The pitfalls of 'investing' in gold jewellery
Published on
02 Oct 2022
Published by
The Straits Times
SINGAPORE - Gold prices have been hammered by the stronger greenback and are down about 20 per cent from their pandemic high - but before you rush to a dealer to snap up some shiny gold jewellery, note that investing in such items is not the same as trading in the bullion market.
For one, goldsmiths sell items at a premium, like works of art, with prices around 20 per cent above international trading rates.
Many now charge $91 per gram of 24K pure gold - usually sold in the form of bars or coins - when the trading price now is about $76.
The trading price in Singapore dollars is derived from the global price, which is denominated in United States dollars for a troy ounce of pure gold (about 31.1 g).
So if you buy gold pieces at such premiums, you will have to wait for the market price to rise by 20 per cent or so just to match the original amount paid to the dealers.
The situation is the same for 22K or "916" gold, which has 91.6 per cent purity and is the common grade for most gold jewellery here.
Retailers charge between $80 and $85, when the global price is about $69.
Buyers of jewellery also have to pay the goods and services tax (GST) as well as a fee for the effort to design and cast the precious metal into a chain, pendant, bracelet or ring. This is why some gold ornaments or "charms", which many younger buyers see as trendy accessories, come with a fixed price tag, usually two to three times costlier than its weight in gold.
Mr Alfred Chia, the chief executive of financial advisory firm SingCapital, says: "Buying jewellery is a bad way to invest in gold.
"The content may not be investment grade and is subject to workmanship fees and GST. You will need the gold price to appreciate tremendously just to recoup the original cost."
That is not all - if you take gold pieces to sell at the goldsmiths or pawnshops, you could receive less than the market value because the buyers will charge you a "commission", which can reduce the value based on the global gold price by up to 10 per cent.
A check by Invest also reveals that some goldsmiths will only take jewellery that was sold by them, while others will not pay you cash but issue vouchers that will allow you to buy other jewellery at their stores.
What this means is that you should just buy gold jewellery for what it is - an accessory or fashion item to wear or as a gift to relatives and friends. Many parents also view their gold jewellery as heirlooms to be passed on to their children.
Of course, if you happen to own an item of gold jewellery that was worn by a famous person, you may enjoy a huge windfall by selling it as a collector's item. Otherwise, the piece is only worth its weight in actual pure gold.
The Singapore Jewellers Association would only say that there are no fixed rules on how gold items are priced here - whether selling or buying back from customers - and that all jewellers can charge what they like or take back jewellery on a "mutually agreed basis".
Some goldsmiths in Little India, for example, charge $83 - $8 cheaper than other shops - for a gram of pure gold, and $73, or $7 cheaper, for 916 gold because they hope to attract tourists.
Ms Angela Lam, the director of the Arthesdam Jewellery, which has three outlets in Serangoon Road, says: "We deliberately price our gold and jewellery at a lower price than other goldsmiths because many of our customers are regulars and tourists. They enjoy a good bargain and we hope they will buy more from us."
Where to sell your gold pieces
A retired bank employee in her 70s who is thinking of selling some of her gold pieces to fund her daily expenses wrote to Invest to say that it was hard to find a buyer that would pay close to market value.
She says: "I actually went to many shops and all of them offered prices that were more than 20 per cent lower than their own selling prices for 916 gold pieces."
The shops offered to buy her 916 gold chain at $65 to $67 per gram when the same stores were selling such gold at $80 to 85 per gram.
So, a customer who buys a 10g gold chain at such a shop could be asked to pay $909 including GST, when its trade-in value is only about $670, or 26 per cent lower than the buying price.
A check by Invest shows that the Singapore Precious Metals Exchange (SGPMX) has one of the lowest fees for transactions involving pure gold because it operates an online global exchange that allows both big and small investors to trade with one another.
The investors own the gold they trade, unlike those who buy into gold-related funds.
The trades are based on the prevailing market price and the company charges 0.25 per cent commission for a 1 kg bar - the most popular size for gold investment - and 1 per cent for trades on smaller amounts on its online platform.
If you sell 50 grams of gold online, your sale will be based on the current price, or about $3,800, with a fee of about $38 only.
What about gold jewellery? SGPMX has a "gold swap" programme for people who want to trade in their jewellery. The process is transparent, down to the minute gram of gold content.
Depending on the number of items, customers have to pay about $300 so that their pieces can be melted into a pure gold nugget that can then be sold at the market price.
Mr Victor Foo, SGPMX's founding chief executive, says its swap programme is designed to encourage owners of jewellery or bullion to convert their holdings into newly minted bars or sell them for cash.
"The swap itself is a labour-intensive exercise. We will scan every piece with a handheld X-ray scanner to give an indication of the gold content in front of the customers before they sign the invoices so that there won't be disputes later," he says.
If a customer trades in his items and the refinery report states that the stash produces, say, 100 grams of pure gold, he can either pay a small fee to exchange the amount for a similar 99.99 gold bar, sell his gold to SGPMX or "hold" it in his online trading account to sell it later when the price goes up.
SGPMX does not accept walk-in customers because it is located at Le Freeport, a high-security storage facility in Changi North Crescent. Customers must submit a gold swap request on its website (sgpmx.com) for an appointment to be arranged.
Around 95 per cent of its customers are from overseas and many keep huge amounts of gold bars in the company's high security vault. When they want to sell, they can do so by the bars, or by value through their own online account.
Mr Foo, a veteran in the gold trade, has this advice for gold buyers: "Always buy from reputable dealers who source gold bars from accredited mints.
"Be aware of the different premiums charged for the various sizes, types and brands. You should not overpay, to ensure better profits when you sell."
Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.
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