Gold Rush

by admin on June 21, 2010

Gold has been on the minds of investors ever since the world’s financial system went south in 2007 with its safe haven status looking like a godsend.

The seemingly never-ending series of share market corrections and other shocks – the European debt meltdown being just the latest – has only served to enhance the precious metal’s appeal.

Last Friday, gold rallied to an all-time high above US$1,262 an ounce thanks to the weak US dollar and disappointing American economic data.

That’s a long way from US$905.10 an ounce recorded last July, when it was at its lowest in 12 months. Even while it hovers at record levels, some believe its outlook remains promising.

Commodities investor Jim Rogers says that gold will go well over US$2,000 in the next decade while the chief investment strategist at UBS Wealth Management Singapore, Mr Kelvin Tay, targets a price of US$1,500 an ounce for the next 12 months.

On a short to medium-term outlook, Citibank forecasts gold to be at the US$1,250 level, said Mr Shrikant Bhat, head of wealth management, Citibank Singapore.

He also expects gold prices to consolidate around US$1,209.20 an ounce by the end of this year.

If you are considering jumping on the gold bandwagon, there are a number of options available, from owning gold bars and coins to investing in exchange-traded funds and mutual funds.

The Sunday Times spoke to industry experts to find the costs and mechanics of the various options.

Gold bars and bullion coins

United Overseas Bank is the only local bank to sell physical gold.

Its kilobars – they weigh 1,000g and are 999.9 fine gold or 24-karat gold – are the most popular.

The 50g Pamp bars as well as half-ounce bullion coins are also snapped up.

Switzerland-based Produits Artistiques Metaux Precieux (Pamp) is a popular independent refiner of precious metals.

The coins are sourced from Canada and Australia.

UOB sets its buying and selling prices at least once a day.

Last Friday, a kilobar of gold cost $59,752, a 50g Pamp was $3,091 and a half-ounce coin $1,037.

And while popular in markets like Hong Kong, trading in physical gold is less popular among Singaporeans as the prices factor in the 7 per cent GST.

Clients who have bought gold from UOB can sell it back at the applicable buying rate.

Last Friday, UOB would have bought back a kilobar for $55,723 – 6.7 per cent lower than the sale price. UOB’s indicative daily selling and buying prices are available on its website.

Costs for procuring the physical commodity do not stop there. Storing the gold incurs expenses as well.

A Cisco safety deposit box costs $99 a year for an extra-small locker. Larger lockers can cost up to $699 a year for a space of 38cm by 25cm by 60cm.

Some jewellers and goldsmiths sell gold bars, usually in sizes of 10g, 50g and 100g. Prices are set daily on a per gram basis exclusive of GST.

Following recommendations from the Singapore Gold Association, goldsmiths usually take an 18 per cent cut of the value of the gold item when they buy it back and if the customer intends to sell it to purchase other jewellery.

If the customer wants cash, a further deduction is made on the remaining value at the discretion of the goldsmith.

At Poh Heng, for example, a 10 per cent cut is made after the 18 per cent deduction, amounting to a 26.2 per cent loss right away.

Spreads are usually in the 20 per cent to 26 per cent range, goldsmiths told The Sunday Times.

The price of gold on June 18 was set at $68 per gram exclusive of the 7 per cent GST.

Gold savings accounts

UOB and Citibank customers can open a gold saving account, allowing them to invest directly in the metal without actually owning the physical item.

UOB customers can buy and sell gold at prevailing market rates. The minimum transaction and maintenance requirement for its gold savings account is 5g of 999.9 fine gold.

Based on indicative pricing rates on its website, this would cost $278.55.

Transactions are done in units of 1g, at a minimum of 5g per transaction.

Holdings in the account are not subject to GST and can be exchanged for cash.

An administrative fee is charged: either 0.12g of gold per month or 0.25 per cent of the highest balance per month, whichever is higher.

Fees are subject to GST, which will also be deducted from a user’s account in grams of gold.

At Citibank, users have to set up an account with a minimum requirement of 30 ounces of gold bought at market rates.

Taking the example of a US$1,258 an ounce price, this would amount to US$37,740.

Trades are done in blocks of 30 ounces. No administration fees are charged.

Gold certificates

Gold certificates, offered only by UOB, are more popular among buyers and allow for ownership of physical gold without any physical movement of the metal. This means it is free of GST.

Issued in multiples of 1 kilobar, or kilocert, one certificate can account for at most 30 kilobars of 999.9 fine gold.

An annual administrative charge of $30 per kilobar and a certificate fee of $5 per certificate are levied.

Certificates can be traded at UOB according to daily prices.

Last Friday, a single unit gold certificate sold at $55,843. The bank would buy it back at $55,743 – a 0.17 per cent difference.

Customers can also exchange their certificates for gold kilobars with two days’ notice. The bars would be subject to GST.

Exchange-traded funds

Retail investors can use exchange- traded funds backed by commodities or gold.

These are precious metals that are regulated and traded in the form of securities on stock exchanges. In most cases, an individual would need only to set up an account with a brokerage and begin trading.

Using firms such as DBS Vickers, OCBC Securities or UOB Kay Hian means customers would have to pay brokerage or trading fees.

At DBS Vickers, trades that are executed directly without the use of a broker attract commission charges of $25 or 0.28 per cent of the value transacted, whichever is higher.

Minimum deposits when new accounts are created are decided through discussions between an assigned broker and client.

When going through a broker, a client pays a minimum of $40 or 0.5 per cent of the value of the trade, whichever is higher. The 0.5 per cent applies to trades under $50,000.

For trades of between $50,000 and $100,000, charges of 0.4 per cent apply, and above that, the charges are 0.3 per cent.

At OCBC Securities, a minimum account deposit of $2,000 is required to set up an account.

Commission on non-broker assisted trades is $25 or 0.275 per cent of transacted value, whichever is higher. The 0.275 per cent refers to trade values of up to $100,000.

For trades above $100,000, commission would be $25 or 0.2 per cent of transaction value, whichever is higher.

Broker-assisted charges are similar to those of DBS Vickers, with the exception of 0.25 per cent charges on values above $100,000.

Across the industry, clearing fees are 0.04 per cent and SGX access fees are 0.0075 per cent.

All charges are subject to GST.

Mutual funds

There are not many mutual funds available here offering exposure to precious metals.

The ones available include UOB Asset Management’s United Gold and General Fund and Schroder’s Alternative Solutions Gold and Metals Funds.

As at April 30, the United Gold and General Fund invests 79.87 per cent of funds in gold and precious metals-related equity such as mining stocks.

The fund size was $263 million with a return of 44.5 per cent.

Available through banks and brokers, the minimum initial investment is $1,000.

Fees include a 1.5 per cent annual management fee and a 4 per cent subscription fee.

When bought through distributors like Fundsupermart, for example, a 0.85 per cent initial sales charge applies.

Schroder’s Alternative Solutions Gold and Metals Funds gives investors direct exposure to the movement of prices in the metals by investing mainly in futures.

The fund, which invested 64.8 per cent of holdings in precious metals as at the end of last month, requires a minimum investment of US$10,000 (S$14,000).

About 20 per cent to 75 per cent of funds can be invested in gold.

As of the end of last month, the size of the fund here stood at more than $20 million while globally it was US$185.6 million.

Fees include a maximum initial levy of 5 per cent of gross investment amount. Annual management fees stand at 1.5 per cent and performance fees at 10 per cent of the difference if the net asset value per share exceeds US$10.

The net asset value per share is US$9.80 currently.

Source: Straits Times (Subscribers only)

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