Tan Kin Lian's Blog: Gold Investment Program

Wednesday, April 21, 2010

Gold Investment Program

Dear Mr Tan,

I've recently come across a gold program which provides a guaranteed return of 9% in 6 months through the purchase of physical gold - good delivery bars (999.9).

The outline of the program is as follows:
Day 1: Client purchases and collects gold based on retail price, less initial Cash Discount 3%, plus GST 7%
Day 90: Client receives 3% Sell-Back Incentive - credited into the client's bank account.
Day 180-187: At this point, client needs to decide whether to keep the gold or exercise a sell-back option. The two scenarios are included below.
(a) Keep the gold: Receives 3% bonus
(b) Exercise Sell-Back option based on purchase price: Receives 3% bonus, 7% Sell-back bonus equivalent to GST, agreed Sell-back price (100% of Purchase Price)

In effect, by choosing (b) the sell-back option, clients will receive a 9% nett return.
After the conclusion of the six-month agreement, clients may choose to take up a new 6-month agreement.
Would like your thoughts on the program?

REPLY
The retail price of the gold sold to you is likely to have a high markup from the wholesale price. If the price of gold drops, the promoter is likely to default on the buy-back option, so you will have to keep the gold at its depreciated price. You will suffer a further loss from the markup that you paid.

If more people are buying into this program compared to those who redeem, the promoter may honor the buyback option to entice you to re-invest and get more friends to join in. This is how a ponzi scheme operates.

Avoid all types of unregulated invetment products. Read the tips in my book, Practical Guide on Financial Planning.

9 comments:

freemanland said...: Just open a Gold Saving account with UOB bank.

Take your own risk.; April 21, 2010 8:54 AM
Anonymous said...: This Straits Times article carries a story about new bus & train fare system starting 3 July. I am not sure this method actually makes consumers save or spend more?

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_517149.html; April 21, 2010 9:09 AM
Anonymous said...: We live in an environment which is very trusting. We seldom publicise cases of 'default on promises'.

In this case, the scheme seems appealing if we further assume that the seller will not and will never 'default' on their promises.

After the minibond and Pinnacle products saga, we need to wise up to assume 'defaulting' is a norm in the real world.

So far, the regulators are not there to minimise and prevent 'defaults'. PC; April 21, 2010 10:46 AM
Anonymous said...: The promoters of such gold programs win by having a large markup of the price when they sell to you. It can be around 20% markup. It is unlikely for gold price to collapse by 20% or more within 6 months.

In any case, the promoters will protect themselves by buying 180-day put options on gold price in case it drops by say 10% after 6 months. The cost of all these is already included in the high price that they sell to you.

Hence whether gold goes up, stays the same or goes down, the promoters still win. You are actually the bankers providing relatively cheap money to these "businessmen" to run this operation.

Gold is now trading at US$1,143 per try ounce in the markets. If you buy gold bullion (coins and bars), you should not pay more than 6% to 9% markup over the current prices, depending on amount that you buy.; April 21, 2010 12:36 PM
Anonymous said...: Singapore Paper Gold Prices
• Gold Savings Account S$/gm 50.68 50.58
• Gold Certificate S$/kg 50684.00 50584.00
Singapore Physical Gold Prices
• Kilobar S$/kg 54231.88 50564.00
Source : UOB

- There is cost/lost of ~14% if you trade physical gold.
- Plus additional high markup cost by gold retailer as mention by April 21, 2010 12:36 PM.
- High cost does not make physical gold as form of investment appealing.
- What business they are performing to generate revenue to backup the guaranteed return of 9%?
-As TKL already mentioned, examine how ponzi scheme works

-if one is interested in Gold investing, the alternatives are
UOB gold saving accounts,
Exchange Traded Gold ETF
▲ GLD 10US$ O87 112.080 +0.340 +0.304 0.88 1 111.880 112.200 1 111.800 112.080 111.800 98,571 FIN; April 21, 2010 6:04 PM
Anonymous said...: They give all sorts of name on this kind of investment like Ponzi Scheme, Snake Oil , Fly by Night,
ScamOrama, selling koyoks,scam artist.

Best is buy Gold Shares,Gold Mining stocks or physical gold.; April 21, 2010 7:35 PM
Tan Kin Lian said...: I learned that there is a 20% markup to get the retail price.

Quite likely, you are asked to pay 20% more for the gold. When you wish to exercise the buyback option, the promoter may not honor it. At that time, you will have lost 20% plus 7% GST and may get back (hopefully) 6% on the discount.

Still, you would have lost 20% on your investment. It is better to avoid it. The risk is too high.; April 21, 2010 10:19 PM
Anonymous said...: Hi Mr Tan,
So do you think investing in a property is a safe investment where the markup rate may also be 20% and SG property will go up indefinitely like in Japan?; April 24, 2010 3:42 PM
Philip C. Eng said...: PONZI SCHEME!

I won't invest in this type of stuff even one can claim that they can 'guarantee' any great % return or any too-good-to-be-true buy back option, etc.

Firstly, how many of us really know how to differentiate a 99.99% gold coin/bar/bullion (whatever the great name) from a 'gold plated' coin??

Personally, I don't know how to differentiate a true gold from fake gold.

Back to identifying 99.99% gold vs. gold plated coin...

Example, 1 oz investment:
One may end up paying 99.99% gold bullion at say US$1,150 per oz but in return he may get a 'gold plated coin' with say 10% or 20% content of 99.99% gold on the outer layer of the 'gold plated coin'. The market value for this 'gold plated coin' maybe US$120 to US240, say.

6 months is more than enough for the Ponzi Scheme operator cycling from Singapore to say Thailand and chances are you'll never see him again.

==================================

Also, if you end up bought a real 99.99% gold but a stolen one, then you're inviting for trouble...

My advise, if you really want to invest in gold? Understand the risk and consider to do any of the following options:
1. Open a gold saving account with UOB.
2. Buy gold ETF traded in SGX.
3. Buy physical gold coin from reputable and trusted gold shop in Singapore.

Option 1 & 2 are regulated investment.
Option 3: If you buy gold coin such as Maple leaf / Kangaroos etc, then that's fairly safe & liquid. Else, buy those gold coin/necklace with the Singapore's 'Lion seal'. Ask a reputable gold shop for more information.; April 25, 2010 12:29 PM