Investing in Gold

We have not seen the price of gold reaching the level of US$816 per ounce (price at yesterday’s closing trade) before 2007. The closest the commodity market has seen gold price reaching this magnitude was in 1980 at US$612 (average price for that year). It touched a low of US$271 in 2001.

For 2007, we see a spectacular leap in gold prices due mainly to worries of the financial market problems, high oil prices and inflationary pressure in some economies. Gold has been touted as a good hedge over inflation.

There are several ways for retail investors to invest in gold. A good article to read on this subject was written for The Sunday Times, 21 October 2007, “How to become a gold investor”.

Gold bullion coins and bars

Gold bars come in various sizes from wafers to kilobars. Coins are usually available in denominations of 1 ounce, 1/2 ounce, 1/4 ounce, 1/10 ounce and 1/20 ounce.

Banks that sell physical gold include United Overseas Bank (UOB) and the Canadian Bank of Nova Scotia. These can be bought and sold back to the bank based on the daily buy-sell quotes.

Gold Jewellery

Another way to invest in physical gold is to buy gold jewellery. Choose one of higher gold content e.g. 916 gold. Most jewellery shops buy back gold from you and they will use the prevailing gold price with some percent mark-down.

Gold Certificates

Instead of taking possession of the physical gold and worry about the security of these precious metals, you can choose to pay for the gold and obtain a gold certificate instead. These certificates can be exchanged for physical gold or cash whenever you choose to do so.

Gold Savings Account

UOB allows you to buy and sell international 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. This is similar to any savings account but only that the transactions are based on the amount of gold transacted. (Source: UOB website)

Unit trusts

You can invest in unit trusts such as UOB United Gold and General, which invests in publicly listed companies that mine gold. The price of unit trust will fluctuate much like the share values of the underlying mining companies. In times of rising gold prices, the share values of these mining companies tend to go up.

Exchange-traded fund (ETF)

The investors also have the option of investing in ETF quoted on the Singapore Stock Exchange. One example is StreetTRACKS Gold ETF. This ETF is traded much like buying and selling shares on the Stock Exchange.

Unlike other ETFs that hold shares or bonds, StreetTRACKS holds gold bullion as its underlying asset. A share in the ETF is based on roughly a tenth of an ounce of gold. Buy 10 shares and you own one ounce of gold. (Source: The Sunday Times article.)

A cautionary note has always been that we cannot “crystal-ball” the gold prices of the future. When to enter the market and when to liquidate your gold investment depend on your reading of the macro-economic environment of the world.

Written on 11/15/2007 11:31 AM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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