‘Gold coins' she bought from banks was what came to her mind when Ms Haripriya Gopalakrishnan needed some urgent cash. But her experience in trying to exchange her coins for cash is worthy of note. Trying as hard as she could, she couldn't sell the coins – not at banks (which are of course barred from buying gold), not at jewellers, just nowhere.

And we thought gold was liquid!

In 2010, 746 tonnes of gold was sold in India, around 20 per cent of this were coins. Long considered a store of wealth that inflation doesn't eat away, gold has been more in fancy these days, given the expectations for capital appreciation. But the catch is in selling it.

Irrespective of the reality, according to the World Gold Council, while jewellery demand during 2011 second quarter surged 17.1 per cent to 139.8 tonnes (compared with the comparable previous year quarter), the demand for coins and biscuits shot up 78 per cent to 108.5 tonnes during that period.

Till recent times, it was not really that difficult to exchange gold for cash, observed one of the shoppers at a retail outlet.

But today, unless you are lucky, the best you can do with your gold coins or biscuits is exchange them for jewellery. If you want cash, you can only raise a jewel loan.

It is easier, though relatively, to exchange coins or jewels, for jewels. Jewellers will give you cash for jewellery you bought only from them (most of them insist on the invoice), but at a discount. Ms Haripriya Gopalakrishnan's enquiries revealed to her that she'd lose close to 12 per cent if she exchanged her gold coins for gold jewels — not a smart thing to do when gold is shining in value.

“If it is a piece of jewellery bought from us, we don't mind buying it back,” says Mr G.R. Anantha Padmanabhan, Director, GRT Jewellery, a leading retail chain. “But it will be at a discount as we have to melt it anyway to make another ornament.”

Tanishq too does not pay cash for coins bought from banks. “We will give only our jewellery in exchange,” says Mr Gaurav Bhuwan, Head — Marketing, Tanishq. If it is Tanishq jewellery, no matter when the customer bought it, Tanishq will evaluate the jewellery, “provided accompanied by our invoice”, at the current market rate and pay the consumer by cheque after deducting 3 per cent in the case of plain gold jewellery or 10 per cent in the case of diamond-studded ones — as it's a process-driven exercise.

Still, buying back jewels is the discretion of the jeweller — buy-back promises made at the time of sale is never in writing and is often not kept. “If a customer walks in with half-kg gold jewels, I may have neither the need to buy nor the cash to pay,” says Mr N. Anantha Padmanabhan, Managing Director of NAC Jewellery. “We are in the business of making and selling, not buying,” he says.

But authorities at the World Gold Council chose not to respond to queries on the issue of liquidity, “as there is a negative tone in the story”.

As more investors realise the illiquid nature of coins and biscuits, they will move towards ‘exchange traded funds', where, rather than buy gold, you buy a tradable bond with gold as an underlying asset, says an analyst.

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