Some people have asked me what are the different ways to invest in gold in Singapore and also which is the best way.
In this gold-related article, I shall list out the ways that an individual can do so along with the pros and cons of each method. This article is meant to be introductory, so I will also try to provide the link to the product page for more details (if applicable).
I just want to highlight that there is no best way, as the option that is most suitable for you will really depend on your investment objectives and personal financial situation.
However, one thing certain is that you should avoid those companies that sell you gold at a high premium to the spot rate, and then try to entice you by giving you a monthly or quarterly cash via a so-called guaranteed buyback option.
Gold Bars and Coins
Some of the banks do sell gold in its physical form.
There is currently a huge spread due to GST but once that is abolished in October 2012, the buying of gold bar and coins will become a more viable option.
This would be for the more traditional investors who prefer to own the physical asset although storage and security might be an issue.
Current Gold rates from UOB
Gold Certificate and Savings Account
Beside the physical gold bars, UOB also offers gold certificates and gold savings account (GSA).
With this option, you avoid the hassle of storing your own gold.
You need at least S$69,000 to get the gold certificate but the gold savings account starts from S$69 per gram.
For the gold certificate, there is a flat fee of $5 per certificate and an annual fee of S$36 (plus gst) per kilobar
For the GSA, there is an annual administrative fee (in grams of gold) as low as 0.12 gram per month or 0.25% per annum on the highest balance per month, whichever is higher. So if you are buying very low amounts, the annual fees can be quite significant.
CPF OA can be used for the GSA but there is a small markup price you need to pay.
There is also a silver savings account for those who are interested in silver.
The fees are only accurate as of today so you might want to refer to UOB for the latest rates.
UOB Precious Metals Investments
Gold Exchange Traded Products
Exchange traded products can actually be broken down into three categories:
- Exchange Traded Funds (ETF)
- Exchange Traded Notes (ETN)
- Exchange Traded Commodities (ETC)
For the purpose of this article, I will only talk about one gold ETF which is currently available on the Singapore Stock Exchange. To understand the differences between ETF, ETN and ETC, you can refer to this article from Morningstar:
If you do not want the hassle of owning your own gold, SPDR® Gold Shares can be considered for a medium or long term investment in gold.
SPDR® Gold Shares is the largest physically backed gold exchange traded fund (ETF) in the world and is listed on New York, Tokyo, Hong Kong and Singapore.
The flip side is that you don’t actually get to hold and keep your gold, so in an end of the world or world war situation where the financial markets don’t operate, you might not be able to get access to your asset.
Look for the counter GLD 10$US on the Singapore Stock Exchange. As the minimum share size is just 10 shares, you will require less than US$2000 to get started (current price is around US$170).
The annual expense cap is 0.4% and CPF OA can be used for this investment.
SPDR website (Singapore)
Gold Futures and Gold CFD
These two options will allow you to take a long or short position to gold using leverage.
They are financial derivatives that is really meant for short term trading and more experienced investors.
A long term position using CFD will cause you to incur ongoing interests cost.
For futures, the contracts will typically expire every month (in the near term) or quarterly or half-yearly.
If you want to hold a long term position, you will be required to roll-over the futures contract as they expire. Thus, you might be subjected to the effects of contango (beyond the scope of this article).
If I want to take a short term position on gold, futures will be my preferred option. The trading cost is low and they are more transparent than CFDs as the contracts are traded on an exchange (less counterparty risk).
There are a few brokerage firms in Singapore that allow you to trade the commodity futures from the major commodity exchanges like COMEX, CBOT and TOCOM. You can also choose to use offshore brokers and some of their rates can be more competitive.
Introduction to Gold Futures
Gold Mining Companies and Funds
Investors who want to do stock picking can also choose to invest into gold mining companies directly.
An investment in gold mining companies can give you a higher beta than gold itself. However, you do end up with a higher correlation to equities than if you were to invest into gold.
This should be done only if you are very familiar with the mining industry and are able to understand the intricacies and advantages/disadvantages of the mining process of each company. If not, where is your competitive advantage?
Some of the mining companies might also be involved in other metals besides gold so you might end up with exposure to other metals.
Another alternative way (for newbies) is to use funds or ETFs that invest into these companies. Most of these funds will have quite a fair bit of holdings in the largest mining companies so yet another option is to create your own diversified portfolio of gold mining companies by buying the biggest names.
Largest gold mining companies
Gold Mining ETFs traded on US
The last method is of course in owning the jewelry. This is probably the simplest to understand but yet difficult to value as the valuation of jewelry will take into account other factors (eg design, brand) besides the gold content.
Just buy the damn ETF. And be prepared to sell (even at a loss) when long-term trend reverses. Gold is not something for buy and hold for 20 years.
But gold will perform damn good for next 1.5 years. After Dec 2014, not sure anymore.Reply