Price relation of Gold with other asset types

Previously, I was mentioning about how ordinary folks like yourself and me can go about investing in UOB’s gold. From a macro-economic perspective, do you know how other assets’ prices react when gold prices rise or falls? It would be quite relevant for those who trade in currencies, commodities or even invest in stocks and bonds.

When price of Gold INCREASE, the below relationships are reflected. The inverse is also true.

Price of Price movementRationale
OilAs crude oil prices rise, inflation also rises. Gold is a good hedge against inflation, thus its value increases with increased demand.
USDDuring times of economic unrest, investors tend to dump the dollar in favor of gold. Unlike other assets, gold maintains its intrinsic value.
EUR/USDSince both gold and euro are considered “anti-dollars”, EUR/USD may go up as well.
AUD/USDAustralia is the third biggest gold producer in the world, sailing out about $5 billion worth a year.
NZD/USDNew Zealand (rank 25) is also a large producer of gold.
USD/CHF25% of Switzerland’s reserves are backed by gold. As gold price goes up, the pair moves down (CHF is bought).
USD/CADCanada is the 5th largest producer of gold in the world.
As gold prices goes up, the pair tends to move down (CAD is bought).
Economy strengthWhen economy weakens, demand for stocks and other financial assets slackens. This drives money toward what are perceived to be more stable investments such as cash and gold.
Bond yieldsFalling yield indicates an expectation of weakened economy. When interest rates fall, investors flock to gold rather than fixed-income investments that yield a fixed return.
Local currencyA weakened economy that offers lower yields on its bonds will attract lesser investments. This makes its local currency less attractive than that of another economy offering higher returns on its bonds.

Has this broaden your understanding about gold price relations with others?

Investing in UOB Gold

I had been buying 1/10 Oz Gold Bullion Coins (bless my soul!) from UOB for several years now, though none the wiser other than the budget I had on hand at that time. The only thought to it was to choose the Australian Kangaroo over the Canadian Maple Leaf as the face value of the earlier is higher for the same weight.

I was not an investor. I was treating it more of a collectible. It was time to spend some effort to delve deeper before the spread cost me further.

Before we move on further, do note that when you sell back to UOB, you are required to show proof of purchase such as the original UOB invoice and to ensure that the seal or packaging of physical gold from UOB has not been broken or tampered with.

UOB will not buy back if the seal is broken or tampered with. UOB will also deduct $100 off the BUY rate should a receipt not be furnished.

* SELL/BUY rates discussed are based on 10 Oct 2019

1. GOLD BULLION COINS

Weight (Oz)Weight (Gm)SellBuySpreadSpread
(based on 1 Oz)
1 Oz31.1035 2146 20658181
1/2 Oz15.5517 1114 103282164
1/4 Oz7.7759 570 51555220
1/10 Oz3.1104 252 20547470
1/20 Oz1.5552 152 102501000

UOB sells both the Canadian Maple Leaf Gold Coins and Australian Kangaroo Gold Nuggets in various weights above.

2. PAMP GOLD BARS

Weight (Gm)SellBuySpreadSpread (based
on 100 Gm)
Spread (based
on 1 Oz)
1006764664012412439
503421331910220463
31.1035
(1 Oz)
213120636821968
201402132676380118
15.5517
(1/2 OZ)
1086103056360112
10 732 66270700218
5 389 329601200373
2.5 216 163532120659
1 95 64313100964

Produits Artistiques Métaux Précieux – artistic precious metals products – better known as PAMP, is the world’s leading bullion brand, and one of the most trusted refiners and fabricators of precious metals.

3. ARGOR CAST BAR

Weight (Gm)SellBuySpread
1006676659878

This sturdy 100 gram cast gold bar is a 99.99% pure gold bar from Argor-Heraeus SA, one of the world’s leading international gold refiner and bar manufacturer, in Mendrisio, about 17 km from Lugano in south eastern Switzerland.

4. CAST BARS

Weight (Kilobar)SellBuySpread
1 Kg6627465997277

Cast bars by UOB are 1 Kg each.

Thought process of investing in Gold

As an investor, you buy gold from UOB at the SELL rate and sell back to them at the BUY rate, the difference being the spread.

Generally the heavier the bullion coin or bar purchased, the lower the spread. E.g. the spread for 1 Oz bullion coin is $81, however if you have a 1/10 Oz, effectively the spread is $470 if you sell 10x of these coins for the same weight.

It is therefore more cost-effective to buy a larger unit size rather than multiple smaller units adding to the same weight .

Why the higher spread for the ‘same’ weight? If all else being equal, purchasing the smallest-sized gold possible would be recommended for most flexibility. However, minting costs tend to be ‘fixed’ regardless of the size of gold. The mint still has to create the dies, source the metal, pay for marketing, manage distributors, etc. So smaller gold bullion or bars carry a higher markup as a percentage of overall cost. It’s similar to how NTUC sells you 20 rolls of paper towels for $20, but the neighborhood store sells 4 for $10.

Type WeightSellBuySpread
Gold Bullion Coin1 Oz2146206581
PAMP Gold Bar1 Oz2131206368
Gold bullion coin 1/2 Oz1114103282
PAMP Gold Bar 1/2 Oz1086103056

From the above, you can see that PAMP Gold Bar is cheaper (lower SELL rate) than Gold Bullion Coin with a lower spread for the same weight. Why?

Prices of PAMP Gold Bars are based on the international gold price, while prices for Gold Bullion Coin include a premium over the international gold price because of their collectability, status as legal tender, and rarity. Therefore, a pure gold investor will opt for PAMP Gold Bar.

Type WeightSellBuySpread
PAMP Gold Bar100 Gm67646640124
Argor Cast Bar100 Gm6676659878

On a strict comparison between PAMP Gold Bar versus Argor Cast Bar for the same weight, we can see that the latter is cheaper (lower SELL rate) with a lower spread.

It is more cost effective to invest in Argor Cast Bar rather than PAMP Gold Bar.

Rationally, the most cost-effective to invest is by the Kilobar. However, for most of the common folks like you and me, having $60,000+ freely available is not a luxury we have. In addition, the con of having a large unit is that it is not liquid in a sense. You cannot divest part of a Kilobar (e.g. 100 Gm) but would have to sell the entire unit. Thus, buying multiple units may make more sense.

However, by buying too small a unit, you will losing out on cost via the spread. Personally, I feel that minimally 50 Gm and above is a good size to begin. And as a investor, I would lean towards 100 Gm Argor Cast Bar.

Non-physical holdings

DescriptionWeightSellBuySpread
Gold certificate1 Kilocert6627465997277
Gold Savings A/C1 Gm66.2766.000.27
Silver Passbook A/C1 Oz24.4123.840.57

There is also the option of buying and selling gold, though not in the physical form.

The con of having non-physical holdings is that the cost is not a one-time cost. There are recurrent fees to consider.

I would personally not consider the above.

DescriptionFees and Service Charge
Gold Certificate $5 per certificate.
$72 per kilobar per annum, subject to GST.
Gold Savings A/C 0.25% p.a. of highest gold balance each month,
subject to monthly minimum charge of 0.12 grams of gold.
Silver Passbook A/C 0.375% p.a. of highest silver balance each month,
subject to a monthly minimum charge of 0.2 ounces of silver.

Do you invest in Gold as well, and have you done your due diligence?

I will my assets, share and share alike

Everyone eventually leaves one day, and you either leave assets or liabilities behind, or even both. I have been going through this thought process of making a will. Doing one is not expensive, it can cost anything from a few hundred dollars to zero cost. I laid out all that I might possibly have, though not the full details. You can go through my thought process pictorially when you do make yours one day.

Being an intestate after death is not exactly pleasing as my estate will be distributed according to the Intestate Succession Act instead of how I wish it to be. Also, as the probate process is quite complicated, this usually means a delay in settlement or assets distribution, resulting in higher legal costs.

Most people focus only on the center portion, or the assets distribution. This is where you decide how to distribute your tangible assets to your close-kins, usually monetary or physical assets with value. In fact, there may be more than those stated which are too numerous to name. For example, you can will your Hi-5 stereo set, valuable CDs, refrigerator or even keepsakes. Also, there is now digital money (such as cryptocurrency , paypal funds, pre-funded accounts in the name of the deceased) which I have not seen much discussion on how it can be legally be included or distributed in a will. I have also come across some unique cases of who owns the access of the deceased email or social media accounts should the close-kins not have the passwords to them.

The next thing was to be aware of what is NOT COVERED under my will, and whether they fall under the distributable or non-distributable side. Generally, CPF monies and some insurance policies (which have nominees) will be distributed by nominations. Properties which are joint-tenancy and bank joint-accounts are taken over by surviving parties. These cannot be willed.

Not many realise that everyone will end off with some form of debt when they leave. The second misunderstanding to correct is that these debts are non-transferable. The debts are first settled from the deceased’s estate. The only implication is a joint-loan with or if you were acting as a guarantor for the deceased.

Have you looked at assets distribution in the event of an unexpected dismissal?

Take control of every dollar flow for your Monthly Salary

Not sure how often working adults tracks their salary flow, but I do it each month. More often than not, I hear people complaining they do not know where their money have gone to mid-month. Whether it is a mindmap, flowchart or even excel spreadsheets, it is a simple habit that is both useful and long-term positive implications.

Some people depend on next month’s salary to cover for this month’s bills. Others depend on their “expected” bonuses to pay annual insurance premiums or blow it away on extravagant holidays.

This is how I have done it:

Tier 1 Pay-Yourself-First. I am an advocate of setting aside fixed sums of money in my investment and savings fund. You build your nest egg to secure your future and create a cushion for financial emergencies, unexpected medical expenses or loss of job. Without savings, many people do experience a large amount of stress.Why not take care of your future first? Expenses are scary. If you spend your money first before saving up at the end of the month, you may find it hard pressed to do so.

Tier 2 Fixed monthly expenses. I scan through the big ticket items that is a must to settle each month. This includes parents allowances, mortgage loan, childcare fees and taxes (income and property) which I have opted for monthly GIRO. After this is done, I can breathe much easily for what is next.

Tier 3 Ad-hoc expenses. It is now finally time to look at the smaller ticket items that varies each month or that occurs annually / one-off. While I take the public transport to work, a car is still useful as I make cross-island trips during the weekend for leisure. What is unique about Tier 3 is that the amount and frequency of occurrence is dependent on how much is left throughout the month. If the amount is dwindling for instance, I would probably spend more meals at the hawker centers instead of restaurants or even food courts.

Tier 1 CPF contributions. My CPF monies are my monies. 37% worth of my salary being accumulated each month is alot of money, and if channeled wisely, will go a long way in navigating my retirement at age 65.

The above flowchart that I have done is a simple one for me to update and track. In reality, it is more complicated (which may included bonuses, staff benefits etc.) than that but it is good enough.

To do well, you need to be aware of where your dollars are going. Keeping track of your salary is the first step to building this understanding and fulfilling the financial goals that you have set in life.

Why my Child gets all the spare change in the house?

How many of us still mainly use physical cash nowadays? With credit cards and other forms of cashless payments, it is not uncommon to just carry some cash and no coins. Perhaps only the previous generation, like my mum, still do carry a purse to keep spare change. When we do and receive back the change, do you find it a chore to keep the coins on yourself?

Coin Deposit Fees: S$0.015 per piece (total fee rounded to the nearest one cent)
Coin deposit fee is automatically waived for:
POSBkids Account until the child turns 16 years old, for the first 1,000 pieces deposited per calendar month*.

I opened a POSB Kids savings account soon after my child was born. Do you know that children savings account usually have a waiver on coin deposits fees up to a certain limit?

I started to introduce a savings habit in the family for my child. All spare change goes to her! Number One, depositing of coins into her savings account is fee-free. Number Two, it gets rids keep stock of coins lying around the house and wondering when we will next use them. Number Three, as part of her financial education I plan to inculcate the value of money and savings from young. Coming up with a guide to educate young children on financial education is part of my plans.

I consistently collate coins from lunch meals, family outings, groceries shopping and bank in periodically. Sometimes, I also use this avenue to fully cash in on old 5 cents and 1 cent coins which present a chore to use in quantity.

Slowly but surely over the course of 1.5 years, the sum is beginning to add up. I have been keeping track, and it seems that a good $349.40 has accumulated!

Of course I recognise that the interest rate for the savings account is a measly 0.05%, and the money saved is channeled to her Regular Savings Plan (RSP) for accumulating capital gains from young. The investment or trading account is a joint-junior account and will be transferred to her proper when she turns 18.

Do you accumulate your coins too or leave them lying around?