Tuesday, 19 February 2013

The Basics of Gold Investing and Finding the Best Bargain!

You might have noticed that the price of gold has taken a dip from a high of RM175.94/gram (somewhere in Oct 2012) to RM159.88/gram (as of 17 Feb 2013). Percentage wise, the price of gold today has lost about 10.05% in comparison to the highest value achieved in October 2012.
Taken from Goldprice.org
While some are predicting that gold price will rise to a new high by the end of 2013 and the early of 2014 (read the article HERE), the recent dip in gold price is indeed an opportunity for investors to accumulate more gold.*
*This is by no means a recommendation to buy gold. My sole purpose is to highlight the current gold scenario and investors should decide for themselves if it is worth investing or not.

If you decide that you do want to invest into gold, the most obvious question is how do you do it and where can you purchase gold from? 

As of my knowledge, there are two ways to invest into gold:
  1. Investing in Paper Gold
  2. Investing in Physical Gold

What is Paper Gold?
In simple explanation, Paper Gold is actually an agreement between you and the bank to purchase gold at a price offered by the bank. You will not be given a gold bar and instead the only proof that you own gold is a "passbook" that states how much gold you have bought and at what price. If you intend to sell that gold, you can only do so by selling it back to the bank where you originally bought the gold from. 

Pros of Paper Gold
  • You need not worry about where to store the gold you've purchased since there is no actual gold being exchanged. 
  • Buying and selling gold is can be done instantly over the counter or via internet banking.
Cons of Paper Gold
  • You don't own actual physical gold. All you have is an agreement between you and the bank in the form of a passbook.
  • If the bank which you purchased the gold from goes bankrupt/defaults, so will the gold you've purchased.
  • Investing in paper gold is not guaranteed by PIDM.
  • Paper Gold investment is considered as "Non Halal" income for Muslims. (please correct me if I'm wrong)
Who should invest in Paper Gold
  • Investors who intend to diversify their investment by allocating a small portion of their investment into gold. 
  • Amount of gold purchased are small in quantity. 
  • Investors who are confident that banks such as Maybank, Public Bank or CIMB will not default or go bankrupt.

What is Physical Gold?
Investing in Physical Gold means purchasing gold bars or gold coins which are 99.99% made of pure gold. Gold bars and gold coins are purchasable from certain banks and/or from gold trading companies such as Public Gold.

Pros of Physical Gold
  • You get to see, admire, keep, love, bring it to sleep with you all the gold you've purchased.
  • There is no risk of losing your gold investment even if the bank or company you've purchased from goes bankrupt. 
  • You can sell your gold to other banks, trading companies or to your local "pajak gadai" if the need arises.
Cons of Physical Gold
  • There is a possibility of you losing your gold due to theft, robbery, fire, etc if you keep your gold at home.
  • Having large quantity of gold bars will incur cost in terms of storage.
Who should invest in Physical Gold
  • Serious investors take primarily invest into gold.
  • Investors who feel secure having the real "thing" in hand instead of a piece of paper.
I'm all set to invest in Gold, so what should I do?
When it comes to investing in gold, investors should be wary that there will be a difference between the buying price and the selling price of gold. 

Similar to what you see at a Money Exchanger, buying and selling currency at different price allows the owner of a money exchanger to profit from the difference in pricing. The same concept applies for gold trading where the selling price of gold will always be a little higher then the buying price.  

For example;
Bank A is selling paper gold at RM160/gram and buying back paper gold at RM155/gram. 

You decide to purchase 10 grams of paper gold from Bank A at RM1600.00 today and for "God knows what reason" you decide to sell your gold back to Bank A immediately! 

By doing so, you are now RM50.00 poorer.

The basic concept of investing in Gold is to ensure that when you decide to sell you gold, do ensure that the buy back price of gold is higher then the price when your first bought that gold. 

Another point I should highlight when investing in Gold is to check on the difference between the buying and selling price of gold. The smaller the difference, the more you can save. I shall elaborate on this later.

Where to Buy and What is the Best Offer?
Purchasing Paper Gold
From what I've checked, there are currently 5 banks in Malaysia which offers Paper Gold investment:
  1. Public Bank
  2. Maybank
  3. CIMB Bank
  4. UOB Bank
  5. Kuwait Finance House
  6. (To add on if I've left out other banks)
Since there are 5 Banks offering Paper Gold investment, which one should you invest in? Let's take a look at the buying and selling price of paper gold as of 16th February 2013 for all 5 banks as shown in the table below:

Paper Gold Comparison - price RM per gram

% Difference
Public Bank
UOB Bank
Kuwait Finance House
The "Difference" column indicate the difference in RM between the selling and buying price for each bank.The "% Difference" column is self explanatory. If you remember earlier, I mentioned that selecting to purchase gold with the smallest difference helps you to save. Apart from that, a smaller % difference in buying and selling price helps you to recoup your investment faster when the gold price is bullish. 

Purchasing Physical Gold
There are currently 3 banks and 1 Trading Company in Malaysia which offers Physical Gold investment:
  1. Maybank
  2. UOB Bank
  3. Bank Negara Malaysia
  4. Public Gold (Trading Company)
  5. (To add on if I've left out other banks/trading companies)
For comparison of buying and selling price, I've decided to take Gold Bullion Coins as a sample:

99.99% Gold Bullion Coins - 1 Troy Ounce (31.105g)

% Difference
Maybank Kijang Emas
UOB Gold Maple Leaf
Bank Negara Malaysia Kijang Emas
99.99% Gold Bullion Coins - (50g)

% Difference
Public Gold

As you can see, although the quality of physical gold coins are all at 99.99%, buying from different banks or companies will have significant impact in terms of time taken to recoup your investment.

I hope this article has given you an introduction to gold investing and assist in helping you to find the best bargain for buying gold in Malaysia.

By the way, you can check the Daily Paper Gold Prices HERE

Cheers and Happy Investing!

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  1. gold investment targets the largest and most liquid silver mining companies in the world.

  2. I noticed the percentage differences are not fixed. It seems it keep fluctuating. I checked today 15th July and the difference in Maybank is 5.67 and CIMB is 5.60. UOB rate is low but they charge other fees and the trading must be in 5g block.

  3. i think this was a great post. thanks for all the details

  4. why does the paper gold cheaper than physical gold? (selling price)
    For example : maybank sell at RM146/gram, physical gold sell at RM167/gram.

  5. thank you! learning a lot from your blog

  6. Thanks buddy! 2020 predicted that gold per gram will be RM500! Start buying!!

  7. thank you for info...good job