Monday, August 22, 2011


Since today's gold price has broke the all time high gold price, I am eager to write about the return of investment for physical gold bar / dinar.

Say that on last 2nd June, 2011, you have a savings of RM700. You buy 1Dinar PG at RM698. Your intention is to keep 1 Dinar a month as to plan for your Umrah visit. However, due to unstable US economy and the FEDEX action to increase the debt level (and many other reasons), the gold price shoots up.

Today, 22nd August, 2011, to buy 1 Dinar PG you need RM818. Will you be losing if you are religiously saving 1 Dinar per month? Well, do you have to pay more to save 1 Dinar?. Actually, your 1st 1 Dinar, cost RM698. However, due to the increase in gold price, it is now valued at RM818. You are actually RM120 richer than before.

So, if you pay RM818 for your 2nd purchase of 1Dinar, your wealth is equalised (Gain from keeping 1 Dinar - the extra amount of money you are paying for 2nd purchase of 1Dinar).

Can you calculate the return?

If you are selling your 1 Dinar, you sell at 'We buy' price. You actually received R769 for your 1 Dinar. How much is the excess? Correct!! RM71.

What is the rate of return on the investment?
The rate of return is RM71/RM698 = 10%. Not much, you said. Did you notice that your gain of 10% is in a period of 81 days ~ 3months. What is your rate of return per annum? You have to annualise the 81 days return to one year.

So, rate of return is RM71/RM698 *(12 months/3 months) = 40% per annum.
How does that sound? Better?
40% return is indeed a superb return.

Imagine that you bought 100g gold bar instead of 1 Dinar. Your profit is RM2,045 over a period of 81 days. How do I calculate it? Selling price on 22nd August, 2011 is RM18,784. You bought your 100g PG gold bar on 2nd June at RM16,739. Try minus the two figures. Did you get it?

Your rate of return of 100g PG gold bar is 12% for 81 days = RM48% per annum.

Isn't that good or isn't that good?

Why hesitate to start investing now? Just bear in mind that it is better if you keep the gold bar medium to long term, at least for 1 year. That is should be your investment strategy.

However, if you are in gold business, you are playing a different game altogether. You sell high, you buy low. It depends on how fast you roll you capital into transactions.

I hope you benefit from this post and share the knowledge with others. Who knows, a busy person may want you to look after his/her investment. Then the knowledge should be useful for both of you.

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