With gold prices rising, many of us are tempted to buy it even with borrowed money. This article explores the financial risks associated with purchasing physical gold using high-interest loans or credit cards. The article identifies the additional costs like wastage, making, GST, and interest, which can inflate the real cost of purchasing gold. This is a cautionary write-up urging investors to separate emotional appeal of buying gold from the financial risks of using high-interest personal loans. The article suggests smarter alternatives like Sovereign Gold Bonds (from secondary markets) and Gold ETFs.
Kartik and Kavita are close friends working in a multinational company in Mumbai. During a lunch break Kartik told Kavita – “Bro, I finally did it — bought a 36g gold chain worth ₹4.23 lakhs. The jeweller expects another 10–20% uptick in gold rates in the next quarter. Used my credit card to buy, and today I took a ₹8 lakh personal loan at 10.5%. Will use money to clear the credit card bill and plan to use remaining to invest in more gold. Pretty cool, isn’t it …”. Kavita immediately replied – “Karthik, are you mad? Should you be taking high-interest personal loans to buy jewellery? You could have invested in Gold ETFs or SGBs, if you are so sure gold will rise further.”
This representational conversation, is common scenario between two persons where one is driven by belief and emotion of gold investing, and other is financially pragmatic. Let us understand their conversation to explore their emotions and challenges in investing gold with borrowed money.
Kartik had been tracking gold prices for a while. He is awed by hefty increases every now and then. Gold trading at less than ₹80,000 per 10 grams at the beginning of the year 2025 is trading at about ₹100,000 per 10 grams – a rise of more than 25% in less than 6 months. He is not able to appreciate that gold is often considered a war time investment and the recent surge was on account of global uncertainty and rising political tensions. In fact, gold has been on rise in the first half of this decade as an aftermath of multiple factors like COVID-19, multiple wars, global recession fears and supply chain issues.
In a hostile global environment, gold appears to be a safe bet, but there are no assurances that the prices will continue to surge. If in future the global conditions stabilise, there shall be automatic slackness in the rate of growth in gold prices. Even some dampening in prices cannot be ruled out, in case global political situation improves. However, there is big “IF” attached as to whether and when this slackness in prices will take place. The global political landscape is not very healthy.
Cost of gold bought on credit
Anyway, the recent rise in gold rates is not reason enough to take on debt to invest in gold. Further, in the evolved financial world, buying gold jewellery can be easily separated from gold investments as one can always buy gold in digital forms. Karthik paid about ₹11,750 per gram for a gold chain with extra 17.5% towards making charges and GST. Thus, upfront he lost 17.5% in the cost itself. Jewellers generally charge 10-20 percent towards making charges, wastage and another 3 per cent is added towards GST. He is losing another 10.5% in interest on the personal loan. For Kartik to reach near a breakeven point in a year, gold needs to appreciate by another 25% or so — a tough ask even for the best-performing assets. Can gold guarantee that much return? Feasible, yet layered with obstacles. He could have at least saved the interest costs.
Better alternatives to buying physical gold
Karthik is not alone. Many young professionals today — educated, employed, and ambitious — blend emotions and investment. Even the smartest minds can overlook the real cost of debt-fuelled gold buying. If you wish to buy gold as investment, prefer SGBs, mutual funds or ETFs. Presently, SGBs are only available from secondary markets as RBI is not coming out with new issues. If too keen to have physical gold, coins with low wastage and making charges have an edge over jewellery which has more of cultural and tradition related reasons. Interestingly, it is also possible to buy coins online at prices lower than the market prices with credit card discounts and cashbacks. There are many smart buyers who keep tap on the online platforms to buy gold coins at very attractive rates. However, even if you buy gold coins on credit cards, it is important to settle bills in full within due dates. You should avoid high-interest loans for gold buying.
Final Word – Invest Wisely
Buying gold may seem emotionally rewarding, but when funded through a personal loan, it becomes a financially unsound move. The additional costs can outweigh potential gains to lower returns. Before making any investment, especially in gold, assess the total cost and your ability to repay. Emotional decisions often lead to long-term financial burdens. Investing wisely means thinking long-term, staying rational, and keeping your debt low.
Remember – “Let gold grow your wealth—don’t let debt melt it away.”
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