Genneva Gold has been recently placed on MAS Investors’ Alert List.

This comes a few months after another company operating under a similar business model, The Gold Label, was also placed on the list.

Business Times has covered a story on this last weekend. You can read it here:

Golden Fleece

Extracted from the article:

“Effectively, Genneva has sold investors a put option along with gold, charging them a premium for it, and sweetening that by sharing some of that premium at the end of the contract period of a month or three months.”

Some people may think along the same line. But actually, this put option thing will never work out.

Assume spot gold is at $1000 and Genneva quotes you a selling price of $1200. Factoring in a discount, you only pay $1180 and have the option of selling it back to them at $1200 in one month’s time.

What has happened is that you have paid $1000 for spot gold, and $180 for a one-month put option with an exercise price of $1200. Charging $180 for an option that has an intrinsic value of $200 just doesn’t make any sense. The price of this option should be more than $200 if you factor in the time value of the option.

If you can understand the logic of this, then you will know that the deal is too good to be true.

Because if it is feasible for Genneva (due to whatever trading strategy they have in the backend), then they would have sold a similar put option to financial institutions at a price much higher than $180. Why would they want to sell it to you and get only $180?

Back in December 2010, it was reported that The Gold Label was in cashflow difficulties.

For the uninitiated, The Gold Label is a company (among a few) that sells gold at a markup to retail investors and then offer them a “guaranteed” buyback option with a cash rebate. The cash rebate can amount to more than 10% a year if the rollover is done continuously.

I haven’t seen any latest news report of The Gold Label being liquidated yet, but judging from the comments posted here by their customers, looks like it’s game over for all the Gold Label investors.

I wonder how many of their customers managed to hold on to their gold (hope it’s real).

For those who are contemplating investing into similar schemes, I hope you know what you are getting yourself into.

It was reported in Today’s newspapers that The Gold Label, a company specializing in selling gold as an investment to retail investors, is in cashflow difficulties.

The company entices people to invest with them by way of a sales and buyback agreement, promising attractive yields.

I had earlier warned that such a scheme offered by The Gold Label (or similar companies) would not be sustainable.

In October this year, the company’s directors had actually filed a notice to ACRA that they were not to continue business as they were unable to meet their liabilities.

The Gold Label was also recently placed on MAS’s investor alert list, more than one year after it started operating.

In the meantime, Genneva Gold continues to operate. Will this signal the start of a run on Genneva Gold?

In Gold we trust?

What happens if the Gold turns out to be fake?

That is exactly what has happened to some goldsmiths in Hong Kong, people that you expect would be able to detect gold fakes.

Jewellers and pawn shops in Hong Kong have discovered at least 200 ounces of fake bullion so far this year. The value of the fakes is worth about US$280,000.

It is estimated that ten times that amount could have gone into the retail market.

In the past, fake gold can be manufactured using gold-plated tungsten, a material that has a similar density to gold. Experienced jewelers would be able to detect such fakes.

Apparently, this batch of fake gold that was sold in Hong Kong involved a complex alloy that had similar properties to gold. It consisted of a significant amount of gold combined with osmium, iridium, ruthenium, copper, nickel, iron and rhodium. Detecting such fakes require more sophisticated tests.

Is your gold real?

Do you know that there are now gold ATMs?

The first ones opened up in Abu Dhabi, Munich, and Madrid.

Warren Buffett recently had this to say on Gold, “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”