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Why is Gold a “Safe Haven” Investment and Should Singaporeans Consider These Two New Gold Options?

Joanne Poh 0 Comments

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Let’s forget about gold buyback scams like Suisse International for a minute and consider the fact that gold is actually a totally legit and, some say, safe investment when done right.

More recently, gold investors found themselves sitting on, well, a pile of gold when the price of gold rose by close to 30%. But that doesn’t mean it’s been all rainbows and unicorns, since the price of gold has the tendency to be volatile—just last year, gold prices hit a five-year low.

While it’s probably not a good idea to plough all your savings into gold, making it a part of your portfolio can be a good idea.

Recently, two new options became available to gold investors. SK Bullion, which is part of the Soo Kee Group (anyone remember their wedding jewellery ads?), has been set up to let traders buy, sell and store gold.

Another newcomer, GoldSilver Central, offers an online gold trading platform in addition to their gold buying and selling services.

So, should you try the above gold investment services? Here’s what you need to understand, and how to get started.

 

Why is gold so popular?

Gold has always been a little different from more popular investment vehicles like stocks. Because gold is a physical asset with a finite supply on earth, it has become known for retaining its value even in the face of inflation. The value of $1 may get eroded by inflation over time, but the value of 1kg of gold will not be lost, at least in theory.

Investors also tend to think of gold as a “safe haven” in times of recession. That’s why in poor economic times, the price of gold tends to rise as people park more of their wealth in gold rather than stocks and property. Conversely, in times of economic prosperity, gold prices tend to fall in tandem with the rise of the stock market.

Another advantage of investing in gold is the fact that it is very liquid. While you can’t sell your condo at a moment’s notice, you can sell your gold assets in exchange for cash very quickly.

 

If investing in gold is so great, why did the gold bubble burst?

If you look at a long-term chart of gold prices, you’ll see that gold prices soared between 2009 and 2013. Then in 2013, something happened: the gold bubble burst, sending prices plummeting until they reached an all-time low in 2015.

Gold price trend

An asset bubble happens when prices get pushed up because people keep buying in hopes of making a quick buck.. *cough cough Singapore’s housing market*. The problem is that the asset isn’t really increasing in value—its value is being artificially raised by all these speculators.

As you now know, people tend to buy gold in times of economic uncertainty. For years since the 2008 financial crisis, people had been buying gold aggressively.

However, in 2013, the Dow Jones hit a record high. Basically, stocks were soaring. The US dollar was strengthening and interest rates were expected to rise. And unsurprisingly, the demand for gold fell sharply, leading to the bursting of the gold bubble.

However, now that gold prices are rapidly on the mend, it might be a good time to start buying again.

 

What are the common ways to buy gold?

Gold is accessible in the sense that you can rock up to a jewellery store in little India and buy a gold necklace, if that’s what you like. But don’t do that—do one of the following instead.

  • Buy bars and bullion coins – One of the most relatable ways to buy gold is to simply get it in its physical form. These usually come in the form of bars or bullion coins. You’ll be charged according to the weight, and can also expect to pay administrative fees to the bank or institution you’re buying from. It’s worth noting, however, that buying physical gold is relatively expensive, so if you want to buy it only for investment purposes and not to gaze, stroke and sleep with it, you might be better off buying into an ETF instead (more on that below).
  • Buy gold certificates – This is similar to buying physical gold, except that you receive a certificate from the bank or institution instead of the actual gold. This is more convenient as you won’t need to open a safety deposit box to store your treasure. Unfortunately, as with gold bars and bullion, you still have to pay a premium.
  • Buy into a ETF – A gold ETF (exchange traded fund) will track the price of gold. You can buy shares in a gold ETF in the same way you trade stocks. This is one of the easiest ways to invest in gold, since you don’t have to have a lot of cash upfront. They’re also more liquid.  In Singapore, there’s the SPDR Gold Shares ETF which is traded on SGX.
  • Buy gold futures – Just like other commodities, you can trade gold futures. Futures trading tends to be super risky, so unless you are very rich and don’t mind dedicating your life to sitting in front of your computer, don’t do this.

 

Who should consider buying gold?

If you’ve never invested a single cent in your life, investing in gold might not be for you, at least not right now. Experts advise that you limit your exposure to gold to about 10% of your portfolio.

If you plan to use your CPF funds to invest in gold, you are also subject to restrictions on how much money you can actually take out to invest.

Under the CPF Investment Scheme, you can use the money in your Ordinary Account or Special Account—but only after first setting aside $20,000 in your OA or $40,000 in your SA. After setting aside those sums, the balance is investible—but that doesn’t mean you can plough all of it into gold.

Of all the CPF money you’re allowed to invest, only 10% can be used to invest in gold.

So if you have $100,000 in your Ordinary Account, you’re only allowed to invest $80,000 of it. Of that $80,000, only 10% or $8,000 can be invested in gold. That includes investing in gold ETFs and other products like gold certificates or gold bars.

If you have already begun to invest and are looking for an investment vehicle that will keep your portfolio afloat in bad economic times, consider investing in some of the yellow stuff.

Image source: Goldprice.org

Would you consider investing in gold? Tell us why or why not in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.

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