Important criteria to consider in gold investment

At this point, we ought to be aware that not all gold items are worth as long-term investment plans. If the intention is to save for long-term investment, only two forms of gold are suitable, namely gold bar or gold coins. These two items are generally produced with 99.5% and above purity percentages.

Most of us still think that gold jewellery is also an investment though we have debunked in earlier articles why they are not. The price per gram is high for jewellery, and the same is also accurate with its spread. Hence the profit potential with jewellery is minimal. Instead, gold jewellery is made for decoration purposes, and the caveats mentioned earlier are part of the package and are unavoidable.

Criteria to look for in gold investment

When it comes to gold bars or gold coins, there are five criteria to look for before buying. These are to be analysed as a package, and it is not ideal for analysing one factor in isolation. This is based on my observation and leveraging on the experiences of my Mentors in this field since 2010.

 Criteria #1. Low price per gram

Before we proceed to buy, kindly compare the price per gram with other service providers to get a flavour of the price range. In this age of technology, this information can be easily extracted from the Internet by visiting their respective websites.

Generally, a lower price per gram is preferred. By doing so, we get to buy more grams of gold using the same budget. While purchasing gold for investment, do take note of the gold price at gold jewellery shops as well. We would prefer the gold price to be lower than that of gold jewellery shops.

While doing so, we should also note any additional charges that might not appear at first glance. Kindly ask the people at the counter for any additional costs while buying gold.

Service providers in the region:

In Malaysia, the gold providers for investments purposes are as follow:

• Public Gold (www.publicgold.com.my)
• Kijang Emas Gold Bullion Coins (www.maybank2u.om.my)
• Kuwait Finance House (www.kfh.com.my)
• UOB Bank (www.oub.com.my)

In Singapore, there are banks such as UOB bank (https://www.uobgroup.com/online-rates/gold-and-silver-prices.page) that provide this facility and also other providers such as BullionStar (https://www.bullionstar.com/) and GoldSilverCentral (https://www.goldsilvercentral.com.sg/), but again, we need to get more information regarding the fees and associated charges before making any decision.

Criteria #2. Thin spread margin

Spread in simple terms refers to the percentage difference between buying and selling prices. This is very similar to foreign currency exchange.

The “Selling price“ refers to the price we need to pay the seller if we are interested in buying their product. The “Buying price” is what we would receive if we sell our item away. Always look from the Seller’s perspective to make it easy to understand. When we want to buy something from a seller, we look at the ‘selling price’. Similarly, we refer to the ‘buying price’ column when selling our items away.

How to calculate the spread margin?

To know the spread margin, we can easily calculate using these two price points stated above. For the sake of calculation, let us operate the current price of a 10-gram gold bar sold at RM 2,625 (as of Dec 2021) with a buying price of RM 2,388. The spread margin calculation is as follows:

(2625 - 2388) / 2625 x 100 = 9%

We have seen the spread margin for the 10g gold bar to be 9% from the calculation above. Typically, the bigger the item, the lower the spread margin. Based on my observation and my Mentors, a spread margin of less than 10% is considered suitable for further consideration. If the gold items have more than a 10% spread margin, I highly suggest looking for others as numerous options are available.

In other words, the lower the spread, the better. This would essentially determine how quickly we would profit if the gold price appreciates in the future. The jewellery shops typically portray just the ‘Selling price’ without disclosing the ‘Buying price.’

How about with jewelleries?

Jewellery items are made for decorations, and selling back to them is not a usual occurrence. The margin will be about 25% to 40% if we sell based on the current gold price. This makes the profit potential too small, so jewellery is not ideal for long-term investment. The spread margin is just too huge!

One final piece of information about the spread is that it should stay the same despite the daily gold price changes or other implementations such as GST. Spread margin is essentially the profit potential of gold companies. This is how they can handle their day-to-day operations.

Criteria #3. Unlimited stocks

In the world of gold trading, the gold suppliers would be happy to sell when the gold price stays at a high level. But when the gold price drops, out of a sudden, they stop supplying, saying that they ‘ran’ out of stock. We have to wait for the gold price to shoot up before buying more gold. This situation is a loss for traders as this is their opportunity to acquire more gold and maximise their profit.

This is indeed unfortunate, especially for traders with big budgets. They could not do anything while letting the opportunity slip by. Based on my observation and my Mentors, there is one company in Malaysia that can provide the desired amount of gold without placing limits. This company is none other than Public Gold Marketing Sdn Bhd or Public Gold in short.

Able to lock price in system

Additionally, Public Gold has a price locking system to book the desired amount of gold in real-time based on world gold price. For instance, if the gold price drops at midnight, we could place an order based on the price point and proceed with payment the next day, followed by collection.

Criteria #4. Numerous branch offices

The presence of branch offices is helpful to facilitate buying and selling transactions. Even if the agent is there to deal as a middle person, this may not be feasible for the buyback. In addition, their commitments may not be available at all times, and in such instances, branch offices would be helpful.

Numerous agents can help sell gold but not for a buyback based on observations. Their capital is limited, which leaves us to deal with branch offices directly. Another factor to consider is the additional costs such as time and petrol while making trips to branch offices to facilitate this arrangement. Hence, these are some critical considerations before buying any brand of gold items.

In Public Gold, they have rolled out a booking system to place an appointment with the branch office to facilitate our transactions. The buy-back price can also be fixed, which eventually makes the whole process seamless without hiccups.

Criteria #5. Decent requirements for buyback

The most important criteria to look for when searching for a gold company is their requirement to buy back from us. Before we place an order, kindly check for the terms and conditions of the buyback.

Some companies require us to provide the original receipt for them to ‘roll’ to another party/customer at a higher price. In certain instances, companies only take in gold bars that are in perfect condition. Any scratch, dent, or even the seal must be intact for them to buy back the gold bar. If the gold bar has any of those mentioned above ‘faulty’ conditions, they will not buy back even at a lower price.

25% - 40% spread margin

If the original supplier chooses not to purchase from us, that leaves us no choice but to sell at a gold jewellery shop at a spread margin between 25% - 40%! This is a tremendous loss for us.

The best gold items are the ones their supplier guarantees to buy back in the future. And that too without placing tricky terms and conditions. Typically, when we pledge our gold items for a quick loan, the service provider would perform purity testing on the gold items. The gold items would be taken out of their seal during this process and exposed these items for scratches. Ideally, the gold company should be willing to buy back even ‘faulty’ gold items at a high price.

Value the company as a package

Based on the five criteria mentioned above, we can gauge how to rank the gold companies out there. This is important, especially for long-term savings. Upon analysing the gold companies as a package, we can choose the ideal provider, which would increase our profit potential in the long run. To reiterate, the decision should be based on the five criteria to analyze the companies as a package.

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Your buddy on gold investing,

Naresh G