Firoz.T.Totanawala The Bangalore Metro Reporter ALL THAT GLITTERS IS NOT GOLD THE GREAT GOLD FRAUD REVEALED THE REASON

BY. FIROZ.T.TOTANAWALA 

 THE BANGALORE METRO REPORTER 

 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.