Since Donald Trump became US President-elect, gold price has been falling for the past few weeks. Amid the price weakness, wealth builders must be wondering whether to buy gold bullion in Singapore now.
To put things into perspective, there is a dichotomy between the price of gold and the actual demand for the precious metal. Most economist would tell you that the prices of all goods and services are governed by supply and demand. The higher the demand, the higher the price. However, gold is unique in the sense that such logic does not always hold true.
One reason for such strange phenomenon is because gold price discovery is primarily in the paper market, and not the demand for physical gold. London Gold Market dominates global gold price discovery and is regarded as the leading global centre for over-the-counter (OTC) transactions. According to BullionStar, 95% of the gold traded in London is unallocated, has no legal title, and is merely part of a fractionally reserved paper gold system. In this regard, the dynamics of the markets for paper gold and physical gold differ greatly, even though both are linked by the gold spot price.
In view of the current weakness in price, wealth builders should seize this opportunity to buy gold bullion as part of portfolio strategy. This is because historically, gold has very low correlation with other financial assets like bond or stock. Hence, during times of crisis, gold is often regarded as a safe haven for wealth builders to diversify their portfolio.
Secondly, gold bullion has no counter-party risk. This is unlike government or corporate bonds, which carries the risk of default. If you own stocks, there may be risk of losing your entire investment capital if the company folded suddenly. This is what happened to Swissco, a listed company in Singapore which recently filed for judicial management. Shareholders can expect to get back nothing as a result of the company’s collapse.
In the latest Financial Stability Review released by Monetary Authority of Singapore in November 2016, the government cautioned Singapore investors to be financially prudent when investing in property. It was highlighted that rising vacancy rates, declining rentals and potential interest rate increase mean that it is not feasible to rely on rental income to service their investment property loans.
When it comes to wealth building, don’t take chances. Always make the effort to diversify your investments across different asset classes. A wise wealth builder would allocate at least 10% of his wealth in real asset like gold bullion to mitigate against unforeseen market risks. Owning gold has a unique advantage than other asset classes due to its high liquidity. You can buy and sell your gold bars or coins to bullion dealers in Singapore like BullionStar.
In this festive season, take some time to review your financial position for the year and ask yourself whether you are ready to start the journey of building a sustainable wealth. It is never too late to start future-proof your wealth with gold bullion.
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SG Wealth Builder