SOME gold pundits are right, the precious metal is on
its way to a dazzling US$1,000 (S$1,463) an ounce that
in perspective, the price of gold was just US$254 an
ounce back in 1999, a 20-year low.
why these wild fluctuations in price?
is a “safe haven” that investors turn to when the
going gets rough in other investments such as shares and
bonds, or when economic uncertainty abounds. Since that
low point in 1999, investors have been weighed down by
worries over inflation and a weak US dollar value.
investment fund managers have been snapping up assets
such as gold whose values are not tied to stocks and
bonds. Industry experts remain bullish on gold. They
believe that low interest rates, tight gold supply and
high oil prices will help to push the gold price past
the US$1,000 mark.
times of uncertainty, investors flock to gold to protect
their savings. For example, if the US dollar is weaker,
investors buy gold. This pushes the price of the metal
higher. The reason is that, as the US dollar falls,
commodities priced in the currency, such as gold, become
cheaper to buy in other currencies. This stimulates
buying. Investors also go for gold in bigger numbers
when oil prices soar because oil-producing countries
that earn revenue in the greenback need to hedge against
the risk of a falling US dollar.
can print as much currency as they like debts.
data shows that gold prices move in the opposite
direction from stock prices, as a general rule. Gold
typically soars when stocks tank. For instance, gold
prices shot up from 1971 until mid-1973 as stocks
struggled. Still, gold is not always a glittering
investment downs too. After rising to new highs in 1974,
gold prices dived, falling to about US$100 in mid-1976
from about US$200 at the start of 1975. They soared to
US$850 in January 1980.
to invest in Gold:
investing is not simply a matter of buying a piece of
the metal to lock in a safe place. There are many ways
to own gold and, quite often, you do not see the actual
thing at all. For instance, Singaporeans can buy gold by
using their Central Provident Fund Ordinary Account
savings to invest in gold savings accounts, gold
certificates or gold ETF. Their value mirrors any rises
or falls in gold prices.
way to get your hands on gold is to buy products such as
gold bullion coins and gold bars in various sizes and
weights. These investments unlike a paper gold
investment (GST) in Singapore, which means an investor
will lose 7 per cent of his investment upfront. Coins
are usually available in denominations of one ounce, 1/2
ounce, 1/4 ounce, 1/10 ounce and 1/20 ounce. When
investors sell gold to a bank, for instance, the
institution will want to make a profit on the prevailing
gold price. That differential starts from about S$120
per kg. Banks that sell physical gold include United
Overseas Bank (UOB) and the Canadian Bank of Nova
you buy a gold certificate, you do not incur GST, as you
do when you buy physical gold. However, there is an
annual administration fee of S$30 per kg of gold. At UOB,
a gold certificate is issued in “kilobars”, which
are kilogram bars of gold. In a single certificate, you
can buy kilobars of 999.9 fine gold in multiples of one
up to a maximum of 30. Gold is rated according to its
purity prices, one kilobar costs about S$35,000.
INVESTOR looking for the excitement of frequent trading
might want to consider a gold savings account. You start
with a minimum purchase of 5g of 999.9 fine gold. You
can then buy or sell in 1g lots. The customer records
his purchases and sales in pocket-sized passbooks as
deposits and withdrawals. UOB charges an administration
fee that is subject to GST.
can also open a margin trading account to trade London
gold or gold futures over the phone on a margin basis.
They can even sell short in gold with the account.
option is to invest in unit trusts such as UOB United
Gold and General, which invests in publicly listed
companies that mine gold. As with other unit trusts, an
investor is subject to subscription and annual
management fees, said IPP Financial Advisers investment
director Albert Lam.
retail investors, an ETF offers a convenient way to buy
gold with relatively modest sums, and without the
custody, storage and insurance charges that typically
accompany bullion investments. An ETF is listed on a
stock exchange, and is bought and sold just like shares.
Already listed in New York and Mexico, this gold ETF was
listed on the Singapore Exchange last year. ETFs are
tracker funds that invest in the component stocks of an
index. Investors need not pay a sales charge, unlike
with a unit trust. They are, however, subject to a
brokerage charge. Overhead costs are typically a
fraction of those for unit trusts. Unlike other ETFs
that hold shares or bonds, StreetTRACKS holds gold
bullion as its underlying asset. Its annual management
fee is 0.4 per cent. A share in the ETF is based on
roughly a tenth of an ounce of gold. Buy 10 shares and
you own one ounce of gold.
means investing directly in the shares of mining firms.
However, you could be exposed to more risks. With most
gold investments, you worry mainly about the price of
gold. With these stocks, other factors, such as how well
the firms are managed, come into play.