Gold and the currency market

For the past few weeks, the rising Singapore dollar has caused substantial market swing in the currency market. Notably, Malaysia ringgit reached a low on April 17 when one Singapore dollar could buy RM2.7234. This inevitably created worries for many Malaysians who travel to Singapore or send their children here to study on a daily basis. The unfavorable exchange rate has reduced their purchasing power substantially.

If you think that the currency movements affect only forex traders, then you are wrong. In fact, it affects our daily lives because a stronger Singapore dollar can make imports cheaper and hence, help to curb inflation.

Indeed, the exchange rate is merely a tool used by many central banks, such as the Monetary of Singapore, to manage the country’s economy. From an investor’s standpoint, volatility in the currency market may not be a good news if the majority of their wealth is in cash holdings. Just imagine, a Malaysian millionaire who stash most of his bank savings in Malaysia ringgit must be very worried now. This is because the ringgit may depreciate further due to the strengthening of US dollars and potential analysts’ downgrades.

On the other hand, Singapore investors should not be complacent and think that Singapore dollar would always remain strong. To avoid wealth destruction, it may be a good idea to buy gold bullion as a means to preserve wealth.

Gold and Silver Bullion

Gold and Silver Bullion

Over in Singapore, the government is beginning to appreciate the role of gold bullion in the investment fraternity and has been implementing policies to develop Singapore as a metal trading hub for gold. In 2012, the government removed 7 percent GST from investment-grade precious metals, hoping to spur Singaporean’s demand for gold.

As a result of this policy shift, many gold dealers, such as BullionStar, has set up shop in Singapore. For many international and domestic investors seeking safe haven for their precious metals, Singapore is considered one of the best choices because of its reputation for being a safe country with low crime rate. BullionStar stands out from the rest of its competitors as it offers convenient, end-to-end solutions for the purchase, sale, storage and delivery of an assortment of bullion products through its BullionStar’s “My Vault Storage”.

You may buy “paper gold” such as gold mining stocks or gold Electronic Traded Funds (ETFs) through the stock exchange.  However, it is important to note that investing in these investment products carry substantial risks for average investors because of the potential risk of defaults on the commodity exchanges. Secondly, you can choose to invest in “digital gold”. In Singapore, UOB is probably the only local bank that offers gold and silver saving accounts. Lastly, most average retailers prefer to invest in “physical gold”, such as jewellery and bullion, which consists generally of coins and bars.

Personally, I prefer putting my money in physical gold as there is virtually no risk of defaults. Furthermore, being a more traditional person, my belief is always “seeing is believing”. I prefer to take possession of my gold bars, rather than holding “paper gold” or “digital gold”.

The outlook for gold is still intact as both the retail and institutional demand are still strong. In fact, Bloomberg revealed that China and India are still consuming about 8 million ounces of gold per month. It is unlikely that this demand will taper off, so going forward, Singaporeans should seize the opportunity to accumulate gold to avoid being affected by the upheaval in the currency market.

Magically yours,

SG Wealth Builder

Updated: January 15, 2016 — 2:50 pm

Leave a Reply