Banks selling silver bars and Caveat Emptor

by Manshu on March 3, 2011

in Investments

HDFC bank has become the first bank in India to sell physical silver.

I was unaware of this development till I received a comment, and had a small commentsation (comment + conversation – word that I just  invented; likely to cause embarrassment many years from now) that I thought is worth reproducing here for others.

Sanjeev March 1, 2011 at 6:01 am [edit]

Just got duped..
Bought 500 gms silver @ 3370/50 gms (discounted for being a classic customer)

paid 67400 /kg vs market price of 49915/kg

we should sue these banks.. will go to bank tomorrow & see if anything can be done.. will keep you all posted

HDFC Rates
http://www.hdfcbank.com/common/gold_rates.htm

Market price
http://www.sify.com/finance/gold_rates/

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Manshu March 3, 2011 at 8:30 am [edit]

Banks are selling silver also? Which bank is it and in which city?

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Loney March 3, 2011 at 8:35 am [edit]

Only HDFC bank is selling silver as 50g bars.

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Manshu March 3, 2011 at 8:49 am [edit]

Oh – I didn’t know about that – and they are charging a fat premium I guess, and then won’t be able to buy it back either?

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Loney March 3, 2011 at 8:56 am [edit]

exactly!

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Manshu March 3, 2011 at 1:43 pm [edit]

Well then I better get ready for some more angry comments now!!!

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If you are going to buy silver from banks then please keep the following two factors in mind:

1. Banks charge a premium when compared with your local jeweler. Buying silver from a bank may give you the satisfaction about purity of silver since a bank is more reputable than a jeweler next door, but will also mean that you pay more.

2. Banks will not buy back the silver from you. Many people have found that when they buy gold bars from banks they pay a premium, and when they try to sell it to jewelers – the jewelers ask for a deduction, so the retail investor gets dinged at both ends of the transaction.

These are points that you should keep in mind, and factor in your decision making process.

There are several people who think that paper gold or silver is not safe and for them it’s not even an option to buy anything other than physical gold or silver.

Then there are some people who are not comfortable with buying gold or silver from jewelers and since bigger brands like Tanishq also charge a premium they don’t mind going to a bank.

The point I’m trying to make is you need to be cognizant of the premium, and the fact that you will have to figure out how you’re going to sell this silver later on.

It’s not necessarily a good or bad thing because that depends on how you look at it, but you certainly need to be aware of these facts.

{ 12 comments… read them below or add one }

Om Prakash Sharma March 3, 2011 at 9:47 pm

Dear Sir,
For lomg I had been thinking of buying int silver but could not gather because of the reasons you listed on your post.
I will be thankfu if some broking house comes up with an ETF of Silver. I remember some time back you gave a post on this same subject. How do we buy Silver ETF from Dow or Nasdaq.
Thanks

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Manshu March 4, 2011 at 7:19 am

Hi,

As you rightly point out there are no silver ETFs right now, and that’s a bit of a surprise given the huge demand it has had recently. Here are the two posts I did earlier on alternatives and details of NSEL.

http://www.onemint.com/2011/01/13/e-gold-and-e-silver-from-nsel/
http://www.onemint.com/2010/11/16/silver-etf-alternatives-in-india/

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Atul March 4, 2011 at 12:02 am

ETF are best option than physical stuff. Unless you are accumulating for child’s marriage.

But never buy from banks.

Regards

Atul

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Manshu March 4, 2011 at 7:20 am

There are no ETFs for silver hence the search for options. People buy silver for children’s weddings or were you just referring to gold?

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Meetali March 5, 2011 at 1:00 am

Hi
Is this true.. I have bought Gold Mudra bars from HDFC bank, assuming that I will be able to sell it back to them / local jeweller later. I preferred buying it from the bank rather than the local jeweller due to quality issues. These mudra bars are supposed to be imported from Switzerland and come with an Assay certificate assuring 99.9% purity.
I wasn’t aware that these are not saleable to the bank and if sold to the jeweller, he would charge a deduction.
Can you suggest the best option to invest in physical gold. If I buy from one jeweller and sell it to another one, will he still take the deduction. Any idea.
Thanks
Meetali

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Manshu March 5, 2011 at 10:42 am

A lot of people have had trouble selling the gold bars to jewelers who insist on a deduction. I think you should go out on a day and approach a few jewelers in your area to see if they are willing to buy this from you, and what is the deduction they are talking about.

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Kush March 6, 2011 at 4:38 pm

I don’t trust paper gold or silver, i.e. ETF’s or NSEL Demat. There is good reason for that. I have been researching precious metals sector for 2 years. I am very confident about it and I can debunk so called precious metals experts in seconds. There is so little knowledge among Indian intelligentsia regarding derivative paper silver conspiracy and manipulation, that it is appalling at times. I am writing this comment so other people may read and benefit from it.

My advice is to NEVER invest in paper gold/silver. Always remember the golden rule: He who has THE PHYSICAL gold makes the rules. Paper gold/silver is not real and has counter-party risk. People buy gold to protect themselves from counter-party risk. It is like jumping out of a frying-pan, directly on to fire. It gives false sense of security that you own gold, but the fact is that you own counter-party risk.

So, the first option should be to buy physical gold and silver. In India you can buy from MMTC, a reputed government owned enterprise. If you buy from their showroom, you cannot resell to the showroom. However, you can resell in the open market or to the MMTC authorized dealers. Generally speaking, it is better if you buy and sell from the same dealer. MMTC is the only brand-reputed company which sells silver apart from HDFC Bank.

As of a few months ago, HDFC charged 60%-70%-80% over the spot price of silver, while MMTC charged 30%-40% depending on quantity. Disgusted by such ridiculous premiums, I decided to buy 1 Kilogram silver from NSEL Demat and decided to take physical delivery right away. It was a lengthy process as no one had done it before at Religare. So, it was a learning experience for them also. But, I think the process is improving with time. This way I ended up paying slightly less than 10% premium including taxes. The silver I received is of .999 purity, but it is not stamped/minted. like MMTC/bank coins are. Hence, I don’t recommend NSEL.

So, it’s a pain getting stamped/minted silver in India without paying 35% premium. But that doesn’t mean I am going to buy crap-like-paper-gold. And neither should any sane person. I would rather pay premium and get the security I need.

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Manshu March 6, 2011 at 5:24 pm

I think I asked you to elaborate this in an earlier comment of similar nature as well.

Are you saying that gold ETF doesn’t have any underlying gold? What specifically is the issue with a gold ETF? Can you explain with an example?

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Kush March 6, 2011 at 7:21 pm

While gold ETFs may have some underlying gold. How much? Nobody knows. It’s possible there may not be any gold. Based on the prospectus of one of the ETFs, ie Benchmark gold ETF, their custodian is Citibank. Citibank is one the 4 to 8 big banks who are anti-gold. They manipulate the price of gold in the world markets and are perennially short gold. These are not my theories. These are facts proven by many analysts.

GLD, the first-ever gold ETF which was started in 2004 in the U.S., was started as a mechanism to suppress the price of gold. Instead of buying physical gold and gold stocks, people started buying gold ETF. This was done to siphon money off which should have gone into physical gold and gold stocks.

There is no mention of gold being audited in the prospectus and scheme of information. Physical gold audit results are never released. Only the financial books are audited. The Custodians don’t even have gold and are the real crooks. IT IS CRIME IN ACTION. Many of the customers of these custodian banks have to go through numerous hoops and lawyers to get their gold. Situation in silver is even more tight.

The above is true for all the ETFs in the world. Gold and Silver.

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PANKAJ PAREKH July 20, 2011 at 3:50 pm

Please let me know the location of the MMTC Office / Showroom / Retail Sale Center, in Mumbai, where I can purchase one Kilogram of 0.9999 Siver for personal (investment) use.
I would also like to know the approximate current prices of silver, or a website, where I can moniter the same, on a daily basis.
As I am an NRI, can I bring the above into India on my visit to my family, and what would be the custom duty payable at Mumbai airport.
Please help and advise me.
Thank Youe Very Much

Reply

Manshu July 21, 2011 at 5:07 am

I’m afraid I don’t know the answer to that question, but maybe someone else who knows might leave a comment.

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cecil July 11, 2012 at 12:08 am

where could i buy pamp suisse fortuna bars in india.. ???

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