How to Buy Gold?
Gold Bars
The most precious form of gold is the bars and they come in different weight and size. Gold is measured in troy-ounces even though it is stated conveniently as ounce (oz). It is important to know that one troy-ounce is not equivalent to one ounce. The most standard weight for a gold bar is 400 troy-ounces and would cost around US$400,000 one bar if the gold price is US$1,000/ounce. You must be rich enough to buy a few of these bars. If you are not that rich, you can consider other weights like kilobar (1,000g or 32.15oz at US$32,150), 5 Tael bar (187g or 6oz at US$6,000) and ten tolla bar (117g or 3.75oz at US$3,750). Note: Prices quoted are based on US$1,000/ounce for ease of calculation. UOB Bank offers the service to buy and sell gold bars. The drawback for smaller gold bars is that your cost of ownership will be higher, as the fixed cost of brokerage/admin fees as well as storage fees will take up a higher percentage of your purchase price.
Advantage:
- Most valuable form
Disadvantages:
- Storage cost
- Insurance cost
- expensive
Gold Bullion Coins
UOB Bank sells 3 types of gold bullion coins namely, Canadian Maple Leaf Gold Coins, Australian Kangaroo Gold Nuggets and Singapore Lion Gold Bullion Coins. They range from 1/20oz to 1oz so if gold cost US$1,000/ounce, the coins would cost from US$50 to US$1,000. They are much more affordable than gold bars but similar to smaller gold bars, the cost of ownership is higher. Remember the theory of economies of scale works here too – the more you buy, the cheaper, and the contrary is the less you buy, the more expensive is the cost. Some may even charged a premium for “collector’s series” coins in additional to the true value of gold in the coins. In addition, the market for bullion coins are not as liquid as gold bars, which means it is relatively more difficult to sell and often fetch a lower price.
Advantages:
- Affordable
- Next best alternative to bars
Disadvantages:
- Higher cost to own
- Less liquid than bars
Gold Certificates
Certificates allow gold to be securitized. Instead of trading the real phiysical gold, ”paper gold” is transacted. This has an advantage when you want to buy and sell gold without the hassle of delivering the physical ones which incur transportation, storage and insurance cost. These certificates are like our paper money, just that they are backed by gold. You can actually use these certificates to exchange for physical gold if you want to. UOB Bank offers certificates that can own up to 30 kilobars of gold per certificate. It is important to buy certificates from established businesses as certificates can be easily forged. Another risk is that unethical companies may also issue certificates without the backing them with the same amount of gold. It will be a problem if many people start to cash in their certificates, you may found that there aren’t enough gold to go around.
Advantage:
- No storage/transportation cost
Disadvantages:
- Risk of forgeries
- May not be backed by actual amount of gold
Gold Savings Account
UOB offers a Gold Savings Account: “You can buy and sell unallocated gold – through a passbook – at prevailing market prices and transact any time during banking hours in units of one gm of gold, subject to a minimum of five gm per transaction. Limited to a maximum of 1,000 gm per account on Saturdays”. The keyword in that sentence is “unallocated gold”, just in case you miss it. Unallocated gold is like the excess supply in the market that is sold to the investors. This helps the suppliers to clear their stock as well as the banks to profit from it. It is interesting to find out from an article from bullionvault that banks actually “owes” you the gold. It is the same as a cash savings account. You deposit a sum of money in the bank and the bank uses a large percentage of this deposit to do whatever she wants. She pays you paltry interest in exchange for using your money to earn money. It is the same as a gold deposit account. The banks buy the gold for you but will use it for her own purposes to profit from it. Similar to certificates, you may find that one day you are not able to get your money or gold out of it.
Advantage:
- Convenient to own gold
Disadvantage:
- Risk of not getting back the worth of gold
There is an Exchange Traded Fund for Gold which tracks the gold – SPDR Gold Shares. It is both available in NYSE (US) and SGX (Singapore). From the prospectus – “The investment objective of the Trust is for the Shares to reflect the performance of gold bullion, less the Trust’s expenses.” By buying gold collectively, they claimed that the expenses of carrying, storing, insuring the gold is lowered and can be passed on to the investors. You can now go through your usual broker to purchase gold shares throughout a trading day. Real gold bullion bars are purchased by the trust on behalf of the gold shares investors and are kept “in the form of allocated 400 oz. London Good Delivery Bars in the London vaults of HSBC Bank USA.” There were some claims that Gold ETFs may not possess the actual amount of gold to back the funds it holds. If it is true, in times of crisis, a shortage of gold may cause the fund to collapse and you not getting your money back.
Listed – SGX
Expense ratio – 0.40%
Minimum Order Size – 10 shares
Advantage:
- buy and sell as easy and convenient from the stock market
Disadvantage:
- May not be backed by the actual amount of gold
Gold Futures
A method to buy gold that requires more sophisticated investment knowledge is futures. Futures is a form of derivatives and as all derivatives, they are complicated and if you do not understand or have not traded futures before, it is adviseable to stay away. Those who engaged in gold futures are more speculative in nature as all futures have expiry dates, and usually traders have no intention to exercise the contracts and receive the delivery of the physical gold. They just want to profit from the change in price over the period of the contract. To buy gold futures, you would need to open a futures account with the local brokers. Futures accounts would require a higher capital outlay than a stock account as each contract size is as big as tens to hundreds of thousand dollars. They are highly leveraged which means your losses and profits are amplified.
Advantages:
- Big transaction window (stay open longer than stock exchange)
- Leverage
Disadvantages:
- Requires more product knowledge
- Leverage
Gold Mining Companies
Besides owning gold directly, you can consider buying shares of gold mining companies. You can look at companies like Barrick Gold (NYSE), Gold Corp (NYSE), and Newmont (NYSE). The risk is that the stock price may not go in tandem as gold price.
Advantage:
- Easy to buy and sell in the stock market
Disadvantage:
- May not have a direct correlation with the rise in gold price
Gold Jeweleries
I guess most of us own a piece or two of gold jeweleries. But jeweleries are not considered good investment because the price that you paid includes design and fabrication cost, which are in addition to the gold material itself. These additional costs do not retain their value over time.
Advantage:
- You have it already!
Disadvantage:
- Design and fabrication costs included
About the Author: Alvin
Founder of BigFatPurse.com and author of Secrets of Singapore Trading Gurus. Loves the financial market. Curious to find out what work and what doesn't work in investing.Subscribe
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Hi Alvin,
I’m interested in investing in Gold due to the currrent fluctuating USD. I’m looking into the savings account for Gold. Now, i.e. if I’m putting 1k per month for 24 months, how much can I earn?
As you can see, I’m quite clueless on how it works actually and I hope you can give me some insights on it.
Thx in advance. =)
Hi Jun, maybe you can try asking yourself some questions first:
- what is your purpose of investing in gold?
- what is your expectation?
- why gold and not other asset classes?
- what if you the gold investment does not turn out well or to your expectation, will you be financially ok?
- when will you exit? either for loss or profit.
Sometimes by asking yourself questions, you would be able to understand better and make a wiser decision.
Hi Alvin
What do you think of using CPF-IS to buy gold under the UOB Gold savings a/c?
Hi Ruttger, it is possible if you are looking for a hedge against inflation. There should be more upside for silver than gold though. You must look at your overall portfolio, if you have no precious metal at the current moment, you may consider getting some gold.
I am not offering you advice. I am just giving my opinion. If you are still unsure, pls consult a qualified financial planner to assist you.
I was browsing for some gold information when I chance upon your site. Good information.
On a personal note, how do you know it’s the right time to sell gold? Would love to hear your views on it.
I would when US stop printing money and flooding the market with liquidity. Which would also mean the risk of high inflation is reduced. Then I would sell my silver.
If you are a Singaporean, the best way to invest in gold is to invest in gold certificates. When you invest in gold certificates, you can lock in the price for XAU/SGD. That means the price of gold against SGD.
Many times gold price rises but it benefits little to Singaporeans. Because our SGD is so strong. So when you see gold price rising in CNBC or Channel News Asia, that is gold price against USD. That does not necessary means that gold against SGD is rising.
So if you want to invest in gold, look at XAU/SGD chart instead of the traditional gold chart.
Alvin, I attended your session last night at the 11th investment mentoring session. It was a very good session and I particularly like the pp. Just wish to share my approach about US$ denominated investments. I normally keep US$ if I sell the asset. I would sell my gold ETF after US$ depreciates and buy back when it moves up. This is on condition that it has reach my target price and I am taking profit. Any comment?
It is fine and good if u understand what u are doing. I won’t take the risk to hold USD and trade gold in and out though.