A Singaporean’s Guide: How To Invest In Gold
The ongoing US-China trade war has, on one side, allowed many of us to profit.
On the other, it has caused us many instances of heart palpitations.
Sometimes, you really cannot predict how your portfolio will be the next day. You just hope that you don’t see red…
You may have heard people talking about investing in gold especially in times like these.
So… Why Gold?
Here’re a couple of reasons:
- Gold is used as a hedge against inflation
When countries go through an intense period of lowering their interest rates, or when they print a lot of money, their currency will be devalued. This causes inflation. Since gold is another asset of its own, it has its own value.
Gold would be useful as a hedge in circumstances when people do not have faith in a country’s currency during times of hyperinflation (e.g Venezuela and Zimbabwe), then the people there would choose to place their money in gold instead because it is a safer asset.
- Gold also gives you a hedge during tough times (events which cause the value of paper investments like equities and bonds to decrease) or uncertain market conditions
Market uncertainties increase the attractiveness of gold because the beta of gold is very low. Gold is a near-zero beta asset, which means that it is a good asset to be holding during tough market periods as it tends to perform better as compared to other assets during this period.
FYI: Beta is a measure of the systematic risk or volatility of the security i.e the tendency of a security to move with the market.
During market uncertainties, low beta stocks or assets like gold become more appealing because they maintain their value over the long term.
So if you’d like a little diversification in your investments, let’s look at some ways which you can invest in gold.
Unless you’re as lucky as this guy who discovered a 2kg gold nugget worth US$160k…
How To Invest In Gold
Here’re some ways which you can invest in gold.
1. Physical Gold
You may have heard your parents or grandparents say that buying gold jewellery is better than buying silver.
That’s because gold:
- Preserves its value for a long time
- Is resistant to tarnish, rust, and corrosion (unlike silver which is more reactive)
Also, since the beginning of time, gold has always been seen as a symbol of wealth. Plus, with gold jewellery, you can keep it in a safe box and pass it down to your children or grandchildren.
Gold Bars, Gold Bullion Coins, And Gold Certificates
Prices for gold bars, bullion coins, and certificates are based on the international gold price adjusted for Singapore market conditions.
You can buy or sell gold in these physical forms at the current buy/sell rates quoted by the bank, or other gold retailers.
Here is a look of the current gold prices (prices correct as of 30 July 2019) at United Overseas Bank (UOB).
The thing about physical gold is, if you want a third party (bank or other retailers) to store it for you, you will have to pay for storage fees, insurance coverages etc.
2. Gold Savings Account
Some banks such as UOB also allow you to open Gold Savings Account. Unlike buying physical gold, you won’t be getting something physically.
- Basically, it is like your savings account just that it is gold instead of cash
- The minimum quantity per transaction is 5 grams of gold (at least for UOB)
- Looking at the table above, 1 gram of gold is priced at SGD$62.92 currently
- You can buy and sell gold without physical delivery
You can find more information here.
3. Trade Gold On The Stock Exchange
Gold is more than just a metal used to make jewellery. In fact, you may have heard of the Gold Standard.
The Gold Standard was a monetary system implemented that involved the circulation of gold coins. This was before paper money was used, and the banknotes were pegged to the respective value of gold. Now, most countries have moved away from this.
It was used as a currency in the past, to store value, and as a means of transaction in ancient times.
If you’re not looking to buy gold to wear or to preserve its value to pass down to the next generation…
You can trade gold on the exchange instead because it gives you higher liquidity.
Gold Spot Price
|Gold||1 Month||6 Month||1 Year|
Here are some of the FAQs.
Should I Buy Gold Now?
Time of writing = 30 July 2019.
I do not know when you will come across this article, maybe it is sometime further in the future. The market conditions will be different then.
But as for now, there are concerns over buying gold. This is not uncalled for, as gold prices are pretty high currently. And if the US-China trade war continues, you will expect gold prices to decrease.
When you buy into an investment vehicle, you always think of its upside potential.
If it is at a high side, yes it may still increase, but the upside potential is now compressed when you compare it with historical prices as a benchmark.
Why Is Gold More Valuable As Compared To Silver (On The Exchange)?
- Silver is more volatile in terms of prices
- Gold is in higher demand by central banks than silver
- Matter of abundance. According to Silver Bullion, the gold-to-silver ratio on Earth is about 1:19
However, I personally feel that silver is also attractive to look at. I mean, silver is also a precious metal, right? At almost 1/100 of the price of gold, this makes it easier to invest in silver.
Recently, the prices of silver also saw an increase. Does this mean that investors are finally attracted to silver again? Well… This calls for a separate post entirely.
4. Gold ETF
Fund Ticker Price (USD) 1Y Returns 3Y Returns Expense Ratio
SPDR Gold Shares ETF GLD (or SGX: O87) $134.33 14.35% 2.07% 0.40%
Aberdeen Standard Physical Swiss Gold Shares ETF IAUSGOL $137.41 14.26% 2.12% 0.17%
iShares Gold Trust ETF IAU $13.64 14.47% 2.19% 0.25%
SPDR Gold MiniShares Trust GLDM $14.24 14.61% – 0.18%
GOLD ETFs seek to reflect generally, the price of gold.
Buying the ETF is more affordable than buying gold itself. Price of gold is currently USD$1425. Compare this with the ETF prices as shown above. There is a lower barrier of entry into a gold ETF.
Expense ratio (or management expense ratio) is the expense incurred to pay the managers for managing the fund. You should opt for a fund with a low expense ratio.
When purchasing Exchange Traded Funds, always remember to read the fund factsheet to understand the fund’s holdings.
There are also gold options and futures, but these are instruments that are very risky and have steeper learning curves which will require deep understanding.
DISCLAIMER: I’ve shared a lot of good things about gold, but for this asset, the time when you enter the market is extremely important.
With the US-China Trade War, gold prices are high now, but don’t be put off by it. Even at high prices, the prices of gold can still go up. It is an asset which has an intrinsic value. Of course, whether or not prices go or down depends on the market conditions. And past performance is not a good indication of future returns.
But overall, I feel that gold is a good investment and can add diversification to your portfolio.