As Good as Gold?

Happy Monday! We just ended the F1 weekend that drew a record crowd attendance – must have been due to the pent up wait after a long pandemic season, that not even the rain delay could damp the enthusiasm for this event. While the excitement for this event was “as good as gold” - paraphrased just so we can link to today’s 116th week of our #SundayTimesRecap series, from this article published yesterday “Pitfalls of investing in gold jewellery”, let us explore whether it makes sense to buy gold jewellery as an investment? Or what if you are still keen to invest in gold, are there better alternatives to put your money in them to see their prices grow?

1. Know that investing in gold jewellery is not the same as trading in the bullion market. Goldsmiths sell items at a premium similar to works of art, with prices around 20% above international trading rates. The trading prices in Singapore dollars is derived from the global price, denominated in US dollars for a troy ounce of pure gold (about 31.1g). Therefore, if you buy gold pieces at such premiums, you will have to wait for the market price to rise by 20% or more just to match the original amount paid to the dealers. Buyers also have to pay the GST and a fee for the effort to design and cast the precious metal into a chain, pendant, bracelet, or ring. The content may not be investment grade by then. And in addition, if you sell them to goldsmiths or pawnshops, they will charge you a “commission”, which reduces the value based on the global gold price by up to 10%. Some of them will not pay you cash, but issue vouchers that will allow you to buy other jewellery at their stores.

2. Buy gold jewellery as a fashion accessory to be worn or as a gift for others instead. In this way, you are not concerned about the volatility in gold prices. Many parents also view their gold jewellery as heirlooms to be passed on to their children. If you happen to own an item of gold jewellery worn by a famous person, you may enjoy a huge windfall by selling it as a collector’s item. Otherwise, the piece is only worth its weight in actual pure gold.

3. Where to sell your gold pieces? The Singapore Jewellers Association say there are no fixed rules on how gold items are prices here – all jewellers can charge what they like or take back jewellery on a “mutually agreed basis”. Hence, it may be difficult to find a buyer that would pay close to the market value. For investors of gold, it would be better to transact in pure gold rather than jewellery. The Singapore Precious Metals Exchange (SGPMX) has one of the lowest fees for transactions involving pure gold because it operates an online global exchange that allows both big and small investors to trade with one another. The investors own the gold they trade, unlike those who buy into gold-related funds. SGPMX also has a “gold swap” programme for people who want to trade in their jewellery – customers pay about $300 to melt their pieces into a pure gold nugget that can then be sold at the market price. This swap is a labour-intensive exercise – after the customer trades in his items and the refinery report states that the stash produces 100g of pure gold, he can either pay a small fee to exchange the amount for a similar 99.99 gold bar, sell his gold to SGPMX, or “hold” it in his online trading account to sell it later when the price goes up. SGPMX does not accept walk-in customers because it is located at Le Freeport, a high-security storage facility in Changi North Crescent. Customers must submit a gold swap request on its website (sgpmx.com) for an appointment to be arranged.

In summary, it is best not to put gold jewellery and pure gold as investments. The former can be used as a fashion accessory or heirloom, while the latter can be traded based on the ups and downs of its price. Know their respective use. But if you were to ask me for my opinion on gold matters, rather than just holding to the shiny metal and wait for prices to go up, wouldn’t there be better ways to put your money to work? Let’s discuss more when we next meet..

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