Finance: Solid investment

1 Jan 2017 by Jeremy Tredinnick
Gold and silver

For 5,000 years or more, gold and silver have been mined and moulded into decorative jewellery and ornaments, valued by societies across the world. The first gold coins were minted and used as currency in the sixth century BC by King Croesus of Lydia (in modern-day Turkey), and from that time on, precious metals have been collected and hoarded as the ultimate symbol of wealth.

With the invention first of paper money and promissory notes, and more recently the modern era’s internet payment gateways and a seemingly inexorable move towards a cashless financial system, you might think that owning physical lumps of precious metal would fade into an antiquated past.

However, worldwide economic instability in recent years, and the consequent loss of trust in stocks, bonds and shares, have seen a growing number of people returning to the historical practice of buying gold, silver – and these days platinum too – as a safeguard against severe economic meltdowns.

Forms of asset-holding such as real estate and bank-held savings once felt secure and untouchable, but given the busts and booms of today’s unstable property markets and the precarious situation of a number of major banks, the thought of having liquid wealth that you can physically put in a pocket, bag or safe is gaining appeal.

Precious metals are considered a safe haven for people’s savings partly because they hold with inflation and therefore will always maintain their value. Another strength is that gold and silver are universally recognised forms of currency, transferable and redeemable – especially in coin or bar form – all over the world.

“The world is moving to a cashless society, but a lot of people want to have something they can actually hold,” says Niel Retief, senior executive at LPM (Lucius Precious Metals), a Hong Kong-based retailer that launched in 2010. “We operate out of a single location and do a lot of shipping, as we have distribution from all the major government mints round the world – the Royal Mint [UK], the Austrian Mint, Perth Mint, Royal Australian Mint, the Central Bank of Mexico, Rand Refinery and South African Mint.”

Another precious metals retail company that launched in 2010 – this time in Frankfurt – was Degussa, which, like LPM, saw the market’s potential in the wake of the global financial crisis of 2008. Degussa grew fast in Germany and other European cities, and in October 2015 opened its first Asia office in Singapore.

“Singapore’s location is attractive, its legal framework is stable, there’s a big expat community and private income levels are high,” says Michael Kempinski, managing director of Degussa Singapore. Another major reason for choosing Singapore is that in 2012 the government dropped taxes on investment precious metals or “IPMs”. Hong Kong also has no tax on precious metal import or export, which is why these two are the main players in the region for buying and selling gold, silver and platinum.

So who is buying what, and why? It seems that customers range across the social spectrum. “In Germany, it’s often middle-class customers who wait until they have enough savings for an ounce or 100 grams and then buy on a regular basis,” says Kempinski. “In Singapore there is a higher level of transactions. People buy more on a professional level, shifting their portfolios from equities or bonds to gold. But we target everybody, so it can be an enterprising housewife or grandmother who still holds strong confidence in gold and comes in to buy one ounce of gold or silver, right up to individuals buying 100 or 200 ounces – the sky’s the limit.”

1oz gold and silver coins

Many of Kempinski’s clients have their own safe deposit boxes already, but for those who don’t Degussa provides an on-site facility – boasting bank-level security – with three sizes of safe deposit box to choose from. “Clients in Europe don’t want all their assets in one place anymore, and Singapore is an attractive location, so more of our international customers are now taking a safe deposit box here,” he says.

In Hong Kong the story is much the same. LPM caters to local customers, both wealthy and less so, and to frequent international travellers wanting an offshore location for gold or other metals. LPM does not have its own facility, but for customers wanting to store their stash it uses the Brinks vault (located near Hong Kong airport). “We also use Brinks for larger deliveries when we ship, and of course everything we ship is fully insured, either by our own blanket policy or with a third party such as Brinks,” says Retief. “Shipping around the world is fast, reliable and a lot more straightforward than most people realise.”

LPM focuses a lot of its energy on online business. Potential customers can go on the company’s website, view products from all of the mints, purchase it at the spot price that is shown online (it’s updated every minute) and LPM will arrange shipment worldwide to the location of their choosing.

“Our customers can lock in a price, and we then take a 10 per cent block on their credit card, just like a hotel would, which secures that price; they can then pay by bank transfer, and once full payment is made we remove the block and it doesn’t even show up on their statement,” says Retief.

LPM, like Degussa, does have a showroom for its products, which range from coins and bars of varying size and weight to figures and even jewellery (in Degussa’s case). Deciding what to buy will depend on your motivation and personal finance strategy. “We sell a mixture of bars and coins, but mostly we sell coins because they are more liquid, easier to sell when you want to, and the buy-sell spread for coins is smaller. You might pay more of a premium to buy them in the first place, but you will get over spot price when you sell them,” explains Retief.

Minted coins will often have a legal tender value that is much less than their actual worth, and this allows you to carry them across borders, declare them at customs and pay tax on their nominal value (a legal grey area but often practised).

Bars carry less of a premium and are generally popular for long-term investment. “Gold is more like a safe haven investment, but when [economies] are running smoothly silver and platinum actually outperform gold,” says Kempinski. Silver has a lot more industrial uses than gold, and it’s irretrievable from most products, so there will always be a demand for it.

LPM sells more silver bars than gold. “Silver is seen as a better option by most of our clients, but the difficulty is storage,” says Retief, explaining that you need much more space to store silver because of its lower value-to-weight ratio, which makes it less attractive for investors because storage inevitably costs money.

“People with a greater appetite for risk tend to like silver,” he continues. “Silver tends to be more volatile than gold, rising and falling in a greater margin though following the same general trends.”

Platinum is slightly different. “It’s rarer and has many industrial uses, but it’s never been used as a form of currency, so it doesn’t have the same mainstream following as gold and silver,” says Retief. “Gold and silver have a strong correlation with the US dollar, but platinum does its own thing, so as part of a portfolio it adds a useful hedge.”

And for those who like the idea of a beautiful figure in solid gold for the altar table or mantelpiece? Though a much less liquid prospect, Kempinski says: “There are people who want to buy an ornament or jewellery as a gift or just because they like it and want to show it off. But it’s still pure silver or gold, and therefore represents a safe haven investment at the same time.”

degussa-pm.sg; lpm.hk

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