You’ve seen the lines at the jewellery shops. You’ve read about Malaysians making a killing trading it during the pandemic. “Gold investment” is trendier than ever in 2021, but what is it and most importantly, how does one go about it? Read on for a complete beginner’s guide to gold investment, brought to you by PolicyStreet, Malaysia’s first InsurTech company.
Table Of Content
- Why Gold?
- How Does Gold Pricing Work?
- Physical Gold and Paper Gold: Know the Difference
- Investing in Bullion (Gold Bars and Coins)
- Investing in Gold Jewellery
- Investing in Gold Investment ETFs
- Investing in Gold Mining Shares
- Investing in Gold Investment Accounts
- Investing for the Future
You’ll find that gold is a staple of many diversified portfolios. Investors typically set aside around 10% of their stock portfolio for gold investment. Why? It’s because gold is a commodity that has managed to retain its value for a long time. A gold bar is a physical store of money; its value doesn’t decrease, even when the values of other sources do (e.g. inflation causing paper money to be worth less and less).
Because it’s so consistent, gold is a hedge against market volatility. In other words, it’s a good way to limit one’s investment losses, should other sectors face a downturn (e.g. the U.S. housing market crash in 2008). In such tough times, it’s even more precious as a source of liquidity that can be traded worldwide. It helps that gold prices also tend to rise during economic uncertainty. All of these factors contribute to gold’s status as a “safe haven investment”, making it an ideal choice for those seeking to preserve their wealth.
How Does Gold Pricing Work?
“Spot gold” is a common term used in Malaysia to describe the current, “right-this-moment” price of gold. Because gold is a commodity trading on supply and demand, there are a few factors which can influence its price. Some circumstances that increase gold prices are:
- Geopolitical instability – trade wars, states of emergency, military coups etc.
- Weakening U.S. dollar – gold is priced in USD, which means cheap dollars = more gold!
- Low interest rates – people may look for other investments when their usual funds and savings have low returns
- High consumption demand/low gold supply – prices hike when gold is scarce (e.g. due to increased purchase of technology/jewellery)
Because gold will always be valuable, it’s never too late to start investing in it. With proper research, you could very well make a tidy little profit to boost your finances during COVID-19. But first, let’s take a look at the various approaches available and how they match up.
Physical Gold and Paper Gold: Know the Difference
When deciding to invest in gold in Malaysia, we can start with some key facts:
- There are two types of gold you can buy – physical gold or paper gold
- Physical gold consists of bullion (gold bars/coins) and gold jewellery (tangible assets)
- Paper gold mostly consists of investments related to the gold industry (intangible assets)
Choosing the investment option right for you depends on a few factors, but the main question is whether you’d like to physically own your gold. Here’s a simplified overview to make the differences clearer.
|Physical gold (Bullion/jewellery)|
|Paper gold (ETF/investment accounts/gold mining shares)|
Now, let’s dive into each option individually to understand them better.
Investing in Bullion (Gold Bars and Coins)
Gold bullion refers to bars and coins which have been refined to the highest purity (minimum 99.5% gold). Gold coins traded internationally include the American Gold Eagle, Canadian Maple Leaf, Australian Kangaroo Gold Nugget and the British Royal Mint’s Gold Bullion Coins. Closer to home, Bank Negara has been minting the national gold coin, the Kijang Emas, since 2001.
Coins have high liquidity and can also be collected due to their aesthetic value. However, certain collectible mints carry premium commissions on price due to their rarity This makes them less suitable as an investment option. Coins range from 1/10 oz. to 1 oz. in weight.
Gold bars are the more popular choice for serious investors as they tend to be more practical to store and sell. Also known as wafers and ingots, these are typically stamped with the gold’s weight and fineness and can be bought from 1g onwards.
Bars come in two types: cast and minted. Cast gold bars are cheaper because they do not involve workmanship, only casting. Molten gold is simply poured into moulds and left to solidify into plain gold bars. Meanwhile, minted gold bars are stamped with specific patterns during the casting process (e.g. Poh Kong’s famous Bunga Raya). Thus, they’re more intricate and beautiful, but also more expensive.
Credible private producers of gold bars and ingots (besides government mints) include Produits Artistiques Métaux Précieux (PAMP) and All Engelhard. Here’s a summary of gold bullion by its qualities:
|Gold Coins||Gold Bars|
Both gold bars and coins are sold at gold dealers and selected banks around the country, as well as reputable online retail sites (e.g. JM Bullion and Public Gold). Prices may vary widely due to the addition of the costs of shipping and handling, insurance, certification of authenticity, and the seller’s own profit margin, so do a thorough comparison before making a decision.
Investing in Gold Jewellery
Malaysians love jewellery. It sparkles during the festive season and makes for a significant yet thoughtful gift. While it certainly makes a striking impression when worn, keep in mind that jewellery is a luxury item.
Gold jewellery is not usually recommended as an investment, and for good reason. The price you see in gold shops includes workmanship costs and a retail markup. These are left out when selling or melting down the item– only the weight and purity of the gold matters. So, one will not make a profit by continuously buying and selling gold jewellery.
Our advice? If you’d like to invest in gold, skip this option. You can acquire selected pieces for sentimental or personal value instead, and look into alternatives with the remaining funds. (On the bright side, gold valuables are usually insured by most homeowner policies, so theft is not an issue!)
Moving beyond owning physical gold, the following options deal with intangible assets such as stocks, and are recommended for investors managing sizable reserves.
Investing in Gold Investment ETFs
An ETF (exchange-traded fund) is a security option which tracks the performance of selected indexes and sectors. It trades on the stock exchange just like regular stocks, hence its name. Naturally, a gold investment ETF focuses specifically on the commodity of gold in the futures market. The TradePlus Shariah Gold Tracker is notable for being the first Shariah-compliant gold commodity ETF on the Bursa Malaysia.
Should you opt to invest in gold-backed ETFs, bear in mind that there are annual management fees on your investment, which are reflected in the fund’s expense ratio. These are usually between 0-2% and chargeable in USD. Trading commissions also apply to every sale made of an ETF, and can accumulate if one trades actively, whether online (usually cheaper) or through a broker. While big investors may find all these extra expenses negligible, many first-time or moderate investors prefer to save that money for something else, and choose to invest elsewhere.
Investing in Gold Mining Shares
This type of investment, similar to gold ETFs, trades on the stock market. With this option, you invest in gold-affiliated mining companies by buying their shares. Your returns are dependent upon the companies’ performance. Some well-known listings on the Bursa Malaysia include Bahvest Resources Berhad (BAHVEST) and Poh Kong Holdings Berhad (POHKONG). A full list can be found here. As with all stocks, do your homework and invest only what you’re prepared to lose, as unpredictable markets and sudden bankruptcy can lead to devastating losses.
Investing in Gold Investment Accounts
The gold investment account (GIA) has become more and more popular in Malaysia, owing to the strength of its providers—trusted local and international banks with impeccable reputations. The six banks in our list offer clients the chance to invest in gold without the hassle of owning and securing it.
Before you get too excited about this seemingly perfect hybrid option, do note that gold investment accounts are not protected by PIDM and earn no interest, unlike normal savings accounts. Each provider also has different conditions. Some banks allow redemption of physical gold, while others only allow cash withdrawals. There may be conversion and administrative fees to maintain your investment. The minimum purchase, sale and required balances also differ, so it’s advisable to compare T&Cs and get a clearer picture. Here, we’ve summarised the current offerings in the Malaysian market for your convenience.
|Bank||Initial Purchase||Withdrawal Options||Minimum Balance / Sale|
|Maybank Gold Investment||1g||1g for both|
|Kuwait Finance House Gold Investment||10g||2g/1g|
|Kuwait Finance House Junior Gold Investment||5g||2g/1g|
|Public Bank Gold Investment||5g||2g/1g|
|UOB Premier Gold Account||1kg||1kg / N/A|
|UOB Gold Savings Account||20g||5g / N/A|
|CIMB e-Gold Investment Account||1g||1g / N/A|
|HSBC Gold Account||1 troy ounce (31.1g)||0.1 troy ounces (3.11 g)/ N/A|
Investing for the Future
We’ve covered gold investments in Malaysia in both paper and physical forms in this article. While gold has a reliable track record, as with all commodities, prices can still be volatile, so be aware of market trends if you do decide to sell your gold in the future.
Gold is a long-term investment option which does not earn dividends or yield income. Its true advantage lies in the diversification it offers to your portfolio. Once you’ve established your investment, check and rebalance your portfolio from time to time to maintain your gold exposure at a level of risk you are personally comfortable with. As always, beware of scams when transacting online, and remember that past performance does not indicate future performance. PolicyStreet wishes you the best on your gold investment journey!
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