Gold Investing in Singapore: Should You Buy Gold in 2024

Summary

• Investment Benefits and Risks: Gold is a valuable asset that serves as a hedge against inflation and provides financial security during uncertain times. However, it comes with risks such as price volatility, lack of income generation, and potential storage costs.
• Market Outlook and Influencing Factors: The gold market in 2024 is influenced by factors like US dollar strength, interest rates, inflation, and geopolitical uncertainties. Despite potential risks, the outlook for gold remains positive due to central bank policies and ongoing economic challenges.
• Investment Options in Singapore: Investors in Singapore can choose from various gold investment options, including physical gold, gold savings accounts, gold ETFs, and CFDs, each with its own pros and cons, depending on their financial goals and risk tolerance.

As an investor in Singapore you may be be thinking about adding gold to your investment portfolio.

But before you put any of your hard earned money into gold, let's dive into the benefits of investing in gold, the market outlook for gold and the different ways you can invest in gold. 

After reading this article, it will be more clear if the precious metal will be a good investment for you.

Why Invest in Gold?

Throughout the ages, humans have viewed gold as a valuable and special commodity. Unlike stocks or currencies, gold is a tangible asset that is not tied to the success of a particular company or nation's economy and is viewed as a hedge against inflation.

Additionally the metal provides financial security in uncertain geopolitical and economic times as a universal store of value. 

Not to mention that it offers applications in industries like aerospace, electronics and dentistry in addition to being a desirable investment. 

Gold Returns (2024)

The precious metal has also performed decently over the years. 

From January 1971 to March 2024, the average annual return on gold was 7.98% comparable to the average annual return on commodities of 8.01%:

Moreover,  gold is a useful tool to diversify your portfolio and reduce its volatility as it generally has a low correlation with other asset classes like stocks and bonds. Gold is also a good option for investors because of its high liquidity which allows it to be easily traded in a number of ways.

In sum, gold has historically performed well as a safe haven asset during market volatility and is a great portfolio diversifier due to its historical low correlation with bonds and stocks.

Should You Buy Gold Now?

That is the golden question. To answer this, here is a list of key factors which influence the price of gold which you need to understand.

Key Factors Affecting Gold Prices

Since gold is primarily priced in US dollars, its value is directly correlated with the strength of the US dollar. Gold becomes more accessible to foreign investors when the value of the dollar declines, increasing demand and raising prices.

On the other hand the price of gold may fall if the dollar strengthens and becomes more valuable in other currencies. 

The price of gold is also greatly influenced by interest rates as when rates rise, gold loses appeal because it does not yield interest which frequently leads to a stronger dollar and lower gold prices. 

Nonetheless, given that central banks are planning to cut interest rates, especially the U.S., investors looking for alternatives to protect themselves from inflation and economic uncertainty may see a spike in gold prices due to the Federal Reserve’s policy actions. 

Another factor that affects the value of gold is inflation, which reduces the purchasing power of a currency. This in turn causes investors to turn to gold to protect their wealth. 

Given that gold is seen by investors as a more dependable store of value than cash or bonds during periods of high inflation, recent trends indicate that ongoing inflationary pressures have contributed to the rally in gold prices. 

Also, war political upheaval or economic hardship are examples of geopolitical uncertainty that makes investors view gold as a safe-haven asset. 

The escalation of geopolitical tensions has resulted in a rise in the purchasing of gold by central banks in emerging market nations. 

Finally the price of gold is highly influenced by the balance between supply and demand. When demand from the jewellery and industrial sectors grows prices may rise. 

In addition, there is strong demand from China. The World Gold Council has reported that as of May 2024, China has increased its gold holdings to 2,264 tonnes, or 4.9 percent of its total reserves. This is about 20 per cent more than the 1,900 tonnes reported in 2022. Conversely if supply outpaces demand prices may fall. 

Current Gold Market Outlook

The aforementioned factors have combined to send gold prices to record highs in 2024. Although the price of spot gold fell to ~US$2,515 per ounce on Friday (30 August). It had hit its highest level of ~US$2,524 last Tuesday (28 August).

In light of potential central banks interest rate cuts in the near future, ongoing inflation and geopolitical risks, gold might still remain an attractive asset for investors. 

More specifically, analysts have stated that the Federal Reserve's decision to lower interest rates will give gold more macroeconomic support which could lead to further price increases.

Risks of Buying Gold

If you are looking to invest in gold, here are the key risks you should consider. 

Although gold is regarded as  a safe asset in times of turmoil this is not guaranteed.

he price of gold can be highly volatile as it has seen annual returns of about 30 percent in certain years and drops of a similar percentage in other years. 

The price of gold is also affected by economic and geopolitical risks like changes in governmental policies, shifts in the economy and political strife.

Another factor to consider is that gold does not generate income. In contrast to stocks or bonds, gold does not yield dividends or interest so investors must rely entirely on price growth to generate returns. 

Additionally the costs of storage and insurance associated with physical gold ownership can reduce overall returns and present logistical challenges. 

To sum up, you should carefully consider the risks associated with gold in relation to your personal financial goals and risk tolerance even though it can diversify a portfolio and act as a hedge against inflation. 

But considering these factors, gold can still be a valuable component of a well-diversified portfolio. However, Morningstar experts have advised that you should not allocate more than 15 per cent of your total portfolio to gold.

If you're interested in adding some diversity to your investments, let's explore the different ways you can invest in gold in Singapore.

How to Invest in Gold in Singapore?

Here are four main options each with its pros and cons. Check out this table for a quick overview:

With that in mind let’s take a closer look at each investment option’s pros and cons.

Buy Physical Gold in Singapore

If you are a traditionalist and would like to have the assurance of owning your gold directly, you might want to consider physical gold. This can come in the form of owning gold jewellery, gold bars, gold bullion coins, gold certificates and more.

But this method of buying gold has its own set of pros and cons.

Pros of Owning Physical Gold:

• Direct Ownership: Physical gold is a tangible physical asset that you actually own directly, offering reassurance to many investors. 
• No Counterparty Risk: When you own physical gold, you're not dependent on any financial institution or third party.

Cons of Owning Physical Gold

• Drawbacks: Storage and Security: Storing physical gold at banks or other retailers will incur storage fees and insurance costs.
• Liquidity Challenges: Selling physical gold can be more complicated than other investments, potentially resulting in delays or lower sale prices.

You can purchase or sell gold in these physical forms at the current rates provided by the bank or other gold dealers.

For reference, here are the gold prices at United Overseas Bank (UOB) as of 30 August 2024:

Gold Savings Account Singapore

Alternatively, a gold savings account lets you invest in gold without worrying about physical storage. These accounts allow you to purchase gold at market rates, with the bank handling the storage for you.

Pros of Opening a Gold Savings Account

• Convenience: You can effortlessly buy and sell gold without the concern of managing physical storage. 
• Liquidity: Gold savings accounts generally provide greater liquidity compared to holding physical gold.

Cons of Opening a Gold Savings Account

• No Physical Ownership: You don’t possess the physical gold, which could be a drawback for some investors.
• Fees: There could be fees linked to maintaining the account, which might reduce your overall returns. 

Speaking of fees, banks like UOB charge a monthly service charge of 0.25% p.a. of the highest gold balance each month subject to a monthly minimum charge of 0.12 grams of gold. There is also a The minimum quantity per transaction is 5 grams of gold (at least for UOB). For reference each gram of gold is currently priced at S$105.59 per gram.

Gold Stocks and ETF

Gold stocks and Exchange-Traded Funds (ETFs) are a popular choice for investing in gold. These funds mirror the price of gold and can be traded on stock exchanges.

Check out this table for an overview of the top gold stock/ETFs you can invest in as well as the pros and cons of investing in gold stock/ETFs below:

Pros of Investing in gold stocks/ETFs:

• Diversification: Gold stocks/ETFs offer the opportunity to invest in gold without requiring a significant amount of capital.
• Ease of Trading: You can trade gold stocks/ETFs like stocks, providing excellent liquidity.

Cons of Investing in gold stocks/ETFs:

• Management Fees: ETFs typically have management fees that can eat into your overall returns.
• Market Risk: The value of gold stock/ETFs can vary with market conditions, which may not always directly track the price of gold.
• Non-Direct Ownership: The gold is held in trust for you.

Read More: Gold price surges to record high. Which is the best gold ETF?

Gold CFDs to Hedge

Last but certainly not least we have gold Contracts for Difference (CFDs). Gold CFDs allow investors to speculate on gold's price movements without actually owning the physical asset. It can also be used as a strategy to hedge against price fluctuations.

Pros of Gold CFDs

• Position for both rising and falling markets. 
• Can take a short position to hedge against price correction. 
• Allows larger exposure with less capital through leverage.

Cons of Gold CFDs

• Do not own actual gold. 
• Use of leverage presents risks and requires risk management tools and know-how.

What would Beansprout do?

If you are looking to diversify your investment portfolio, it might be worth considering gold investments. 

You can then choose an investment strategy based on physical gold, gold savings accounts, gold ETFs, or CFDs, depending on your financial goals and risk tolerance. 

However, there are risks involved in investing in gold we should be aware of, including potential price volatility as well as not being able to generate any income from our investments. 

If you are interested to learn more about investing in gold, join our upcoming seminar "How to tap on opportunities in gold" on 10 Sep 2024. Register here for free.

Join our Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs.