The Singaporean Guide to Investing in Gold

This was originally posted on Planner Bee.

Gold, prized for being a symbol of wealth and stability, has long held a place of allure. For the modern investor, gold offers more than a shiny addition to the jewellery box.

As a hedge against inflation, gold is reckoned as a safe haven during times of political and economic uncertainty. On April 3, 2024, gold reached a record high of US$2,294.99 per ounce, with predictions that it might continue to soar. The high demand means gold prices could climb more than 11% in 2024.

Why invest in gold?

Gold has a long history of maintaining its value, even when currencies weaken due to inflation. It acts as a hedge against economic uncertainty and can be an especially useful financial tool in countries that are suffering from hyperinflation such as Zimbabwe and Venezuela.

Gold is also a valuable tool for diversifying your portfolio as its price movements often have a low correlation to other asset classes like stocks and bonds. This means that including gold in your portfolio can help to spread out your risk and potentially improve your overall returns.

For investors that buy and keep physical gold, they are tangible assets which you can actually hold onto, unlike stocks or bonds. This is appealing to some investors who prefer not to have all their wealth tied up in paper assets.

Moreover, gold is a universally recognised and highly liquid asset to own. You can buy and sell gold in Singapore, bring your gold bars and sell them in the United States, or buy more when you are on holiday in South Korea.

What factors can affect gold prices?

Supply and demand of gold is one big factor when it comes to gold prices. Gold supply is limited by the amount of gold that can be mined. Demand comes from various sectors like jewellery making, industrial uses, and investments. A significant rise in demand from any of these sectors can push prices up.

The strength of US dollars also affects gold prices as it is often priced in US dollars. A strong dollar makes gold more expensive for investors holding other currencies, potentially leading to lower demand and a price decrease.

Additionally, when interest rates are high, investors can earn a better return on other assets like bonds, making gold less appealing. Thus, low interest rates can drive prices higher as it incentivises investment in gold.

The overall market psychology also plays a role in gold prices. When there is a widespread fear of inflation or a financial crisis, people might rush to buy gold to hedge against these issues, pushing prices up. An optimistic market sentiment can stagnate or even lower gold prices.

Read more: 4 Science-backed Tips to Making Better Financial Decisions

How to invest in gold?

There are several ways for Singaporeans to invest in gold. They are, namely, purchasing physical gold and gold certificates, opening a gold savings account, and investing in gold Exchange Traded Funds (ETFs) and gold mining stocks.

Buying physical gold and gold certificates

The most popular way to buy physical gold is through gold bars or coins. This gold is at least 99.5% pure and comes in different sizes.

Gold bars are usually sold at weights ranging from 1 gram to 1 kilogram and will have the manufacturer’s name, weight, and purity stamped on them. Gold coins come in various sizes but many are collector’s items where you might be paying more for their decorative elements.

The safest way to buy this kind of gold is from a trusted bank or reputable broker in Singapore. You can look for dealers registered with the Monetary Authority of Singapore (MAS). Furthermore, purchasing gold in Singapore is exempted from Goods & Services Tax (GST) as it is an Investment Precious Metal (IPM).

To store their physical gold, many investors opt to keep them in vaults at the bank as smaller gold coins and gold bars can be susceptible to theft.

Alternatively, some would opt to buy gold certificates, which can be easier to store at home. You can buy gold certificates from trusted banks such as UOB, where they are sold in kilobars up to 30 kilobars per certificate. They do not expire and can be exchanged for cash or physical gold.

However, gold certificates come with extra costs. For UOB, it costs a flat S$5 per certificate and a service charge of S$72 per kilobar per annum.

Owning a gold savings account

Some banks such as UOB, OCBC, and CIMB allow you to open a Gold Savings Account or Precious Metal Account.

A gold savings account allows you to buy, sell, and hold gold without having to purchase the gold physically. Depending on the banks, the minimum transaction amount will differ, with UOB being 5 grams, OCBC at 0.31 grams, and CIMB at 1 Troy Ounce (approximately 31.11 grams).

Investing in gold ETFs and gold mining stocks

A gold ETF allows you to invest in gold without buying physical gold assets. It is usually a fund that holds onto a range of gold-backed assets. Gold ETFs are traded somewhat like stocks, making them liquid enough to sell off easily when required.

As with any ETF, it is important to look at the fund factsheets to understand the fund’s holdings, returns and expense ratios. Some of the more well-known gold ETFs include SPDR Gold Shares ETF, Aberdeen Standard Gold ETF Trust, and iShares MSCI Global Gold Miners ETF. The first two track the prices of gold bullions while the iShares’ ETF tracks gold mining companies.

Rather than investing in gold itself, you can also invest in companies that mine for gold. By investing in gold mining stocks, you might also receive dividends for your shares, unlike investments in physical gold or gold ETFs.

Theoretically, the shares of these companies will go up when gold prices rise as the value of their gold inventory increases as well. However, it is essential to understand that the returns from gold mining companies’ stocks are dependent not on gold prices but on the future returns of these companies.

Conclusion

Investing in gold is a great way to diversify your investment portfolio.

But just like any other investment, you should do in-depth research about gold investments before jumping head-first into this. Check if your risk tolerance aligns with gold investment, and understand how this investment can help you reach your long-term financial goals before pumping money into gold investment.