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BULLION INSIGHTS

Stay Updated with the Latest News, Events and Insights into Precious Metals Investment

It has been a busy week, you didn’t have much time to look at your Precious Metals (PM) investments during the week. Now that it is coming to the weekend, you decide to purchase some LBMA Good Delivery gold bars as prices having been dipping throughout the week.

 

BOOM. Wrong move there. You might have been better off waiting for Monday. To understand why, we first must understand the price components of a gold bar and why weekday prices are different from weekend prices.

 

If you are unfamiliar with the below equation, get familiar with it first!

Price = Physical Premiums + Spot price

(For more information, refer to “Cheaper a bit can a not?” Why your gold bar should NOT be cheaper. Article)

 

“Wise and successful businesses properly manage risks.”

 

For GoldSilver Central, we adopt a Hedging-based model approach where we ensure that we are not exposed to price fluctuations on our clients’ orders. This approach allows us to serve our clients without any prejudice on prices and ensures that we are not adversely affected by massive rise/drop in prices. To put things in perspective, a $200 increase in gold price will not equate a $200 increase in profits for selling a gold bar, as we do not take any positions on the gold spot price.

 

Under normal market conditions, where there is deep liquidity available and market participants aren’t afraid to quote prices for buying/selling, the difference between the selling price and buyback price (Also known as the buy-sell spread) is narrow. This is a natural function of efficient markets, where conditions for performing transactions are very fluid and has less or no friction. This is what usually transpires on a weekday where many market participants are available, and dealers are active also.

 

However, on a weekend, this is not the case. Market participants are inactive and do not quote prices. Hence a bullion dealer who deals on the weekends will instead, take the trade onto their own books. This creates exposure and a higher risk for the business itself, come Monday when markets are once again open. To deal with this increased risk, the buy-sell spread is widened to account for any possible fluctuations between the current quotes and the Monday market prices. This widening could be reflected in either the physical premiums or the spot prices itself.

 

A fun fact: Never try to compare prices of brokerages on a weekend. The adjustment of the buy-sell spread differs for each brokerage and you will end up with an inaccurate comparison.

 

How is the buy-sell spread determined on the weekends?

Reputable bullion dealers will have their own price risk assessment and structure. They consider several factors, such as the current market volatility, and price accordingly. Hence, you may observe that the buy-sell spread for the weekends may differ for different products.

 

This is also why some bullion dealers do not take in large orders on the weekend, as this increases their risks to an unacceptable level.

 

This sounds so unfair! Why should there be a wider buy-sell spread?

It is not a question of “fair / unfair”. Rather a more appropriate question to ask yourself should be “am I willing to deal at the current quoted rates?” Reputable bullion dealers widen the buy-sell spread to account for the increase in risks that they undertake. If they do not, they expose themselves to unacceptable risks and may even go out of business if the risk is not managed properly. However, if a dealer widens the buy-sell spread too widely compared to others, savvy investors know not to take it up and the dealer effectively prices himself out of the market. GSC offers services such as GSC Live! and price alerts/limits that assist our clients to monitor their desired price levels.

 

So why transact on the weekends?

It depends on your objectives!

 

If you are a regular investor and are now in the accumulation phase of your investments, you may wish to avoid placing weekend trades to avoid any major fluctuations in your accumulation. Slow and steady as some call it.

 

However, if you are a gun-slinging sniper looking for short-term opportunities from minor movements in price, and you foresee that prices are poised for a big movement come Monday, then yes transact on the weekends and lock in those prices. There are also investors who see that the current weekend prices meet their desired levels and are happy to sell at these levels. There is nothing wrong in that too.

 

Ultimately, GSC’s role is provide liquidity to our customers at fair and transparent rates. We also have value added services such as GSC Live! that make it easier for clients to achieve their objectives. The choice to transact or not, has and always will be the client’s to decide.

 

Till the next time, have a good weekend.

 

Jason

GSC Savings Accumulation Program (GSAP) is a unique program whereby we help investors to accumulate precious metals based on the Dollar-Cost Averaging method. By putting aside a minimum amount of SGD 100 a month for 1 cycle (3 months) to accumulate into your preferred precious metal type you are technically doing the following:

Taking reference to a month with 20 business days, you will be accumulating $5 worth of Gold daily;

($100 / 20) = $5 will be used to purchase into Gold

The value of holding these precious metals way surpass paper currencies or coins due to its unique diversification role in an investor’s portfolio. Regardless of the Market condition and by investing in precious metals daily with GSAP, you would have had unknowingly diversified your portfolio to:

  1. Hedge for Inflation
  2. Protect against Deflation

What’s so intriguing about this program is that you can flex it anytime.  – you can sell part of your holdings for cash or take *physical delivery during the accumulation period. As these holdings are physical holdings, there is a storage fee of 2.5% per annum, calculated on a daily basis, which works out to be less than S$0.50 for the whole month during your first accumulation month. As your holdings increase, the storage charges will increase as well. For a $100, storage fees are less than 1 cent, if fact it is only 0.7 cents per day!

Fancy a piece of Gold bar or coin? Opt to take physical delivery against your holdings by contacting us, and we can arrange all these for you.

Signing up is just a click away, head over to our website, and click on the “Sign Up” button under the GSAP section. We look forward to helping you accumulate your savings in precious metals for all occasions and needs.

*Physical Delivery refers to swapping your accumulated holdings for a physical precious metal bar or coin of your choice. Most of our Gold bars are LBMA accredited and are recognized internationally. When taking physical delivery, a premium top-up is required, and the amount varies from product to product.

Wendy

Have you ever wondered how do bullion dealers come up with the price of your physical gold bar? Is it true that bullion dealers make a lot of profits? Today, we look at the breakdown of a gold bar and why it is important to get a value deal instead of a cheap deal.

 

Essentially, the basic 101 formula is this:

Price = Physical Premiums + Spot price

 

Physical Premiums

Precious Metals Investors know that when they buy physical gold, they must pay a markup known as a physical premium.

For instance, on our GSC website, an Argor Heraeus Cast Gold Bar 100g is selling at S$8050.00 with the spot price of S$2450.80/oz. This translates to a physical premium of S$170.50 for the bar now.

This physical premium includes all the various costs components incurred in the minting of the gold bar. Some of these components include, but not exclusive:

  1. Refinery Minting costs
  2. Logistics Costs for delivery
  3. Insurance Costs
  4. Storage Costs
  5. Profit Markup

 

We covered this in a previous article also:

What are Physical Premiums? Why are they important?

 

You can see in the above example, it is inaccurate to say that the bullion dealer earns $170.50 from selling the Argor Heraeus Cast Gold Bar 100g. The bullion dealer incurs costs when it decides to bring in inventory stock from refineries and typically the local SEA market competition is very stiff. It is not far-fetched to say that for a 100g gold bar retailing at S$8000+, the dealer could only be making S$10+ from it.

However, it is accurate to say that the retail investor’s “additional” costs of owning the physical bar is $170.50. It is an unavoidable cost incurred for the eliminating the counterparty risks and having the additional security of the physical asset. (We will discuss this in greater details in another article. PM us for more details!)

 

Spot Price

This is commonly known as the price of gold which may be bought and sold at this moment. What determines the spot gold price? The simplest answer is demand and supply of the market participants. However, there are many alternate theories about it which we will not delve into. We must note that the spot gold price differs slightly from region to region for many practical reasons, considering the geographical location and the time lag.

 

So, why should I not want my bar to be cheaper?

The more appropriate question here would be “What’s the opportunity costs I have to forgo here?”

Just imagine this, a dealer who is solely focused on “a race to 0” as we affectionately term it, is likely not going to be focused on value adding to its customers. Its main goal would be to try and attract as many customers as possible by virtue of its “lowest prices possible” strategy and hope to attain enough market share to be a dominant player. We know that does not work in the bullion industry, as seen from the numerous players initially making a big entrance in the precious metals industry with “low premiums inventories”, only to shut down shortly after with huge losses.

 

Price should not be your only comparison.

Instead, you should be looking for a dealer who is not only price competitive, but also able to value add to your portfolio investments! We’ve spoken on the importance of having an expert to guide you in your precious metals holdings in this article here (All Precious Metals investors fall into 2 categories. Which are you?)

 

Personally, I would absolutely be willing to top up the extra $10 in premium costs if in the long run, the dealer is able to value add to my portfolio. The costs savings would be much more than the $10 I put up now. Think of it as a minor investment in ensuring you get a better deal rather than a cheaper one. As Warren Buffett says:

“Price is what you pay. Value is what you get.”

 

And I would choose value over price anytime of the day.

Till the next time.

 

Jason

Inflation refers to the rise in prices of most goods and services of daily or common use. Whenever there is a higher demand than supply, prices will be increased and therefore, leading to inflation.

Investors holding on to tangible assets, such as property(s), may like to see inflation in the Real-Estate sector, as that will cause the value of their assets to increase. On the other hand, as whenever there is a negative in the Real Rates of Return in the Equity, Bond, or Real-Estate markets, investors will purchase Gold regularly as it is an asset that maintains value. This is because Gold, Silver, and other Precious Metals have both intrinsic and industrial value, cannot be printed at will like currencies; therefore will not be affected by inflation in the same way as food or personal services

However, investors will have to take note that the volatility of these assets can turn down the benefits of their insulation from rising prices, especially if it is only used for a short-term investment.

Deflation is when the inflation rate falls below 0% (a negative inflation rate). Inflation will cause the value of the currency to decrease over time however, sudden deflation will increase the value of the currency. This will mean that more goods and services can be bought with the same amount of currency than before this sudden deflation.

Usually, deflation happens when there is a high supply (excess production) with low demand (decreased consumption), or when supply of money is decreased (sometimes in response to a contraction created from careless investment or a credit crunch), or because of a net capital outflow from the economy.

If deflation is exacerbated, it can throw an economy into a deflationary spiral. This will happen when a decrease in price leading to lower production levels, and therefore to lower wages. This will cause a lower demand by businesses and consumers, and the price will decrease further due to the lower demand. Unemployment rate will also increase if consumers delay spending in anticipation of falling prices, as it will eventually lead to a falling economic activity.

What we see today, the big increase in money supply in support of the global economies due to the effect of the pandemic, the low interest rate to spur lending and spending, inflation seem more like a plausible event moving forward. At this moment, a portfolio with a slightly higher allocation to Precious Metals might be good as we are bullish in the longer term and this period (current price levels for Precious Metals) might be a good window to enter the market and accumulate more.

Always remember that a diversified portfolio will be important to tide investors through inflation and also remember to constantly rebalance your portfolio to achieve the best results!

 

Suzane

We have many clients and new investors who have asked us about what is LBMA and the LBMA Gold price published. In this short article, we will have a short knowledge sharing on these 2 frequently asked questions. LBMA is an association that sets standards and represents the global bullion market players. The members of LBMA are to ensure the highest standard of transparency and quality assurance for the precious metals market. LBMA has a responsible sourcing programme for precious metals, this is to protect the integrity of the global supply chain, combat money laundering, terrorist financing and human rights abuses globally. Inland Revenue Authority of Singapore (IRAS) takes into consideration the good delivery list from LBMA as the tax exemption criteria for investment precious metals in Singapore.

However, the overall association does not generally set or provide any metals live pricing per se, e.g. Brinks is a member of LBMA but the company doesn’t make live market prices. The LBMA Gold Price is a global benchmark price for unallocated Gold delivered in London. It is set twice daily at 10:30am (AM Price) and 15:30pm (PM Price) London time by an auction that is independently operated and administered by ICE Benchmark Administration (IBA). The price is set in US dollars per fine troy ounce (31.1035g). Since LBMA doesn’t set the gold price, UK bank holiday where no LBMA prices are published actually doesn’t affect trading of gold as prices are still generated by over counter transactions globally.

In Singapore, there is the Singapore Bullion Market Association (SBMA), which GoldSilver Central has been a member since 2016. The SBMA is a non-profit organisation representing 35 key stakeholders from the precious metals industry in Singapore including bullion banks, exchanges, refineries, bullion merchants and secured logistics support companies. Its mission is to develop the bullion market in Asia and aims to have widespread representation of the ASEAN precious metals industry.

Hope this short article provided you some insights into our trade and stay tuned for more knowledge sharing articles by our team!

 

Maya

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Dear Valued Clients, visits to our retail store will be by appointment to better serve you amidst this pandemic. We will be closed on 9 Aug 2021 (Mon) for National Day and will resume operations on 10 Aug 2021 (Tues).
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