This article explores how to invest in gold in Singapore.
In investing, a financial asset refers specifically to an asset that has been securitized. “Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security.”
A financial asset is a non-physical or intangible asset.
The value of a financial asset is not inherent. Its value is represented by a real or virtual (online) document that states the agreed value of the asset.
The most basic financial assets include cash, stocks and bonds.
So, you are probably thinking that gold cannot be a financial asset because it is tangible and the value is derived from the physical asset itself.
That is 100% correct. However, it is also possible to buy “paper gold” in the form a mutual fund, ETF or gold savings account. In these gold instruments, you do not physically own the gold but own the value of the gold represented by the real or virtual (online) document.
Regardless, in investing, gold is loosely accepted as a financial asset that you can invest in. The same can be said of other precious metals like silver or copper.
The price of gold has historically moved independently of other assets. As such, some experts have proposed that gold can be used in portfolios to keep up with inflation, protect global purchasing power, reduce portfolio volatility and minimize losses during periods of market shock. It can serve as a high-quality liquid asset to be used when selling other assets would cause losses. Other precious metals like silver have similar properties but are not as highly valued.
However, there is an opposing school of thought that views gold as a negative-yielding asset. This refers to the cost of storing and holding gold as well as the fact that the increase in the price of gold is not guaranteed. They also do not see gold as having any industrial utility as compared to silver or copper. As such, some experts view gold as a bad investment that “takes up space” in one’s portfolio and potentially brings down the overall value of the portfolio.
Investors who hold a neutral view to gold generally agree that gold can be used as a hedge against inflation (when prices go up). Even so, the popular notion is to only hold 10% or less of one’s portfolio in gold.
If you intend to invest in gold, there several ways to go about it in Singapore:
You can purchase investment-grade gold bullion in the form or coins or bars from a gold dealer such as Bullion Star that has an online shop and physical store/ vault. You can also buy gold from the UOB main branch.
Regardless of where you buy the gold, you need to store the gold safely either in a safe deposit box, vault or in a safe. Storage costs can add up and eat away at your returns so you have to manage these costs.
Note: There is a difference between investment-grade gold and gold used to make jewelry. The value might differ greatly when it comes time to sell.
You can hold gold in the form of gold ETFs. The most popular Gold ETF is the SDPR Gold Trust that is traded on the SGX (O87). There are also a few other ETFs with different constructions that you consider with varying yearly management costs.
You can trade in any gold ETF through your stock broker.
Gold Savings Account
You can also open a gold savings account at a banks that offers such a service.
This is hassle free and easy but there are yearly bank charges as well as charges when you buy or sell gold. These costs will again affect your net returns on investment.
Currently, the only bank in Singapore that offers this is UOB. You will need to open a regular savings account (minimum deposit of $500) on top of the gold savings account.
Gold Fund (Unit Trust)
There are a variety of gold mutual funds or unit trusts that you can invest in. However, the track record is no better (if not worse) than a good gold ETF. The same negative points of high sales charges and management fees apply as highlighted in the mutual funds section above apply making this a not recommended investment choice for new and/ or passive investors.
Bottom Line: As opinion is widely divided on investing in this precious metal, you should do your own research and evaluate different sides of the argument for yourself. No one knows for certain if it is necessary (or not) to invest in gold and there are also difference in opinions on whether an investor should hold physical or paper gold.
So, do your due diligence and make an informed decision based on what makes the most sense to you.