Making charges, purity and the real cost

Chapter 2 said the wrapper decides what you keep. This chapter is the arithmetic for the wrapper most Indians use.

What the hallmark certifies

Hallmarking addresses the purity half of the problem, and BIS is candid about why it was needed:

... articles mostly made of high caratage gold and containing numerous soldered joints of much lower caratage makes the job of determination of purity even more difficult. In addition, 24 carat plating of articles of low caratage is also common.

A consumer cannot assess purity by looking. The metal is the same colour at 22 carat and at 18, joints can be of lower caratage than the body, and plating can disguise the whole thing.

Mandatory hallmarking covers 14, 18 and 22 carat gold, "amended to include additional grades of 20 carat, 23 carat and 24 carats."

The mark has three components: the BIS Mark, the purity in carat and fineness, and a six-digit alphanumeric code.

Reading the fineness is a thirty-second skill worth having:

Mark	Carat	Gold content
22K916	22	91.6%
18K750	18	75.0%
14K585	14	58.5%

The number is the purity, in parts per thousand. 22K916 means 916 parts gold in 1,000, and the rest is alloy.

One consequence people miss. Buying 22-carat jewellery means about 8.4% of what you bought by weight is not gold. That is not fraud — pure gold is too soft for most jewellery — but if you are buying for investment you are paying a gold-adjacent price for alloy, and you should size the purchase on gold content rather than gross weight.

What is charged on top

Making charges. The cost of fabrication, expressed either as a percentage of the metal value or per gram. Intricate work costs more; machine-made chains less.

Wastage. A historical allowance for metal lost in working, often charged as a percentage even where modern processes lose little. Negotiable at many jewellers, which tells you something about what it represents.

GST, on the value of the article including making charges.

Hallmarking charge, a small per-article fee.

Stone and non-gold weight. Where an article contains stones, you may be charged for their weight at a gold-linked rate while a future buyer values the gold alone.

And what comes back

Here is the asymmetry that defines the product.

You pay for metal plus craftsmanship plus tax. You are repaid for metal.

A buyer of second-hand jewellery is buying gold content. They will not pay for the making, because they are not acquiring a design they wanted — most such gold is melted. They will not refund GST. They will deduct for purity assessment, and they will quote a rate at or below the day's.

The buy-sell spread on jewellery is therefore not a few per cent. It is the whole of the making charges, wastage and GST, plus the dealer's margin.

RBI's framing, from the SGB FAQ, is the regulator making exactly this point: the bond is "free from issues like making charges and purity in the case of gold in jewellery form."

Working the problem

₹1,00,000 for a gold chain.

Assumptions stated: 22-carat (22K916), making charges 12% of metal value, wastage absorbed within that, GST 3% on the total, and a day-old resale at a 2% dealer margin below the prevailing rate for the gold content.

Working backwards from the ₹1,00,000 bill.

Let the metal value be M. Then the bill is $M + 0.12M$, plus 3% GST on that:

$1.03 \times 1.12 \times M = 1{,}00{,}000$

$M = \frac{1{,}00{,}000}{1.1536} \approx ₹86{,}700$

Component	Amount
Gold content (metal value)	₹86,700
Making charges at 12%	₹10,400
GST at 3%	₹2,900
Total paid	₹1,00,000

What you receive selling it back the next day. The buyer pays for gold content, less their margin:

₹86,700 × 0.98 ≈ ₹85,000

The gap: about ₹15,000 on ₹1,00,000, or roughly 15%.

What that means in time. For the holder to break even, gold must rise about 15% — and at that point they are merely level, having held the asset for however long that took.

Two things that make the real figure worse, and one that makes it better:

Worse: making charges on intricate or branded jewellery routinely exceed 12%, sometimes substantially. And if the article contains stones whose weight you paid for at a gold-linked rate, that value is largely unrecoverable.

Worse: many buyers do not sell to a dealer at all but exchange at the same jeweller, where the "exchange value" offered is a negotiating position rather than a market price.

Better: a plain, machine-made chain at a jeweller with transparent, low making charges can bring the gap down to under 10%. The spread is a function of what you buy and where, not a fixed property of gold.

The conclusion is not "never buy jewellery". Chapter 1 made the point that much of it is consumption and obligation, and consumption is allowed to cost money. The conclusion is narrower: the roughly 15% is the price of the ornament, and it should be counted as spending rather than mistaken for an investment that happens to be wearable.

The point

Hallmarking fixed the purity problem because consumers cannot assess purity by looking — the fineness mark states it directly, with 22K916 meaning 91.6% gold — and mandatory coverage now spans 14 to 24 carat. What it does not fix is the spread: you pay for metal plus making charges plus GST, and a future buyer pays for metal alone, so a typical purchase is around 15% underwater the moment you leave the shop and needs that much appreciation simply to break even. That gap is the price of the ornament, which is a legitimate thing to buy — provided it is counted as spending rather than as investing.