GETTING YOUR HAND ON GOLD

Written by Tho Li Ming of theedgemalaysia.com

Monday, 08 August 2011 21:15

KUALA LUMPUR: While the greenback continues to falter, prices of precious metals have predictably risen as more investors seek a temporary haven.

On June 14, gold prices broke the record once again to touch US$1590.50 an ounce, with an average price of US$1,451.60 so far this year. The outlook for this precious metal has been bright as well, with experts such as Steve Brice, Standard Chartered Bank’s chief investment strategist, predicting a 13% annualised return over the next three years, with a peak of US$2,100 an ounce in 2014.

However, the historical movement of gold has shown that price hikes and dips occur because of speculation. David Crichton-Watt, managing director of gold funds manager, AIMS Asset Management KL, says speculators tend to push prices of precious metals higher than what “real” investors are willing to pay. This eventually causes prices to fall to a level that is acceptable to “genuine buyers”.

The hype on the perceived safety of gold, and to some extent, silver, has created a surge in the price of precious metals. Many channels have made their appearance to cater to the hoards of investors who are looking to jump on this bandwagon.

Those who do not want the hassle of storing precious metals might prefer to invest in stocks of mining companies, exchange-traded funds, gold passbook accounts and commodity unit trusts.

Investors who want to see and touch their physical asset can purchase wafers, bullions and bars from dealers such as banks (Maybank and Public Bank) and jewellers (Poh Kong, Tomei and DeGem Bullion).

To cater to the demand for physical gold and silver, local manufacturers buy large amounts of metal and melt them into smaller quantities before selling them to the banks and jewellers. A relatively new channel has emerged in the form of private dealer companies, who may sell well-known brands from these manufacturers, or have the manufacturers mint their own brand.

The private dealers then sell the products to the customers online, in physical shops or via agents. Agents offer the advantage of narrower buy-sell spreads and prices can be reduced further if the metal is purchased in large quantities.

A clear disadvantage is that these agents tend to operate on the quiet. Due to security concerns such as theft and robbery, they transact only with buyers whom they know personally or through recommendations from existing clients. Thus, the credibility of these agents can sometimes be hard to verify. Moreover, as agents tend to buy back only their gold or silver, this can make it harder for investors to convert their precious metal into cash.

Since the selling prices of gold or silver to retailers may vary according to the type of channel, it is important to check the bid/ask spread before purchasing. “It’s not just the selling [ask] price that investors should take note of, but more importantly, the buying back [bid] prices. Some channels stipulate a higher spread,” says Tony Khong, a gold investor. He adds that if you’re buying from an online channel, check for delivery charges and insurance costs.

UOB Bank sells its 1g Pamp Gold bars for RM298 each and buys them back at RM165 each. On local websiteww.nubex.com.my, 1g Emirates Gold bars go for RM207.96 (sell) and RM152.96 (buy), resulting in a difference of RM55 (as at July 15). Wider spreads could be due to the brand and fabrication involved.

There are two types of gold bars, cast gold [molten gold poured into an ingot mould], which tends to be rough in nature, and minted gold [cut out from a flat piece of gold] which is more refined and looks better asthetically. “Cast gold tends to be cheaper than mint gold.

Likewise, gold products with fancier motifs are more expensive than those with simpler designs,” adds Khong.

Also, ask about the brand of the precious metal. Clearly, a better-known brand is preferred. “Well-known brands commonly available from dealers are the Swiss Pamp gold bar, the Australian Gold Nugget and the Canadian Gold Maple Leaf. If the dealer offers another less-known brand or an in-house brand, ask for a certificate of authenticity, which should state the purity of the gold,” says Khong. “You can also have the bar verified at an assayer’s office for a fee.”

Limit your investment in precious metals to a small portion of your investment portfolio. While everyone should have at least a small percentage in gold, Crichton-Watt cautions against buying the metal to try to make a profit. “It is simply a store of value as it will not grow and does not pay dividends, and so on. Although it will never go bust, it will just sit there and you will incur costs in keeping it from thieves.”

For those who want to trade precious metals, there are sites such as bullionvault.com that provide an easy platform to buy and sell gold and silver in “paper value”. Crichton-Watt’s advice is to watch for dips. “Speculators are a different breed, as they are buying on margin, trying to outsmart other speculators.

The trend for gold is upwards, so buy after a period of correction, not when [prices] have been going up for weeks without correcting. Do not even think of short selling [if you find a dealer that lets you] and attempt to time the corrections.”

Original Source

My views on the spread :

1. UOB Bank sells its 1g Pamp Gold bars for RM298 each and buys them back at RM165 each.

2. On local websiteww.nubex.com.my, 1g Emirates Gold bars go for RM207.96 (sell) and RM152.96 (buy)

Spread is the difference between the selling price and the buying price. In the cases of UOB, the spread is 80.6% (RM298/RM165). That is huge!!! As for nubex, the spread is almost 36%.

This is one of the criteria you must check when you want to purchase gold bars / dinars / jewelleries. The spread mus not be too high in order for you to cash out faster if you require the money.

Let's see Public Gold (PG)'s spread below.

For 20g - 1250g Gold Bar, PG's spread is only 5% - 6.3%. Only for 10g, spread is slightly higher of 8.7%.

Don't you think this is the better place to purchase your physical gold?

Another advantage is the transparency of the pricing.