Gold and Silver – Things you need to know before investing (Part 1)

George
Soros piled up gold
Gold has
been one of the best investment assets since the start of the year increasing
by more than 20%.
Recently,
Billionaire investor George Soros cuts US stocks by 37% and buying gold. Soros
bought 1.05 million shares in SPDR Gold Trust, which tracks the price of
bullion and took a stake in Barrick Gold Corp, which is the world’s biggest
producer of gold, amounted to $264 million.
Why? What
exactly is gold and silver? How are the economic conditions going to affect the
prices of gold and silver?
Ultimately,
you want to know if you should own some of the precious metals and if you are going
to make money when you buy gold / silver for investment reason?
I shall leave
you with diverging views from two experts below.
Warren
Buffett criticism on gold
Quote 1: “Today the world’s gold stock is about
170,000 metric tons (year 2012). If all of this gold were melded together,
its…value would be about $9.6 trillion. Call this cube pile A. Let’s create a
pile B costing an equal amount. For that, we could buy all U.S. cropland…plus
16 ExxonMobils…After these purchases, we would have about $1 trillion left
over…”
“A century from now the 400 million acres of
farmland will have produced staggering amounts of corn, wheat, cotton, and
other crops…ExxonMobil (s) will probably have delivered trillions of dollar
in dividends to its owners and will also hold assets worth many more
trillions…The 170,000 tons of gold will be unchanged in size and still
incapable of producing anything. You can fondle the cube, but it will not
respond.”
Quote 2: “This type of investment requires an
expanding pool of buyers, who, in turn, are enticed because they believe the buying
pool will expand still further. Owners are not inspired by what the asset
itself can produce — it will remain lifeless forever — but rather by the
belief that others will desire it more avidly in the future.”
— Warren
Buffett
Ray
Dalio saying Warren Buffett is making a huge mistake by not owning gold
Another
legendary investor Ray Dalio (one of my favorites) said this about gold,
counterintuitive to Warren Buffett’s theory. Dalio advocates investors to have
5% to 10% of their assets in gold. Maybe 5% in gold stocks and 5% in bullion
and then rebalance every year. Refer to his interview
here.
‘If you don’t own gold, you know neither
history nor economics’
“I would say that we are in an environment
where it is very important to have a well-diversified portfolio, and that’ll
include assets gold.  In other words,
what could I tell investors, try to achieve balance in various ways.  That’s a whole subject about how to do it.
And also I think that gold at 5 percent of your
portfolio, 5 percent or 10 percent of your portfolio, under the circumstances,
would be also a prudent thing to do. 
Prudence is the important thing to do. 
The reason I’m also referring to that is we have a situation where a debt is money. In other words, we have
a fiat monetary system, too.  And so we are having problems as these
central banks operate.  And so  think of it as another form of cash and when
cash now has zero or 0 percent interest rates or less, think of it as one of
those possibilities in terms of how do you create diversification
— Ray
Dalio


Who is
correct?
Anyway, this
article will be the first of Gold and Silver series articles.
In this
first article, it will basically be an introduction about things you need to
know when investing in physical gold and opening a UOB silver account.
In the next
article (in progress now), I will delve into the history of precious metals and
its impact to the global monetary system.
My
own experiences at UOB bank buying physical gold and opening UOB silver account
By the way,
I went to UOB Main Branch at Raffles Place. I assume it is the easiest.
Otherwise just call up UOB bank hotline to ask how to buy physical gold and
open silver account. Pretty much “idiot proof”.
For now, I
will like to bring you “additional uncommonly known info” you may need to know
when you buy physical gold with UOB bank in Singapore and when you opened a UOB
Silver account.
Unit for gold
First, get
the buy and sell UNIT of gold correct. Gold price is calculated in troy ounce and not in ounce.
1 troy
ounce = 31.103 g
1 ounce =
28.349 g
So troy
ounce is about 10% heavier.
UOB gold and silver prices
Visit UOB
website
here, and then click tab -> Rates and Fees ->
check our indicative gold and silver prices! Below is a table showing
indicative pricing. You see the prices of different types of gold.


Loss Spreads
Always note
the buy and sell prices for the loss spread. The smaller the loss spread during
buy and sell, the better it is.
Given on
the same time you buy and sell, the spread you LOSE for 1 KG will be as follows
using the above indicative pricing:
1 KG Cast
Bar : 54,252 – 53,983
= Loss S$269.00
100 GM Argor
Cast Bar : 5,474 – 5,396 = S$78.00. To get 1 KG, you multiply by 10 and that
will be = Loss S$780.00
100 GM PAMP
Gold Bar : 5,520 – 5,396 = S$124.00. To get 1 KG, you multiply by 10 and that
will be = Loss S$1,240.00
1 OZ Gold
Bullion Coin : 1,759 – 1,678 = S$81.00. To get 1 KG, you multiply by 32.1507
from troy ounce, and that will be
= Loss S$2,604.00
During my
purchase of physical gold, I was advised by the UOB staff that for investment
purposes, 1 KG of Cast Bars is the
cheapest to trade with UOB as you can also see above. In other words, the loss
on spreads is much lower if you happen to buy and sell on the same time!
However it costs ~>50KSGD per Kg with little divisibility. Imagine you
misplace your 1 KG of gold….woooohoooo heartache!
Therefore,
if you are afraid to misplace it or wanted more divisibility with a reasonable
investment amount of >5KSGD and a reasonable loss spread, then 100 GM Argor
cast bar is a good choice!
Further
smaller divisibility, then you can buy Bullion coins at 1 OZ each but loss spread
is higher. 
However the
advantage is that it comes with many different designs suitable for gifts.
Likewise, PAMP Gold Bars comes with different designs.
Do not open the seal
Below is a
typical 100 GM Argor Cast Bar I own. Another thing to note is “DO NOT OPEN THE
SEAL!” Once seal is opened, UOB will not buy back the gold at all. There is
also a unique code for each gold bar.
Invoice costs money

The invoice itself does not cost additional money. What I am saying is if we lost the invoice per 100gm of gold we bought, UOB will charge S$100 deduct from the buy back price. 

This means that if we bought 200gm of gold from UOB, lost the invoice and if we are selling it back to UOB later, they will deduct S$200 from our sell price. 

Open UOB Silver account
Again, it
is more or less idiot proof when you are at the Main UOB Branch. Just tell them
that you need to open a Silver account and the staff will guide you through.
One thing
to note is the charges of gold or silver account per annum!  It is slightly more difficult to comprehend. Imagine
that you are owning 200g of Gold and 500 oz of Silver in UOB account, then the
charges per annum will be ~S$76 and S$55 respectively.
Also note
that there is a minimum amount or deposits to set up the accounts but it is
refundable in cash once you close the account. The deposits cannot be used for
trading, and to ensure the account is active, the minimum deposit amount must
be there.
For more
info on rates, refer UOB website
here.
Other
ways: Gold ETF (SGX) and Silver
Two other
ways to own the precious metals in a more direct manner is to buy Gold ETF on
SGX and Ishares Silver Trust on NYSE i.e. GLD US$ (O87: SGX) and ISH Silver
(SLV.P : NYS)! Both is traded in US$!
Alternatively
in Singapore, you can also buy and store physical gold or open account with
BullionStar. Refer
webpage here.
Of course
you can visit gold jewellery shop as well. Read :
When is it a Good Time to Buy Gold?

There are other precious metals ETF or related stocks that you can buy too. I will not elaborate it here though. 
Other
bloggers spoke about it
Big Fat
Purse
ASSI
My 15HWW
Simply
Jesme
Foolish
Chamelon
Rolf’s
thoughts
Disclaimer: I own physical gold, UOB silver
account and Gold trust.
In the
Singapore finance blogosphere, there are so many analysis on stocks, but not
many on gold and silver. Even if there is, there is little explanation on the
fundamentals of the precious metals and the role it plays in the history of
mankind.
Instead,
there are more articles related to instructions how and where we can buy
precious metals in Singapore OR using gold as an hedge against inflation or as
insurance OR basically showing the charts of pricings/returns over the year!
Understand
the history of gold will give you a better perception of the future impact it
is likely to have in the world monetary system.  
Stay tuned
for Part 2.

Related Posts

18 thoughts on “Gold and Silver – Things you need to know before investing (Part 1)

  1. UOB silver acc got third party risk, something like this, i hearsay before. Can please explain what is that? I m newbie. Thanks

    1. These are paper silver and not backed by actual physical silver in the vault.

      It is the same as Gold ETF, even if they were backed by physical gold, it is not sufficient quantity. So in some ways, it's more like futures contract of gold and silver pricing similar to commodities pricing,

  2. Hi rolf

    Can I know what is the difference between buying from uob and bullion dealers in singapore ? How do we know whether the current pricing is overpriced? Thanks

    1. Gold or silver, paper or silver? may I ask?

      I assume u only care abt $ n cents! Just look at the spread between Uob and Bullion.

      I normally love to share, but errrr to Anoymous readers, I tend to share lesser during Q&A.

      Because I believe being honest and smartlytransparent is one important factor to be successful or even rich and sustainable for a long time!

      Hope u understand. U can always drop me an email. Have a nice Sunday!

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