Traditionally gold has been a popular investment option for Indians because of its intrinsic value and reverence attached during auspicious occasions. Gold has some utilities in the industrial sector but mostly it is used to make jewelleries or ornaments. Gold as an investment portfolio offers gold ETF, Sovereign Gold Bond, digital gold, etc., but these kinds of gold too are stored at central banks in form of a gold bar or gold coin. However, in the gold jewellery segment, there is one essential factor attached, which is hallmarking of gold. Let's check what is hallmarking of gold, what are the existing regulation in India, and why it is significant to the industry?
What is gold hallmarking?
According to the union government of India, "Hallmarking is the accurate determination and official recording of the proportionate content of precious metal in the jewellery/artefacts or bullion/coins." That means hallmarking will determine the 'content' of a gold item and inform how pure it is. The accurate reading of the item will state that the item is neither a counterfeit (fake piece) nor imitated. Gold is a very light metal in nature and can be bent easily. So, to make it hard and durable, jewellers add other metals with it; otherwise, the ornament would not stay in form. The hallmarking system is there to ensure that the jeweller is not adding more other metals and a lesser amount of gold.
Hallmarking indicates the purity in carat and fineness for gold as - 22K916 (22 carat), 18K750 (18 carat), and 14K585 (14 carat) gold. Gold jewelleries are mostly made with 22 carat gold to maintain purity with adequate durability. On the other hand, Sovereign Gold Bond issues by the RBI, central bank of India is determined at the value of 24 carat gold. Based on its purity level, the prices of gold change. A gold item with a higher carat or better purity will be quoted with more price and vice versa.
Hallmark on a piece of jewellery also assures that it is not a KDM jewellery that is nothing but a gold alloy where cadmium was used as solder; it is not advised by the Bureau of Indian Standards (BIS) to use as it might cause health issues.
The procedure of hallmarking in India is directed and conducted by the BIS to maintain legal standards of gold purity. They fix related rules and regulations for the sector. BIS's signs for hallmarking are - the BIS Logo, the Assaying Hallmarking Centre's (AHC) logo or number, the Jeweller's identification mark or logo, and the purity mark in Carat and fineness. Hallmarking on gold means providing a laser engraving to label the jewellery after assaying and approving its purity.
Why is hallmarking significant for the industry?
Gold as an investment is popular both in urban and rural areas. In India, a vast population living in villages buy gold items to stay secured during times of need, expecting if they do not get enough value of agri-products, they can sell the gold and manage livelihood for the time being. Not just in villages, in urban India, people buy gold thinking they might sell it later when the price will be higher. In fact, a gold loan is a very common loan option for Indians to full fill their immediate need for money, where they deposit the gold item and get its value in liquidity. In addition to that, across India gold jewelleries are considered auspicious during a wedding or other religious/cultural occasions - that account for around 50% of gold demands in the domestic economy.
However, from this point of view, it is clear that the most important factor behind gold hallmarking is its 'resell value. Gold rates in the international market change every day, thus impacting the Indian markets. So, if somebody invests in gold today and thinks to sell the same gold three years later, the value of the gold will obviously change. The then market value of the gold at the time of selling will determine the item's rate. But how to determine it? Here comes the significance of hallmarking because the prices of gold will also change depending on its purity level which is identified by hallmarking.
If the buyer is not sure about how pure the gold is (example: is it 22 carat or 24 carat gold), then it will be difficult for him/her to realise its exact value at the time of selling. If a jewellery seller does not declare the truth about the item's purity and sells a counterfeit, and, without proper knowledge an investor buys the gold, he/she will encounter major challenges later and might lose a huge amount of money when reselling. To be sure about the 'resell value' of gold is the basement of hallmarking system.
People put their hard-earned money in gold investment, it is also recommended to have a 15-20% gold portfolio to diversify investments. Hence, hallmarking is significant to secure this hard money, and save a buyer from any loss - that is consumer protection. Additionally, in India, hallmark also helps RBI on behalf of the government to keep a track of gold items available in the country.
Where to conduct hallmarking?
A registered jeweller has to submit jewellery items for hallmarking to a BIS recognised Assaying and Hallmarking Centre (AHC) for testing. After testing, the AHC applies hallmark on the jewellery item which is found meeting the requirement of the standard. The AHC can also apply for recognition to the BIS online. According to the BIS, "The recognition is granted to AHC for hallmarking of jewellery/artefacts after verifying the infrastructure requirements, capability, and competency of personnel to carry out assaying and hallmarking. The entire process of recognition, which involves an audit of the centres, submission of audit report, and grant of recognition or renewal, has been automated."
According to the latest data published by the BIS, "The average growth in the number of registered jewellers during the last three years has been nearly 18%. Similarly, the number of AHC has also grown at an average growth rate of nearly 25% during the last three years. As on 31st March, 2020, 915 BIS recognised assaying and hallmarking centres are operative in the country."
Why is the gold hallmarking system being discussed largely now?
The union government had mandated BIS to start the hallmarking scheme for gold in 2000, while the scheme for silver was later introduced in the year 2005. In the country hallmarking was a voluntary act previously, but it has been directed to make it mandatory that came into force with effect from 1st June, 2021. Many small jewellers and jewellery associations are saying that the new hallmarking regulations will stress marginal and small scale sellers as the jewelleries they sell are not mostly hallmarked. If they cannot sell a jewellery that is not hallmarked, will hamper their business heavily during the pandemic. The new process is also much time-consuming according to them.
However, pure gold is denser and it sinks faster in water than other metals that are mixed with gold for better durability. Additionally, genuine gold does not rust or tarnish after an exposed to water. These are very common elements to identify pure gold but it cannot be an official process to determine the value of this precious metal. So, hallmarking is now mandated by the government to make the buyers feel safer and secured while buying gold. It is expected to encourage buyers' confidence to invest in gold.