Bao Jing Trading, a company that offered a gold investment scheme, appears to have defaulted.

Investors with Bao Jing Trading were promised monthly returns of 1.5% to 3% through an elaborate buyback scheme. If they left their gold bars with the company, the returns could go up to even 7-10%.

At least 120 investors are now feared to have lost up to S$40 million with their gold investments.

The office of Bao Jin in Rochor is currently empty and the Malaysian owners have also since gone missing.

Many investors were also afraid to make a police report as the owners had threatened them that they would not be able to get back their money if they did so.

According to ACRA, the Bao Jing Trading was registered using a HDB flat address in Jurong East. The owner of the flat denied any links with the company.

Actually, there were already tell tale signs a couple of years back that Bao Jing was in trouble. According to this article in the Straits Times back in February 2009, an investor who invested $5000 with Bao Jing and was promised a monthly return of $150 had problems getting back his money when he tried to end the agreement.

Despite this, the company was able to continue operating for another two years and con Singaporeans of their hard earned money.

If there is any company out there that promises to give you a guaranteed monthly return of 2-3%, you better be very careful. Because if it turns out to be a scam, you are very much on your own and can forget about getting back any money.

For the second time this month, the CME Group, the operator of New York’s Comex exchange (the main metals and energy exchanges in the U.S.), announced an increase in margin requirements to trade gold. It raised the amount of money needed to trade gold contracts by 27% to $9,450 per 100-ounce contract.

This followed a 22% increase in margin requirements two weeks ago.

After Shanghai Gold Exchange raised its margins on Tuesday, there were rumors that CME would follow suit. This led the price of gold into a correction even before the news was announced.

This price of gold has now dropped more than $160 per ounce from a high of US$1911 on Tuesday to below US$1750 on Wednesday. This was the largest two-day absolute fall in more than thirty years, and a more than 8% correction.

The last time CME hiked the margin requirements for silver four times in May 2011, the price of silver dropped more than 20% in a week.

The current pullback gives a nice entry point for long term bulls on gold to add to their positions, although if the price fails to hold at the current levels, we could be seeing a quick drop back to the US$1650 region.

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?