Gold Holds Biggest Decline in a Month as Fed Rate Increase Looms
Goldheld the biggest drop in a month and headed for a fifth quarterly loss on expectations the Federal Reserve will raise U.S. interest rates before the year is over, countering demand for a haven amid a commodity and equity slump.
Bullion for immediate deliverytraded at $1,132.82 an ounce at 9:48 a.m. in Singapore from $1,131.95 on Monday, when it dropped 1.2 percent, the most sinceAug. 26, according to Bloomberg generic pricing. A fifth quarterly decline would be the worst run since 1997.
The Fed will probably increase interest rates later this year and tighten policy gradually thereafter, New York Fed President William C. Dudleysaid Monday, echoing the sentiment of Chair Janet Yellen that an uncertain global outlook won’t postpone liftoff into 2016. Gold fell on Monday even as a selloff deepened in global equities and commodities markets.
“Gold is no longer exactly a safe haven,” Bernard Aw, a strategist at IG Asia Pte in Singapore, said in an interview on Tuesday. “Yesterday we didn’t really see a big jump in risk aversion despite all the selloff in U.S., European equity markets.”
There are a variety of brands available for both silver and gold, so the question on everyone’s mind is:-
Does brand matters?
There are refinery that cast or mint their own brands, selling it as close to spot prices as possible, there are private mints and are government / public mints, there are financial institutes that forge their own brands on gold / silver that is refined by other 3rd parties. There are European brands, Australia brands, Chinese brands etc etc.
Do they matter?
It actually depends on investors’ preferences. Some brands like RCM (Royal Canadian Mint) is reputed with very pure silver at the lowest premium in the market. Certain other brands, would demand a higher brand premium over the metal value of the bar / coin.
Bar / Coin = Metal Value + Premium
As the metal value depends on the spot prices of the gold and silver, you are essentially paying the premium of the brand. RCM has low premium. Certain brands like Panda series from China Mint has a much higher premium for its coins.
Whether it is worth it, it depends on the investor prospector. For example, CML (Canadian Maple Leaf) and ASE (American Silver Eagle) has very low premium over their coins, while Chinese Panda has a high premiums. This premium may not be fixed.
For example, if you have bought CML or ASE in 2011 or 2013 because it costs a lot less than the Chinese Panda series, the current value of CML and ASE in 2015 is still roughly the same as the metal value and the same low premium. Those collectors with the Panda series would be laughing their ways to the banks as the Panda’s premiums has rocketed. Of course this is not a sure thing, so collectors may have to judge their risk-reward ratios.
Another factor is the recognition of the brand. For example PAMP Suisse is highly recognised, especially by the elder generation. Hence PAMP Suisse is seen as a more luxurious brand.
Lastly, in Singapore, for investment silver and gold that investors can enjoy stacking up without paying the extra 7% GST, they have to patronise only certain brands that are considered IPM (Investment Precious Metals). These brands has to be under LBMA’s (London Bullion Market Association) Good Delivery lists. As such, it is important for stackers to buy silver or gold from these lists as you would be buying them a lot cheaper than if you were to buy a jewellery-branded gold bar that attracts 7% GST.
Except for numismatic bars and coins set, all the silver and gold in Gold Silver City are all classified under IPM, and hence has NO addition GST on them. It would be much more financial prudent to start investment without paying this extra 7% tax.
Many new stackers would ask, be it Gold or Silver,…
Do I stack in coins or do I stack in bars?
Coins generally are a favourite among collectors. They comes in different size, from 0.10, 0.25. 0.5, 1, 2 ounces for gold coins, and more common of 1, 2, 5 ounce for silver coins (silver has a wider range from 0.5 ounce to also 1kg or 10kg silver coin, but less commonly bought)
Coins are easy to stack, since you can stack a brunch of them in easily available tubes. And as we use coins in our everyday currency, coins gain legitimacy and recognition easily.
As most coins are in the common 1 oz size, it is also fairly standardised and easy to compare in value.
And there are many different designs and branding available on coins, such that certain coins’ design attracts a fatter premium. These wide range of designs available on coins allow collectors to diversify and beautify their collections, crossing their investment portfolio as an interesting hobby as well.
The biggest disadvantage of silver coins is that minted coins are prone to milkspots. These are white spots on silver bars or coins, even when you bought it fresh from the mint. Royal Canadian coins are notorious for milkspots on their coins, and generally, collectors have learnt to live with it. Do note that there are ways to remove milkspots, but most investors would not do that as it may reduce the value of the coin. Silver coins also may get “toning”, getting blackish and brown over the years due to discolouration from the oxidation.
Coins also have a bit more premium than bars. Generally you are paying for the melt-value of the metal (the spot price of the precious metals) and the brand / design of the coin. In this aspect, coins has a bit more premium that you have to pay for compared to bars.
On another note, precious metals in round shaped are only classified as “coins” if they are minted by public / government mints and declared as “legal tender”. If they are minted by private mint, they do not have legal tender, and the more correct name for them is “rounds”.
Gold bars and silver bars are common for investors to buy and stack, as they are easy to stack especially in larger volumes. The bars can come in as small as 5g or 1g for gold, and more commonly in larger sizes for stackers, such as 100g bars or 1 kilo bars for gold, or 100 oz, 1 kilo, 5 kilo etc for silver bars.
Silver bars of any size are an excellent way to invest in pure Silver while avoiding the premiums usually found on legal tender bullion coins. They are easily bought and sold, stored, stacked and counted..
Minted bars may still face milkspots, though cast bars are generally more robust and less likely to have milkspot problems. Cast bars also provide a more industrial and raw feel and appeals to some collectors.
Bars has less designs compared to coins, and heavier bars are harder to liquidate due to the weight and large monetary value.
More similar to day-to-day currencies, more standardised. Many designs available.
More premiums payable Some coins are more prone to milkspots
Less premiums, and more large size available for stacking
Less designs. Larger bars slightly more difficult to liquidate.
For all new stackers who wish to start saving their hard earned money in physical metal, the first question usually arise would be:-
Which precious metal?
Well, firstly precious metal is a rare, naturally occurring metal of high economical value. We have used precious metals previous as currency, such as coins and taels. With the creation of modern fiat currency, precious metals are now widely regarded mainly as investment and industrial commodities.
The best-known precious metals are gold and silver. There are other precious metals such as ruthenium, rhodium, palladium, osmium, iridium and of course, platinum. However, these rare precious metals are rarely traded and less liquid as the 2 most common precious metals known to us – Gold and Silver.
Let us focus on Gold and Silver, which are the popular precious metal in Singapore.
Currently as of 16 August 2015, the spot price of gold is SGD $1567.53 per troy ounce (or USD $1114.30)
Gold is the most recognised, most liquid precious metal. Not only is it easier to buy, it is easier to liquidate for cash too. Gold is a popular jewellery, but for investment, we would only deal with investment grade gold, in the form of bullion bars or coins. You can buy pure gold coin or bars from bank, such as UOB head branch, or jewellery stores. These are usually a lot more convenient, almost any jewellery stores would have gold bars of different sizes for sales. Unfortunately, most of these gold bars and coins are sold at a high mark up. The high mark up is mostly because of the high rental costs and branding of the bank or jewellery stores.
You can also visit shops that specialise in bullion gold / silver, the markups are low as they specialise in bullion products and generally has less recognition power compared to UOB or big brand jewellery name like Poh Heng Jewellery. A quick search would reveal many bullion shop such as Gold Silver City in Singapore or Gold Silver Singapore.
Most importantly, the reason why Gold is the top choice of many investors is because it is so recognised in value and easy to liquidate. You can sell gold easily, without too much loss in value. Most banks and jewellery franchise buyback, though they cut a commission for themselves. You can sell to bullion shops, majority of them buybacks. You can visit any pawnshops in your neighbourhood and you can get cold hard cash easily. If you bother to use forums, eBay, carousells or other avenues, you can even get a slightly better price. It is that easy to convert your investment into cash.
The biggest disadvantage of gold is that it is so costly, and it may be difficult for cost averaging when one small gold coin of 1 ounce costs $1600. Thankfully there are gold bars and coins that are smaller. For investment, gold is a bit more demanding on the pocket.
Currently as of 16 August 2015, the spot price of silver is SGD $21.52 per troy ounce (or USD $15.30)
As you can see, the biggest advantage of stacking silver is that it is light on the pocket. One ounce of silver costs you only a meal at a causal restaurant in Singapore. That is also why Robert Kiyosaki of Best Selling Book “Rich Dad, Poor Dad” strongly allocates buying silver, even for workers who are struggling to meet the challenges of rising costs of living. One can afford to stash away a few coins or bars monthly to save up for the future, rather than splurging on movies or costly meals.
Another advantage is that many silver investors find silver to be a higher potential in risk-reward ratio than gold. As the price of silver is so low currently, the chances of it doubling or tripling is a lot more likely than gold. ($1600 SGD double to $3200 SGD is a lot harder than doubling from $22 SGD to $44 or $66) Also there is a good chance the gold silver price ratio may move towards more silver. There are increasing industrial demand for usage of silver in our smartphones, solar panels etc. Hence, there is a lot more speculative return potential on silver.
The biggest drawback of silver is that it is harder to buy or sell. Most jewellery stores do not sell silver, neither do banks. Bullion shops that specialise in precious metals would definitely sell silver coins or bars for investors. In Singapore there are many bullion shop such as Gold Silver City in Singapore or Gold Silver Singapore. It would be difficult to buy silver from convenient locations such as jewellery stores or banks.
If you like to sell your silver for cash, it is definitely more challenging than selling gold. Banks, jewellery stores and most pawn shops do not buy silver, so your only choice is via bullion shops that buy back. You may also sell them via forums and ebay. Thankfully silver is starting to get more recognised, and there are some pawnshops that are beginning to buy and sell silver. Silver would definitely get more traction.
In summary here are simplified pros and cons of gold and silver.
More recognised. Easy to buy and sell.
Higher dollar investment per ounce
Lower dollar investment per ounce Higher potential risk-reward ratios
For many investors, they may choose to hold a portion of their investments in gold and silver to hedge against inflation and economic black swan events. To hold precious metals as a hedge, there are a huge variety of choices – Gold, Silver ETFs, stocks holdings of mining companies and paper certificates.. So why own physical silver or gold?
Do remember that all paper assets are at the mercy of the financial market. Paper records can be varnished in a disaster, either man-made or natural. Financial markets turmoils in a black swan event can rendered you asset-less. Only physical gold / silver bars or coins that you possess guarantees ownerships.
By investing in physical stocks, you would also have a better saving habit due to human psychological emotions. – You would be much more reluctant to return your physical silver bars or coins than it is to click on “sell” on your paper certificates.
Buying physical gold / silver bullion or coin is also amazingly easy.
There is no need to set up brokerage account, no need to sign any documents. You can just walk into any jewellery or coin/bullion shops, though you would have to pay a slight premium. An easier way is to buy online from www.goldsilvercity.com.sg which provides free delivery as well. You would be paying lesser because the online business has no expensive rentals. Every dollar saved goes to your peaceful retirement account!
Large bullions like 1 kg silver bar is more value for money. However you may consider smaller coins or bars, such as 10-ounce coins. A large collection of smaller coins or bars is easier for you to only sell a few coins to meet your needs, such as for a travel holiday, a business expansion, instead of having to sell the whole kilogram of silver or gold.
It is also more sensible to collect silver, as silver is more affordable and easier to collect monthly as a saving plan. As an investment asset, it is comparable in terms of liquidity, long term value, and has great fundamental demands in industries.
When you fall in love with gold, silver collection, you may move to numismatic collections, appreciating the artistic and beautiful designs on coins! There are many reasons to why own physical silver or gold, but one of the best reason is probably this:- it can be a great hobby for many collectors. Collectors know that many of their collections appreciate in values, and could be a lot more financial rewarding than other expensive hobbies.
One of the reason to be bullish on silver in the long term is that silver is used by many commercial and industrial firms for products that are indispensable in our daily lives. Demand for Silver is high in our industrial society. Silver is now such a versatile industrial metal that we see it as a great way to save and invest in our diversified portfolio.
You may not realised it, but the moment you woke up, you have been using products with silver in it. Silver is present in your alarm clock, your wall switch, bathroom mirror, your electronics devices that you check immediately upon waking up, such as your mobile phone, your iPad, Apple Watch or your computers.
When you have breakfast, silver is in your microwave, your refrigerator, your water purifier. Silver is now starting to be used widely to purify your water instead of toxic chemicals like chlorine or bromine. Silver is also used in some food processing, and food packaging to keep bacteria out.
When you switched on your electricity, not only are silver wiring more efficient in conducting electricity, your energy plants also uses silver for generation. Fossil fuel plants uses silver coated mirror for steam generation, and solar photovoltaics uses silver paste in their productions.
You put on your clothes, if you are wearing polyester, silver is required. And if you used a washing machine to clean your clothes, silver is present as a catalyst for the cleansing operations. For smart clothings now in trials, silver is used too.
As you head out to your car to start your day, guess what, your car contains many ounces of silver, both in the electronics component as well as in the engine as catalyst. Your modern RIFD car key contains silver, and if you are one of the electric car owners, well, more silver is inside.
Yes I can go on and on, but I think you get the message, widespread demand for silver is a key fundamental reason why so many savers and investors like to stock up on silver. And many have stock up from www.goldsilvercity.com.sg
For seasoned investors with a healthy portfolio of stocks, bonds or property, silver /gold physical bullions offer a great way to diversify into a stable and rewarding portfolio such as the Browne Permanent Portfolio, which I will go into more details on another post.
As for why physical holding of bullions and coins may be a good choice, we would visit this soon! Cedric Soh www.goldsilvercity.com.sg