Complete Guide to Gold Investment in Singapore

Investing in gold has long been considered a prudent strategy for preserving wealth and safeguarding against economic uncertainties. This traditional safe-haven asset has captivated investors for centuries due to its enduring value and reliability. In recent years, global economic events, such as the pandemic-induced downturns, geopolitical tensions, and inflationary pressures, have underscored gold's role as a protective investment. 

As market volatility and fluctuating currency values continue to disrupt financial landscapes, many investors are turning to gold to stabilise their portfolios and hedge against future uncertainties. Let’s look at the various avenues for gold investment in Singapore and how you can leverage this timeless asset to achieve financial security and growth.

Why Invest in Gold?

A Reliable Hedge Against Inflation

Gold has consistently proven to be an effective hedge against inflation. When inflation rates climb and the cost of living increases, the value of paper currency typically declines. Gold, however, tends to rise in value during these periods, protecting investors from the diminishing purchasing power of their money. Historical data supports this, as gold prices have surged during times of high inflation, such as the 1970s and the global financial uncertainties caused by the COVID-19 pandemic.

Stability During Geopolitical Tensions

The historical performance of gold during periods of geopolitical tension and financial instability highlights its role as a safe-haven asset. Events such as the COVID-19 pandemic and the Russia-Ukraine conflict have led to significant increases in gold prices. For instance, gold prices soared past $2,000 per ounce at the onset of the Russia-Ukraine conflict in early 2022, as investors sought security amidst rising geopolitical risks. This trend was also observed during the 2023 global banking sector uncertainties, which further reinforced gold's status as a refuge in times of crisis.

Inverse Relationship with the US Dollar

Gold prices often exhibit an inverse relationship with the US dollar. When the dollar weakens, gold prices tend to increase. This relationship is primarily because gold is priced in dollars, making it more affordable for foreign investors when the dollar's value declines. For instance, during periods of dollar weakness, gold's appeal as a non-currency denominated asset grows, making it an attractive option for diversifying investment portfolios away from currency-based assets. This dynamic makes gold a strategic component for investors looking to hedge against currency fluctuations and economic instability.

The Appeal of Tangibility

Gold's tangibility sets it apart from other investment assets such as stocks, bonds, and cryptocurrencies. Physical gold, whether in the form of coins, bars, or jewellery, can be seen, touched, and possessed. This physical presence provides a sense of security and trust that intangible assets might lack. In times of financial uncertainty, owning physical gold offers reassurance and a direct, tangible sense of wealth, which can be particularly comforting to investors.

Diversification Benefits

Diversifying an investment portfolio is essential for managing risk and ensuring stability. By spreading investments across various asset classes, geographies, and industries, investors can reduce the impact of any single sector's downturn on their overall portfolio. Gold's low correlation with major asset classes makes it an excellent addition for diversification. During market volatility, gold often behaves differently from stocks and bonds, providing a buffer that can help stabilize portfolio returns and reduce overall risk.

Global Recognition and Acceptance

Gold is a universally recognized and valued commodity, appreciated across cultures and continents. Whether in Singapore or the USA, gold's value is acknowledged, and it can be easily bought or sold. This global acceptance ensures liquidity and makes gold a convenient investment option for those looking to diversify their assets internationally. Its universal appeal also adds to its reliability as an investment, as it can be readily converted to cash or other assets when needed.

How to Buy & Invest in Gold in Singapore

#1 - Gold ETFs

Gold ETFs are investment funds traded on stock exchanges, much like stocks. These funds aim to track the price of gold, providing investors with a way to gain exposure to gold without owning the physical metal. Gold ETFs can include a variety of gold-related assets, such as shares in gold mining companies or futures contracts. Popular Gold ETFs in Singapore include SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).

Advantages of Gold ETFs

• Lower Capital Commitment: Gold ETFs allow investors to gain exposure to gold with a smaller capital outlay compared to buying physical gold. For example, purchasing a unit of a Gold ETF might only cost a fraction of the price of a gold bar, making it more accessible for those with smaller portfolios.
• Elimination of Logistical Costs: Owning physical gold requires secure storage, which can incur significant costs. Gold ETFs eliminate these logistical challenges, as there is no need for physical storage or insurance. This makes investing in gold more straightforward and cost-effective.
• High Liquidity: Gold ETFs can be bought and sold like stocks, offering greater liquidity than physical gold. Selling physical gold can be a time-consuming process, whereas Gold ETFs can be traded quickly and easily on stock exchanges.

Disadvantages of Gold ETFs

• No Physical Gold Ownership: Investing in Gold ETFs means you do not own physical gold. This might be a drawback for investors who prefer the security of holding tangible assets, especially during extreme financial crises.
• Dependence on Fund Sponsor: The performance and stability of Gold ETFs depend on the financial health of the fund's sponsor. While rare, there is a risk that an ETF could be closed if the sponsor faces financial difficulties.
• Complexity: Gold ETFs can be complex, with varying investment objectives and compositions. Some may include shares in gold-related companies or other gold-related assets, adding layers of complexity that investors need to understand.

Popular Gold ETFs

* As of 14 June 2024

#2 - Robo-Advisors for Gold Investments

Robo-advisors have become increasingly popular among retail investors, offering a viable option for gaining exposure to gold through managed portfolios. These platforms typically include allocations to gold as part of their diversified investment strategies, often through Gold ETFs or Gold miner ETFs.

One notable example is StashAway. StashAway's Flexible Portfolios allow for cost-efficient gold investment, with management fees from as low as 0.2% annually. The SPDR Gold Trust ETF represents gold in these portfolios, providing a straightforward way to invest in the precious metal. Additionally, these portfolios offer customization, allowing investors to include other assets like ETFs focused on India or the S&P 500, making it easy to tailor investment strategies to individual preferences.

#3 - Gold Savings Accounts

Gold savings accounts function similarly to Gold ETFs but are typically offered by banks. When you purchase gold through these accounts, you essentially buy a specific amount of gold and receive a paper certificate representing the value of that gold. This means you don't need to physically hold or store the gold, as the bank handles all the logistics.

In Singapore, two popular gold savings accounts are UOB’s Gold Savings Account and OCBC’s Precious Metals Account. These accounts offer a way to invest in gold without the need for physical storage, providing convenience and accessibility through your bank.

With UOB, you can start investing in gold with a minimum purchase of 5 grams, whereas OCBC allows you to begin with as little as 0.31 grams. It is important to check with the banks for the most current pricing as these amounts may vary. On top of that, there are also other fees such as the monthly service charge that need to be taken into account.

Advantages of Gold Savings Accounts

• Low Cost of Entry: Gold savings accounts typically have a lower cost of entry compared to purchasing physical gold. This makes it accessible for a wider range of investors.
• Ease of Purchase: You can easily buy gold through your banking app or online banking platform. This convenience makes managing your gold investments straightforward.
• No Physical Storage Required: Since the gold is held in paper form, there is no need for physical storage. This eliminates the costs and risks associated with storing physical gold.
• Streamlined Management: Gold savings accounts can be managed alongside your other bank accounts, providing a centralised and streamlined approach to your investments.

Disadvantages of Gold Savings Accounts

• Fees and Charges: While custody and storage fees are not charged, there are monthly service charges and possibly other fees. These can add up and impact your overall returns, especially for smaller investments.
• Minimum Balance Requirements: Some accounts may require a minimum balance to be maintained. This can be a barrier for investors with limited funds.
• Limited Ownership: Unlike owning physical gold, holding gold in a savings account means you do not have direct possession of the metal. This may be a disadvantage for those who value the security of physical ownership.

#4 - Gold Certificates

For those concerned about the storage and security of physical gold, gold certificates offer a practical alternative. These certificates represent ownership of a specified amount of gold without the need to physically store it. Gold certificates can be exchanged for cash or physical gold, providing flexibility. 

Advantages of Gold Certificates

• They do not require physical storage, making them a space-saving option. 
• They are also equivalent to owning a gold bar in terms of investment value. 

Disadvantages of Gold Certificates

• Gold certificates incur service charges and fees, and they must be kept safe to prevent loss or theft. In the event of a lost certificate, a new one may be issued, but this can be an inconvenience.

Where to buy Gold Certificates

UOB gold certificates represent the volume of gold purchased, securely stored by UOB (United Overseas Bank). Each certificate incurs an annual administration fee of S$72 per kilo bar and a S$5 issuance fee. UOB gold has a fineness of 99.9%, with a maximum of 30 kilograms per certificate. A UOB account is required for fee deductions, and transactions can be conducted online through UOB's personal Internet banking. 

#5 - Physical Gold

Investing in physical gold has been a trusted strategy for preserving wealth and safeguarding against economic uncertainties for centuries. Unlike paper assets, physical gold provides a tangible investment that you can hold in your hands, offering a sense of security and permanence. This form of investment appeals to those looking to diversify their portfolios with an asset that has intrinsic value and a historical track record of retaining purchasing power. One important aspect to understand is gold bullion, which plays a central role in physical gold investments.

What is Gold Bullion?

Gold bullion refers to high-purity physical precious metals often kept in the form of bars, ingots, or coins. Typically, gold bullion is 99.9% pure (labeled as .999 fine) or 99.99% pure (labeled as .9999 fine). While the difference in purity between .999 and .9999 is minimal and often negligible to most buyers, it can be significant to certain collectors or non-dealers who might value these finer distinctions.

Forms of bullion: Bars vs. Coins

When choosing between bars and coins, the decision largely depends on where they are sourced from. Gold coins, such as the Canadian Maple Leaf from the Royal Canadian Mint or the American Eagle from the United States Mint, are often minted by sovereign mints and tend to carry higher premiums due to their credibility and demand. On the other hand, gold bars from reputable refineries like Argor Heraeus and PAMP Suisse are also highly credible but generally carry lower premiums. It's crucial to avoid bars from lesser-known refineries, as these may be harder to sell back to dealers.

Premiums on bullion

When buying physical gold, the premium is the amount you pay over the spot price of gold. This premium covers the dealer's profit, inventory, and logistical costs. For example, if the spot price of gold is $2,500 per ounce and your dealer charges you $2,600 for a 1-ounce gold bar, you are paying a $100 or 4% premium. When selling, dealers typically buy back at a lower premium, meaning you might lose some value despite the spot price remaining the same. Hence, it's important to focus on purchasing gold with the lowest premiums to maximise your investment.

Optimal gold weights for investment

Gold bullion is available in various denominations, from small fractions like 1/10 oz to large bars like 100 oz. Smaller denominations generally have higher premiums due to the costs associated with refining, transporting, and storing them. Conversely, larger bars have lower percentage premiums but can be difficult to sell back, especially during financial crises when dealers might face liquidity issues. A good balance is to invest in 1 oz denominations, which offer a reasonable premium and are easier to sell.

Recommended Gold Bullion

• Canadian Gold Maple Leaf: Produced by the Royal Canadian Mint, this coin is renowned for its high purity, security features, and global recognition.
• Argor Heraeus Gold Bar: Known for its competitive premiums and the credibility of the Argor Heraeus refinery.
• Britannia Gold Coin: Minted by the United Kingdom’s Royal Mint, it offers a good balance of premium and recognition.

Where to buy physical gold?

Investing in physical gold in Singapore can be done through several reputable dealers and banks. Here is a guide to some of the top options available:

Reputable Gold Dealers

Banks Offering Physical Gold

Safeguarding your gold investment

Owning physical gold comes with the responsibility of proper storage and insurance. Safe storage is crucial as physical gold, especially in smaller forms like coins, is susceptible to theft. Many investors choose to store their gold bullion in bank safety deposit boxes or specialized vaults rather than at home.

Verification is equally important when purchasing physical gold. It's vital to ensure that you buy from trustworthy sellers to avoid issues like mixed metals or counterfeit gold. Look for dealers registered with the Monetary Authority of Singapore to ensure authenticity and quality.

Consulting an insurance professional is also recommended to determine the best way to insure your gold assets. Insurers may have specific requirements for how you store your gold before providing a policy. Ensuring your gold is properly insured can protect you against potential losses due to theft or other risks

#6 - Gold Stocks

Investing in individual gold stocks can potentially offer higher returns than index funds but also comes with increased volatility and risk, particularly for day traders. Additionally, purchasing multiple gold stocks might be more expensive, especially if fractional shares are not available, and require extensive research. By investing in shares of gold mining companies, investors can gain exposure to the gold market without owning physical gold. Here are seven gold stocks that have been outperforming the S&P 500 over the last year:

* As of 14 June 2024

Key Considerations When Investing in Gold

Investing in gold requires a thorough understanding of market trends and economic indicators that influence gold prices, such as interest rates and inflation data. These factors can significantly impact the value of gold, making it essential to stay informed about economic conditions and forecasts.

Understanding Market Trends and Economic Indicators

Gold prices are closely tied to various economic factors, including interest rates and inflation. When interest rates are low, gold tends to perform well as it becomes a more attractive investment compared to fixed-income securities. Conversely, high inflation can drive gold prices up as investors seek to protect their purchasing power. Keeping an eye on these indicators helps investors make informed decisions about when to buy or sell gold.

Diversification

Gold is a valuable component of a diversified investment portfolio. Its historical performance shows that it often moves inversely to other asset classes like stocks and bonds. This inverse relationship can help reduce overall portfolio risk, particularly during economic downturns or periods of market volatility. By including gold in a broader investment strategy, investors can mitigate risks associated with other asset classes and enhance portfolio stability.

Fees and Costs

Investors should be aware of the various fees associated with different gold investment options. Physical gold may incur storage and insurance costs, while gold ETFs and gold certificates might have management or service fees. For example, UOB gold certificates come with an annual administration fee and a flat issuance fee. It's also important to note that investment-grade gold is exempt from Goods and Services Tax (GST) in Singapore, making it a more cost-effective option. Understanding these costs and their impact on returns is crucial for making an informed investment decision.

Final Thoughts on Gold Investment

Before deciding to invest in gold, it’s essential to evaluate your investment objectives and risk tolerance in the context of your overall financial strategy. Gold can be a valuable component of a diversified portfolio, but it's crucial to make informed decisions based on current market conditions and personal financial goals. Consider the different forms of gold investment—whether physical gold, ETFs, certificates, or stocks—and understand their associated costs and benefits. By carefully assessing these factors, you can ensure that your gold investment aligns with your long-term financial plans and objectives.