HAPPY MEDIUM

The noticeable growth of the Azerbaijani economy in recent years has created not only a class of the rich, but also a so-called middle class in our country. A personal car, a good house, a holiday abroad, a bank account - these attributes of moderate prosperity are no surprise for today's rank-and-file Azerbaijani.

But, as a rule, excess money brings on a headache as there is always a risk of loss. Due to the weak development of the securities market in the country, it is not usual practice to multiply wealth through securities in Azerbaijan. It is better to have a bank account, as the banks have become more trustworthy in recent years. And it is even better to invest money in property, new cars and precious metals.

Precious metals have become quite important during the global crisis - the property market is unsteady, price fluctuations inspire no optimism and there is no confidence that a flat bought for 100,000 dollars can be sold one year later if not for more, then for at least the same price. As for gold, it is always pricey. As Azerbaijan is an oriental country, no "Europeanization" will discourage our women and, at times, even men from wearing gold adornments.

The tempting clank of coins

The global financial crisis has stoked interest in the market for precious metals in many countries. A year ago, the price of precious metals reached its highest level for many years. Experts can now say that the price of gold will establish a new record in the near future. According to Russian experts, gold will cross the psychological barrier of 1,000 dollars per troy ounce (31.1 g) and consolidate at a level above this point. They think that the slump in the production of gold and an increase of gold reserves in the world's central banks will keep its price at quite a high level. The price will also be affected by heightened demand for investment.

We have to say right from the outset that investment in gold does not only mean the purchase of items made of gold. There are several ways of investing money in precious metals abroad: IMA (an impersonal metal account, which is quite common in Russia), bullion and coins. The IMA is similar to a bank account in which money is calculated in grams of metal. The ownership of precious metals is confirmed in an extract from the account. The owner of an IMA does not have to cover any additional expenses: all operations concerning the account in the bank are usually free. There are no such banking services in Azerbaijan yet.

Instead, the sale of gold ingots is already common, though only two local banks offer this service for the time being. According to the website of one of them, the bank offers gold bullion weighing 5, 10, 20, 50, 100 and 250 grams of pure gold. Every ingot has its own special certificate which gives information about it. The bank also offers the population the opportunity to buy gold ingots on credit, for a period of up to 12 months, with an annual interest rate of 20 per cent.

In order to buy a gold ingot weighing between 20 and 250 grams, there is no need for a reference from your employer or a warrantor. You need only pay 10 per cent of the cost of the ingot initially, and it remains in the bank for the whole credit period.

Representatives of the bank think that "the purchase of a gold ingot may be seen as an effective investment, in view of the historical tendency of gold to rise in price, including in recent years. The purchase of gold on credit can also be lucrative, as the rise in the price of gold over the past year has exceeded the credit interest rate".

However, despite this, the demand for bullion in Azerbaijan is quite low, since such an investment causes much inconvenience. First, the ingot will cost its owner at least 18 per cent more than the actual price of the precious metal - this is to cover the VAT incorporated in the cost. Moreover, the price of an ingot is also affected by its mass: the lighter it is, the more expensive is a gram of the metal, due to the labour-intensity of production. Besides, any, even the slightest damage, be it a scratch or a fingerprint, may affect the price of the metal and result in the bank refusing to take it back.

It must be noted that in a private conversation, some jewellers admit that you can buy ingots other than from a bank, also much more cheaply, as there is smuggled gold on the market. However, how sensible is it to invest in something you can't sell legally in the future?

There is another way of investing in gold - by buying gold coins. These are offered by banks or brokerage businesses, including electronic ones, abroad. In Azerbaijan, any experienced jeweller can offer his client such services. These are mainly "Nikolayev gold pieces", but you can also find one-ounce coins like Buffalo, American Eagle, Krugerrand, Canadian Maple and other "prestigious change". Normal dealers sell them with a mark-up of 50-60 dollars on the market price of gold. But it is impossible to buy such coins from our banks.

Not all that glitters…

All the kinds of investment we describe above are radically different from investment in precious metals. The owner of the Midia shop, Ilqar Dadasov, said in an interview with R+ that those who want to buy gold as scrap metal should understand the difference between scrap metal and a product. The price of a product cannot equal the cost of its weight. This applies especially to branded products.

"Yes, there is a growing interest in gold across the whole world. As the world's rich are buying ingots, the price of gold is not falling and, what's more, it is more difficult to sell gold items. For example, one gram of gold is equal to 0.03215 ounces, which is worth 28 dollars, whereas the price should actually be five dollars less, due to the fall in the price of oil, energy and consumer goods," he said.

"An average buyer asks us: if I buy this item for this price, will I be able to sell it for the same price without risking a loss? Buyers often ask us for 18-carat gold rather than 14-carat gold. Sometimes, an item made of 14-carat gold is more expensive than one made of 18-carat gold even though their weight is equal. The buyer wonders why. The answer is simple - it is determined by the elegance of the item. The more carats the gold has, the more difficult it is to work on it and to create refined lines or, to put it simply, it breaks. The most beautiful objects are made of 14-carat gold and they are very popular in Europe. In our country, buyers want more carats - that is a mindset…

Sometimes, a buyer prefers hollow items, which are inexpensive, but look massive. You usually have to handle them carefully because they can break. Another mistake made by buyers is that they think that Italian or Russian gold is better. That is wrong. The quality of gold depends on the number of carats and where it was extracted, it cannot be better or worse," Dadasov said.

According to the manager of the Shakh jeweller's house, Parviz Nuriyev, gold has always been regarded as a good investment. However, unlike Dadasov, he said that, while Azerbaijanis previously tried to buy massive items of gold, there is now a certain category of buyer who has an interest only in branded items with pure diamonds. "From time immemorial, gold has been regarded as the best investment. A good item can be handed down from generation to generation, and it will always be highly valued," said Nuriyev. But again, he said, such items should be bought from special retailers, where the purity of the stones is guaranteed.

So, jewellers and experts note a growing interest in gold and gold items. But, at the same time, they advise investors to be careful. Vyacheslav Vasilyev, head of the Bank of Moscow directorate for currency operations, made a telling point here: "The market is quite unpredictable, and, in order to diversify the risks, it is better to invest in various metals, preferring gold as the most stable of them. But, in any case, it is worth investing only part of your savings in precious metals." So, no matter how enticing the sheen and clank of gold is, any investment needs to be made extremely carefully after a close study of the market and its risks.