
gold merchants have been cheating thousands of crores through all these years. And
with the entry of Shubh, the entire jewellery market has been exposed of what
it is. On the contrary, let us also understand that Shubh is no angel. It has
not entered into the jewellery market for charity, but to earn profits. While
it has exposed many underlying facts about the manipulations of the Gold
market, it also has never talked about the profit margin. If Shubh can sell the
gold ornaments at cost price, and that too without profits, how could they
continue to be in the business? There definitely is more depth in the shubh
practices as well as it is also not transparent on the profit factor. No
business establishment can run without profit. In fact, it merely exists to
earn profit. And therefore, a business without a profit is definitely a
suspect.
