Gold's amazing and unique properties make it an important component of every investment portfolio or savings plan. It reliably protects against inflation, is uncorrelated to other major asset classes and tends to excel in times of uncertainty in financial markets. After all, gold has gained about 7.8% on average per year since 1970.
But how do you best expose yourself to gold in Singapore?
Direct ownership of physical bars is the safest form of gold exposure and you can buy bars from our Silver Bullion Shop or any other reputable source. Yet there are a few things you should know about physical gold ownership that are surprising to a lot of first-time buyers.
The general rule is: The smaller the amount of physical gold is that you want to buy, the higher is the premium you must pay to obtain it. A 1g bar of PAMP gold, for example, has a ~40% premium and you have to pay 140% of its gold value to buy it. This premium is what a bullion dealer charges for its services and you won’t get this value back when you sell the bar. By buying this bar you made an instant loss of roughly 30% on your investment. It’s called the spread. In other words: The gold price has to rise more than 30% after your purchase for you to make a profit on your investment. This puts a big burden on small savers that can’t afford larger bars with a lower premium and people that want to buy small amounts regularly.
Sure, you can just hide your gold fortune under your mattress and call it a day, but if you want to keep it any safer, the cost of buying and installing a reasonable personal safe at home is going to cost you. And this cost comes right off your profits. Should your gold get stolen despite all your best efforts, without good insurance, your savings are gone in its entirety after all. So if you buy physical gold, you should consider a professional vault that comes with high security and insurance like The Safe House through our partner Silver Bullion. While the storage fees are a regular subscription and not a one time fee, The Safe House stores and insures precious metals in large amounts and with high efficiency and can offer really low rates and strong peace of mind.
The GLD is a popular option for those who have an account with a broker. You can buy and sell it like a stock or bond and it has virtually no spread. The GLD is how almost all wealth managers and even digital advisors like StashAway add gold exposure to their clients portfolio. But this ETF comes with its own set of risks and downsides:
Much of the gold that is supposed to be backing the GLD is managed by HSBC which in return contracts custodian services from other vendors who contract more sub-vendors to do the job. The chain of custodians involved in this ETF is infamously opaque, the backing is unaudited and so it is no surprise that many expect the GLD share price to break lower compared to the price of physical gold should there ever be a large run up in gold demand or questions about the stability of HSBC and its flock of custodians. With too much uncertainty, it’s just not as good as gold.
Most GLD owners are unaware of the fact that there is an annual 0.4% fee to hold GLD shares. Additionally the GLD is considered a speculative investment which exposes you to the potential of a full loss should the issuer, the custodians or the gold backing get into enough doubt.
About US$180 is the current cost to purchase one share of GLD. If you only want to save $50 a month, this will not work for you.
Unless you’re a very large institutional investor, there is no way for you to redeem your GLD shares for physical gold.
UOB is a reputable bank in Singapore and is well known to sell physical gold over-the-counter at its main branch at fair prices. Naturally, people think that a Gold Savings Account with the bank is the easy, digital way to get proper gold exposure right via their smartphone app. Yet, as you might already expect, there are a few things to be aware of with this product and other, similar gold savings offers created by banks:
UOB Gold Savers often weigh themselves in the false sense that their precious metal holdings with the bank are backed by physical gold in UOBs vault. That is not true. UOB merely sells you exposure to the gold price and is free to manage that risk how it sees fit. UOB also makes it very clear in their terms, that you can never ask for your deposits to be redeemed in gold and that they can buy you out with cash any time at their latest discretionary price. So should UOB ever find itself on the wrong side of this gold price exposure risk management, likely because the gold price went up too much, you won’t benefit from these high prices but rather receive some cash and find your UOB Gold Savings Account closed.
The Singapore government insures local bank deposits up to $75k per bank against bank failure. So, if there is no gold backing the UOB Gold Savings Account, then surely the government will come to rescue and insure your Gold Savings Account holdings if UOB would ever get into trouble, right? No. The UOB Gold Savings Account is not covered under the deposit insurance scheme and exposes you to the risk of a full loss of your gold investment.
That’s more than $400 Singapore dollars at current gold prices. That’s a lot to chew on for a lot of people.
You read this far, so we better also tell you about your new and fresh digital gold savings option that we specifically created to be the sweet spot for people who want to save their way into physical bar ownership with small regular payments. What’s so good about it? Great question:
Call us old-school, but we make sure we have enough allocated gold in our vaults for what you hold in your account. Just the way the banks used to do it back in the days. And it’s not only regularly audited by professionals but is publicly auditable by you through our online gold explorer. Using this gold explorer you can track every gold bar backing our accounts with all details and even photos. On the down side this means we have real cost to store and insure your gold and we charge you 0.35% per year for this. That is even less than the storage fees of the comparitively high risk GLD ETF.
What does that mean for you? It means that for a very fair price you get the assurance that even if we go bankrupt for some reason, the gold is still there and you will be able to receive value for your account holding with us. It also means that if some gold were to be stolen or even just disappear, that we can claim the loss from our insurance and replace it.
That is the equivalent of roughly $0.80 at current prices and makes gold stacking accessible for everyone who can do a bank transfer or walk into our store to deposit cash. And with a premium of only 2%, adding gold into your S.T.A.R. Grams Savings Account is quite possibly the cheapest way to get into a 100% backed and insured gold product there is. It’s really good.
Like we said before, direct ownership of physical gold is maybe the safest option there is. Using the S.T.A.R. Grams Savings Account you don’t need to wait until you can afford a large bar with a low premium. You can start saving in gold at a super low 2% right away and once you have enough grams in your account, redeem it for a larger, physical bar of your choice and save on your gold premiums.
We put a lot of thought into the S.T.A.R. Grams Savings Account to make it a better gold savings product. Let us know if you like this write-up and our product and share it with those who you think should know this. Our team will be happy to help you any time with your questions.
You can open your very own S.T.A.R. Grams Savings Account right now for free, without any commitments. Join in and start saving smart today!