Versatile, 'safe haven' asset: What you should know before investing in gold (2024)

Gold prices climbed to near historical-high levels this year as central banks and investors continue to purchase the commodity to hedge against inflation and economic uncertainties following the Covid-19 pandemic and war in Ukraine.

Known for being a “safe haven” and reliable store of value, gold has long been a popular investment asset.

UOB, with its long history and proven track record in the Singapore gold market, offers retail investors a range of reliable ways to invest in gold. It is the only Singaporean bank that offers physical gold investments, including gold bars and gold coins, to retail investors.

Unlike gold jewellery, UOB gold products are exempt from goods and services tax as they qualify under the Investment Precious Metals scheme. Physical gold also makes a better investment compared to gold jewellery because prices for the latter are often marked up due to design and manufacturing costs. Under the UOB Gold Savings Account (GSA), purchases of gold can be made in small quantities and in Singapore dollars.

Amid economic uncertainties and volatile markets, investing in gold through accounts such as the UOB GSA can offer investors the opportunity to diversify their portfolios and safeguard their wealth.

For investors looking to invest in gold, here are five things to take note of.

1. It can be a hedge against inflation

A safe-haven asset is an investment that is expected to retain or increase in value during times of turmoil such as market shocks, geopolitical tensions and political upheaval. Gold has long been recognised as a safe-haven asset due to its finite supply, while there is constant demand for gold to be made into jewellery and electronic parts.

The commodity’s reliability as a store of value is a reason why investors put their money into the yellow metal when an adverse economic event occurs. It also explains why investors consider gold a hedge against inflation and currency fluctuations.

2. Itis useful in portfolio diversification

An investment portfolio that holds a variety of assets across industries and geographies can generally withstand market fluctuations better. Investing in gold is a way for investors to diversify their portfolio.

Compared with other commodities, gold’s performance is generally less correlated with the returns on traditional asset classes such as stocks. This means that there could be instances when gold prices would rally when stock markets fall. For example, major stock indices including the S&P 500 in the United States and the Straits Times Index in Singapore slumped in 2020 amid the Covid-19 pandemic, but the price of gold climbed.

Therefore, gold has the potential to offer investors some protection during market downswings.

3. A number of factors can affect its value

Gold is traded in the global market, so its price depends on supplyand demand. Demand for gold is influenced by multiple factors such as demand for jewellery, central banks buying or selling gold reserves, concerns about inflation and macroeconomic conditions, as well as geopolitical turmoil.

Some investors believe that higher interest rates would reduce demand for gold. Because gold investments do not yield interest, interest-paying assets such as bonds, which move in tandem with interest rates, would be more favourable when interest rates rise.

4. It is not a risk-free investment

Unlike placing money into a fixed deposit, bonds or selectedstocks, investing in gold does not pay interest or dividends. To profit from gold, investors sell the yellow metal at a higher price than what they paid. Despite its popularity as a safe-haven asset and inflation hedge, it is important to recognise that there is no guarantee that gold prices will always increase.

For instance, the price of gold fell between April and September last year amid a series of rapid interest rate hikes by the US Federal Reserve and a strengthening US dollar, before stabilising towards the year end.

Therefore, gold prices can fluctuate and it is possible for investors to lose money, like in any other investment. Investors should be mindful of the risks involved before buying into gold.

5. Gold can be held in various ways

Physical gold comes in the form of gold bars or gold coins, while paper gold refers to an asset that tracks and reflects the international market price of gold. Forms of paper gold include gold-linked mutual funds or exchange-traded funds. There are advantages and disadvantages to both investment options.

Physical gold is tangible, has intrinsic value and is valued globally, but investors pay a premium due to costs associated with manufacturing. Meanwhile, paper gold can be traded quickly but is subject to counterparty risks. This means there is a chance that the other party in the transaction does not fulfil his or her end of the deal.

With the UOB GSA, investors can convert their gold holdings bought with non-Central Provident Fund (CPF) monies into 100g Argor gold bars at a physical conversion premium of $100 per piece*. The bars can also be repurchased by UOB at the prevailing market price as long as the seal, original packaging and receipt are intact*. UOB fully backs all its GSA exposure according to requirements set by the Monetary Authority of Singapore.

Mr Alan Liew Yong Wee, UOB head of Bullion and Commodities Trading, says: “By making gold investments accessible and flexible through the UOB Gold Savings Account, we hope to empower customers to optimise their portfolios and maximise their potential for financial growth.”

Learn more about growing your wealth with gold.

*Terms and Conditions for the UOB Gold Savings Account Physical Gold Conversion Programme and the Terms and Conditions for Physical Gold apply. Please visituob.com.sg/goldfor more information on these terms as well as the important notice and disclaimers with respect to investment products.

This advertisem*nt has not been reviewed by the Monetary Authority of Singapore.