Gold Investment

Gold Investment

Why Invest in Gold?

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If you read about Gold vs Fiat Money you will see for 2,400 years a pattern has continually repeated with disastrous consequences:

• Governments start out with sound money that people trust.
• Governments take on more obligations that require more debt.
• Governments print more currency to pay the bills.
• The public senses prices going up and know that something isn’t right.
• People trade their government currency for Gold and Silver.
• Gold and Silver revalue themselves to account for all the currency printed. This historically affords precious metal owners massive gains in purchasing power to buy more land, real estate, stocks, businesses, etc.

You can probably feel the squeeze right now. You notice at the supermarket that milk, eggs, and bread all cost a little more than they did just a few years ago. You notice that paying for gas is taking more and more of you income.

Following are a number of reason physically owning gold is the ultimate way to invest:

1. For 5000 years, gold have been the only asset that have never failed. Because they are tangible assets of inherent value their purchasing power never fall to ZERO.
2. They are financial assets than can be completely private and not art of the financial systems. Even real estates requires the financial systems to transfer title. Gold do not.
3. They are one of the few financial assets that are nit simultaneously someone else's liability. Stock, bonds, and derivatives like futures and ETFs require the performance of the issuer or counter-party. Even cash requires the the performance of the government that issue it to have value. If government fails, so does it currency. Gold and silver never fail.
4. They can be wholly owned. You can never really own real estates for instance; if you think you can, just try not paying your property taxes for a few years.
5. They are safe-heaven investment that rise during economic upheaval, war, terrorism, and natural disaster.
6. They have a proven track record of performing well in inflation or deflation.
7. They have high value density. That means that, unlike copper or oil, a very small amount of gold or silver provides significant purchasing power.
8. They have a low bid/ask spread, unlike diamond or collector coins, on which can carry a 5 percent to 100 percent spread.
9. Every ounce has the same value. Every diamond or collector coins, on the other hand, is different and requires an expert to assess the value.
10. Physical gold and silver are money in and of themselves.

You can either fight this trend or take advantage of it. This will be the Greatest Wealth Transfer of ALL TIME!

What Gold Investment Vehicles Available Today?

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• Physical Gold (Bullion, Bar, Coin, Dinar & Jewelry)
• Gold Investment/Saving Account
• Gold Certificates
• Digital Bullion Trading Exchanges
• Digital Precious Metal Currency
• Exchange-Traded Funds (ETFS)

What Should I Buy?

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Assuming your intent in purchasing gold is to hedge against fiat money devaluation (inflation) or a potential fiat money crisis, then I would only buy physical gold and nothing else. I personally hold bars, coins and dinar.

Within this, there are several factors to consider.

1.  If you think there may come a time when you might be using gold directly as a medium of exchange (i.e., as money), then you want to consider three things. (1) Make sure you have pieces that are of a useful size. 50 gram gold coins and 100o gram gold bars might be just a tad too big.  (2) Be sure they are immediately recognizable and/or have the purity and amount clearly listed on the item itself. Ethiopian coins may be pretty exotic and cool now, but they may be frowned upon later.  (3) .999 gold is extremely soft and would make a terrible circulating currency.
   
   
2. What about the silver and gold ETFs (Exchange Traded Funds)? You can participate in 'buying' gold in numerous ways, ranging from COMEX futures contracts, to mining shares (stocks), to the new ETFs where your money goes towards a secured amount of gold or silver in a warehouse somewhere. All of these represent paper claims on gold/silver and are not equivalent to owning it in physical form. As with any paper claim, they can vanish at the speed of electrons or with the stroke of a pen.

What is Physical Gold?

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• There are three 'flavors' of physical gold:

1. Rare coins (a.k.a. numismatic). Much, if not most, of the value in this investment class is contained within the rarity of the object itself, not in the intrinsic gold/silver content. Rare coins can exhibit the most marked increases in value during times of relatively stable inflation.
   
   
2. Jewelry. Ditto above. The value is embodied in the artistry/rarity of the object, not in the gold content. Workmanship cost can go up to 40% of Jewelry price. This doesn't include any gemstone price which mostly have no value at all when selling back. 916 Gold is a standard for jewelry without gemstone in Malaysia.
   
   
3. Bullion. This refers to gold that derives the vast bulk of its value from the metal content alone, typically over 95%. The various forms are:
   
   
1. Bars. Ranging in size from ½ ounce to 5,000 ounces (common size in metric are 20, 50, 100 & 1000 gram).
   
   
2. Coins. Gold examples would be Kruggerands, American Eagles, Pandas, Philharmonics, and Maple Leafs are all examples of gold bullion coins. Each is officially minted by a specific country. They range in size from 1/10 ounce to 1 ounce.
   
   
3. Dinar. Plain word Dinar is a gold coin. Standard of dinar established by caliph Umar Ibn al-Khattab; 1 Dinar should weight 4.25 gram. 1 Dinar gold content is 22 carat or 91.6% purity.
   

• In most cases only gold bar and gold coins can  be categorize as gold for investment. Anyway there was exceptional case which jewelry been made as specific for investment such as Public Jewelry.
• Advantages of physical gold investment:

1. Can easily be bought or sold to anybody or organization at anytime
2. Standardize size, shape and weight.
3. Gold bars can be held either directly (i.e. held directly by you or in your own safe) or indirectly (held in a safe deposit box or bank vault on your behalf).
4. Lower spread value.
5. Can pawn if you need a fast cash.

Why Invest in Physical Gold?  

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Top 10 Reasons to Invest in Physical Gold:

1. No other investment has the wealth preserving power of gold!
2. Gold should be part of every optimally diversified portfolio.
3. Physical (allocated) gold is the most secure way to invest in gold.
4. The current U.S. debt and trade crisis will continue to push gold prices up.
5. A tangible and liquid asset, gold is the only truly international currency.
6. Gold maintains its value through political and social upheavals, wars, and natural disasters.
7. Unlike paper currency, stocks and bonds, gold will never loses its intrinsic value.
8. Gold is an inflation-proof investment.
9. Gold will always be in demand, and demand is increasing.
10. Gold has always been, and will always be, the most legendary precious metal in the world.

How Much Should I Buy?

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I think a prudent investment portfolio should have a minimum of 5% to 10% exposure of the total net worth devoted to physical precious metals. Mine? Currently it's about 15%. My target is 50% of my investment portfolio.

A strong case can be made for even higher exposures. However, it is up to each person to decide for himself or herself what makes sense.

What Buying Strategy Makes Sense?

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Whatever your investment percentage, once you have made the choice to allocate to gold, a prudent buying strategy would be to "RM cost average" your purchases over 6-12 months.

For example, if you decided to invest RM40,000 in gold, I would recommend buying RM3000 to RM7000 worth every month or two until you hit your target.

Like anything and everything, gold will go up in price and they will go down in price. Trying to picks the tops and the bottoms is a nearly impossible task that eludes even the most seasoned professionals.

Just buy it and don't sweat it. I have never looked back on my own purchases and sleep like a baby as a result.

The Cost of Buying?

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You'll quickly figure out that there are two prices for gold:  the oft-quoted spot price that you'll see on TV or in the newspaper, and the price you'll pay to receive some physical in your actual possession. The spot price is the price for a pretty big slab of metal that you would have to buy directly from the Comex exchange in NYC. If you'd like to own a large-ish slab of metal, you can always pay spot, drive down to NYC and pick it up. However, for smaller, more convenient amounts, the price is usually spot plus 4% (but as much as 8% if you are a sloppy shopper) for gold, which accounts for the cost of fabricating a coin or small bar, plus the dealer costs to handle, store, and transport the coins & small bars. On the other hand, when you sell, you will also receive a bit more than spot, so it balances out somewhat.

For example, below are some current buy/sell quotes from UOB (as of 20/07/2010 09:31 AM)). Gold is currently RM3811.78, so we can see that the buy premium is 4.54% (RM3985) while the sell premium is 2.31% (RM3900). Thus, the 'trading friction' to you is actually 2.23% (not including your storage and return mailing costs, should you decide to do business through the mail).

Spot Gold Price in RM

Australian Nugget quotes from UOB

How Long Should I Keep?

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In any case, you should not be buying any if you think you might need to regularly dip in and out of the holding. Precious metals should only be bought as a long-term hedge, or investment (like 2-3 years), that you can safely put aside for a future date. As I mentioned before, that date for me is when I can exchange an 500 gram of gold for an 20 acre of productive land in Kuala Terengganu or double story link house in Sepang, Nilai or Seremban. I consider my holdings to be property I will pass along to my children someday.

Where Should I Buy It??

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Following listed major institutions which involved in trading physical gold in Malaysia:

Institution	Gold Types
Maybank	Kijang Emas Coin (Bank Negara Malaysia)	-
United Overseas Bank (UOB)	Canadian Maple Gold Coin, Australian Kangaroo Coin,  Singapore Lion Gold Coin, PAMP Suisse Gold Bar & Kinebar Gold Bar	-
Public Gold	Public Gold Coin, Public Gold Bar, Public Gold Dinar & Public Jewellery	-
Permodalan Kelantan Berhad	Dinar Emas Kelantan	-
Poh Kong Jewellers	Poh Kong Bunga Raya Gold Bar	-
Habib Jewels	PAMP Suisse Gold Bar & Lady Fortuna Gold Bar	-

Differences Between Physical Gold Product Available in Malaysia 

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Gold Products	Kijang Emas	AUS Nugget, Canadian Maple Leaf, Kinebar, Pamp Gold, Singapore Lion	Public Gold & Public Dinar	Dinar Emas Kelantan	Poh Kong Bunga Raya	PAMP Suisse
Availability	Selected Maybank branches only	UOB Headquater KL only	Direct from PG branch in selected state or any PG agent all around Malaysia	Ar-Rahn (pawnshop) branch in selected state.	Poh Kong branches all around Malaysia	Poh Kong or Habib Jewels branches all around Malaysia
Spread Value	1 oz - 6%,  1/2 oz - 8%, 1/4 oz - 10%	1 oz : AUS Nugget - 2%, Gold Maple Leaf - 2%, Kinebar - 2%, Pamp Gold - 3.5%, Singapore Lion - 2%	5%-6%	9%	15%-25%	10%-30%
Stock	Always out of stock due to high demand	Always out of stock due to high demand	Always have a stock. Have own minting facility	Limited stock and always out of stock	Always have a stock	NA
Booking & Price Lock	No	No	Yes, 24 hours	NA	No	No
Plastic Cover Removed	Accept	Accept	Accept	Accept	Accept. Consider used gold.  Higher spread value	Accept. Consider  used gold. Higher spread value
Scratch or Bend Condition	Not accept	Not accept	Accept	NA	NA	NA

Why Public Gold and Public Dinar?

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Advantages of Public Gold Bullion:

• Cheapest bullion bar in Malaysia
• Smallest spread of buying  and selling
• Possession of physical gold
• 24 hours online booking system (1st in Malaysia)
• Able to reserve/book on certain gold price
• Guarented buy back (Even bullion is scratched or bended)
• Stock is always available
• Attached with qualified Assayer Certificate
• Branches throughout Malaysia
• 1st locally manufactured certified Gold Bullion Bar (The Malaysia Book of Records)

Where Should I Store It?

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Lots of options exist. Safe deposit boxes, secure locations that you trust...people have been known to bury the stuff.

For now, I prefer safe deposit boxes. Click following link for list of "Safe Deposit Box" available in Malaysia.

Maximizing Gold Profit Potential? 

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• How about gold price? The lower is the best.
• Which one physical gold or gold investment/saving account?  Go for physical gold. (see physical gold advantages above)
• Which standard or karat rating? Get 999 (24k) for the best or at least 916 (22k).
• What about buying and selling value? Differences between buying and selling value, the lowest is the best. Other words go for lower spread value.
• Any others things need to be consider? Look for other conditions such as gold can be scratch, bend, chipped, original receipt needed, etc.

Gold Investment Strategy?

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Following listed physical gold investment strategies:

• Technique A: Averaging Cost
  
• Technique B: Pawn, Buy, Redeem & Profit