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A look at the rise in the gold price in Singapore dollars, and a strong case for continued buying of precious metals
Published: 03-08-2012 09:44
Gold's continued relevance
Many so-called experts like Paul Krugman, as well as popular non-experts such as Warren Buffett and Bill Gates, like to portray gold as something practically obsolete in today’s world. ‘Gold bugs’ are supposedly holding on to precious metals just because of “tradition.”
Where were these people when gold shot up in price over the past few years? Even with the recent correction, the gold price in Singapore dollars is up from the S$1,000/oz. range in 2007 to about S$2,000/oz. at present. That’s a 100% increase, amid the worst crisis since the Great Depression!
Central banks love/hate gold
With gold’s stellar performance since the late 1990s, and continued financial turmoil worldwide, it’s no wonder that gold is being recognized as a preserver of wealth, even by governments. Since the 2007-2008 financial crisis hit, global gold buying by central banks has increased year-over-year. But these gold purchases are still 13% below the peak buying achieved in 1980, when gold reached a then-record S$1,800/oz.
Considering the rising central bank purchases of gold and the massive increases in money supply by these central banks in the last three decades, you have to wonder how long the present S$2,000 price of an ounce of gold could last.
The arguments contra gold
Could this gold buying be mere tradition? After all, there are ‘innovations’ in financial instruments, such as Treasury Inflation Protected Securities (TIPS). And unlike gold, stocks pay dividends. And when you consider that gold’s industrial uses are rather limited, you have to ask where the value of this shiny metal lies.
The Treasury, stocks can’t protect wealth
The truth is that TIPS could no longer preserve wealth when prices of goods and services continue to increase as central banks’ newly printed money enters the ‘real’ economy. Could these securities really afford to pay up when prices rise by 10% or 20%? Not to mention that government statisticians often downplay price increases by excluding those products where the largest increases happen. Also, it is not factored in when people opt for cheaper substitutions, such as shifting from steaks to hamburgers, when prices get too high. If a TIPS only protects you from manipulated CPI numbers, there’s a loss in actual wealth.
Although gold doesn’t pay dividends, its price continues to increase, matching with central bank inflation, even when stock prices plummet. What use is a 5% dividend for a stock that falls 50% in price?
|Price (S$/oz.)||% change (S$1,993.48/oz. as of Aug. 3, 2012)|
|1 years ago||1,975.4||0.9|
|2 years ago||1,669.65||19.4|
|5 years ago||1,048||90.22|
|10 years ago||554.6||259.44|
Gold’s real value
The ‘use value’ argument is likewise invalid. The fact that gold’s ‘use’ has evolved from industrial application to medium of exchange shows where its true value lies. No other product quite has its characteristics. Although its function as money seems to have been supplanted by the dollar as reserve currency and other fiat currencies, there’s no other asset that maintains its value, in whatever currency it may be priced. When economies go bust, people have to turn to something the value of which is not dependent on bureaucratic say-so.
It is likewise this function as ‘store of value’ that makes gold so ideal for long-term planning. In fact, people wouldn’t be as inclined to invest rather than consume, without such a guarantee of preservation of one’s capital. Primitive barter societies are deficient in the fact that there is no medium of exchange to make future profits feasible. This aspect of gold is taken for granted by even the most successful of businessmen.
Taking into account the potential in the gold price, Singapore is making it easier for its citizens to import coins and bullion. Previously, those living in Singapore had to deal with a 7% goods and services tax (GST), effectively raising the premium and making it less appealing to purchase gold. But come October 1, 2012, the GST for gold will be lifted. The potential of this is massive, and people are scrambling to make their reservations with bullion dealers.
BullionStar is ready to face the challenge of providing those living in Singapore with the opportunity to buy gold and silver, thus ensuring that their money stays safe and sound.
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