Ignatius Tay | May 12, 2014
I have a vivid childhood memory of chancing upon my grandparents lifting the lid off an old box that radiated a subtle brilliance upon their faces. They scrambled to close it before I could sneak a peek when they realized my presence. What were they hiding? Was it a top of the line toy? Or a latest game set? It wasn’t until years later that my grandparents sat me down and revealed the secrets of the old box to me. The same old brilliant rays burst out of the box as the lid lifted to reveal… gold jewellery! Back then, gold held little relevance to me and I queried them about the purpose of keeping it. The proferred explanation was that “gold is money”. Over time, I’ve learnt this adage to be true, although not quite in the way they hoarded it.
There are two categories of gold – jewellery and bullion. Before we get to that, it is important to understand gold content measurement and the market price of gold (London Gold Fixing).
The value of gold is quantified in karat where the higher the karat, the higher the gold content.
Look at the table below for an illustration on gold purity. Clearly evident is that the purest form of gold is 24K, where there are no other forms of impurity present.
All raw materials have to follow an international market pricing to prevent any major discrepancies in public pricing. Therefore, Gold follows the London Gold Fixing, where the price is set against the gold purity. As you will soon learn, this price is just one of the components of a finished retail gold product. You can find a gold pricing table example on 1st April 2014 below.
Gold Purity Range: 10K – 18K
This has been established as the only conventional source for gold savings. In the olden days, gold choices were limited and affordability was an issue. Therefore, the only viable source for purchasing gold was via goldsmith shops as gold jewellery was the commonly available gold investing option.
Gold jewellery pricing, as mentioned before, has multiple components. Besides the gold purity price, there is also a premium on the workmanship of the piece that is between 20% – 30%. See the sample gold jewellery pricing breakdown below.
Gold Purity Range: 24k or 99.5% & Above
The word “Bullion” means gold and silver that is officially recognized as being at least 99.5% pure and is in the form of bars or ingots. Such purer forms of gold were not widely available to the masses before. However, in this new age, pure gold is readily available in the market and sold by bullion dealers, pawnshop and banks. Unlike gold jewellery, gold bullion pricing follows the gold market price, albeit with a small dealer mark up.
Below are the considerations when deciding on the better gold investment option.
Unit Pricing. Everyone loves to get the best value for their money. Would you settle for less? Below is an illustration of the price final you will pay for a gold bullion and gold jewellery:
Resale Value. “Beauty is in the eyes of the beholder”. Gold jewellery resale prices are subjective and dependent on the buyer’s appraisal of the workmanship. This leads to wide fluctuations in value that may depreciate the jewellery close to its bullion value. Gold bullion, on the other hand, is priced at its bullion value with resale also at its bullion value – thereby eliminating the premium fluctuation inherent in gold jewellery.
Demand. Although both the bullion and jewellery are gold products, their demand varies. During times of financial crises, demand for jewellery, together with other luxury goods, drops. Bullion, as a stable store of value during financial crisis – tends to rise in price as there is monetary demand for precious metal that gives bullion an edge over jewellery.
GST Free. Gold Bullion was declared GST Free & Tax exempted as of 1st October 2012 by Singapore Ministry of Finance (GST: Exemption on Investment Precious Metal; IPM) while Gold Jewellery is not. Period. Imagine 7% off on your gold purchases.
To sum up, gold jewellery carries a significant workmanship markup and GST while gold bullion provides higher resale value, demand during financial crisis, a store of value and no GST. If you are looking to buy gold to protect your wealth, then buying physical gold bullion should be a no-brainer!
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