Why Gold can be a Great Investment in Singapore for Wealth Protection
Owning and gifting jewelry is one of Singapore’s cultural traits. People from Singapore and the region have had a preference for gold throughout history, with gold jewelry being part of their family and cultural heritage.
Recently, a debate has been started over buying jewelry for the purposes of investment. Namely, investing in gold and insuring wealth with gold has become a common practice for High Net-Worth Individuals (HNWIs), and Singapore is widely believed to be the perfect place for it. Since they mainly invest in physical gold, some investors are wondering if gold jewelry items can be used with the same cost-efficiency.
Let’s take a look at what makes buying gold bullion for investment different from buying gold jewelry for investment when it comes to Singapore.
Goods and Services Tax and Investment in Gold Jewelry and Bullion
In Singapore, Goods and Services Tax (GST) rate is 7% on all items. However, in order to develop and promote Singapore as a precious metals trading hub, the government has decided to make certain investment grade gold, silver, and other precious metals tax-free. In October 2012, these precious metals have been labeled Investment Precious Metals (IPM) and have been GST-free ever since.
Gold bullion qualifies as IPM, whereas gold jewelry is non-IPM, meaning – jewelry is taxable (and therefore more expensive) in Singapore.
No markup for gold bullion
The difference in price between wholesale and retail jewelry is determined in terms of markup. The standard practice among retail jewelers is to sell an item with a 100% markup. More specifically, if an item’s wholesale price is S$100, the 100% markup means that its retail price is S$200. This practice is called keystone pricing and it means that the retail price is two times the wholesale price.
However, high-end brand retail jewelers often charge triple-keystone pricing, that is – three times the wholesale price.
In Singapore, the markup can be as high as 250% on gold sold as jewelry in high-end brand jewelry stores. Even smaller jewelry retailers account for at least 60% markup.
Additional costs that influence retail price of jewelry
The markup is not the only addition to the retail price of an item of jewelry. Jewelry stores have costs such as wages for the salespeople, marketing, store space rent, insurance, etc. In practical terms, it means that if a lump of gold used to make an item of jewelry is worth S$9,500, the actual item will sell for around S$23,000.
In terms of breaking even on the investment in the said jewelry item, the investor would have to wait for the market price of gold to rise by as much as 250%. To get a return on their investment, the market price of gold will have to rise even higher.
By contrast, there’s no markup for gold bullion.
Jewelry is harder to sell
Regardless of the standard markup, the price for the same item of jewelry can vary from one retail store to the next, due to the differences in overall price calculation (see section Additional costs that influence retail price of jewelry above). By the same token, the resale value of a piece of jewelry will be determined by the retail jeweler you want to sell it to, which can be a pretty subjective estimate.
Even if you find a jeweler who is willing to give you an excellent deal, there are still limited types of jewelry items (such as some antiques or rare collector items) that you can resell for more than what you bought them for.
By contrast, gold bullion gives you an opportunity to get a return on your investment, although it requires a solid investment strategy and – patience. Namely, investors can make use of the ‘’gold to silver ratio’’ (GSR) and purchase silver and gold alternately over a set period of time. Based on the GSR, investors decide when to convert gold ounces to silver and vice versa.
For example, when GSR is 45, investors should convert silver to gold, while they should exchange gold for silver when GSR is 80. Since GSR oftentimes fluctuates between 45 and 80, it will take several conversions over a period of time (even up to 20 or 30 years) to multiply the amount of gold bullion that the investor started off with. Nevertheless, it is an additional way to increase the investment yields on top of the standard price appreciation of gold and silver.
Bullion Gold Jewelry
Investors can use investment grade jewelry items as stores of value. Even though physical gold (gold bullion) is felt to be the ultimate store of value, many argue that it cannot be transported as easily as jewelry. For example, Michael (Mike) Maloney pointed out that the Landing Card you are required to fill out declaring what you are bringing into a foreign country doesn’t specify declaring jewelry. Instead, the Card is concerned with whether you are bringing in $10,000 (or more) in cash or cash equivalents (like stocks and bonds). That is one of the arguments in favor of easier transportation of jewelry worldwide.
In addition, jewelry is often given as a gift, which cannot be said for gold bullion. Jewelry is also traditionally passed down from one generation to the next and so on. As family heirloom, bullion jewelry has sentimental and cultural value but it also serves as a tangible monetary store of value.
Buying gold bullion for investment in Singapore
There are several reasons why Singapore is the go-to place for buying and storing IPM gold bullion. In addition to the mentioned GST exemptions, Singapore also has world-class bullion trade and storage infrastructure, with the recently opened Metalor Singapore and Singapore Freeport. Additionally, leading storage facilities such as Silver Bullion’s The Safe House offer not only top security for bullion, but also logistic support.
Talk to experts about the best strategy to devise to diversify your investment portfolio with bullion.