Summary:
On the Moneywise segment, Keith De Souza talks to Victor Foo, the Chief Executive Officer of the Singapore Precious Metals Exchange and Josh Phair, the president of the Scottsdale Mint about trading with physical gold versus paper gold.
Transcript:
Keith De Souza:
I’m Keith De Souza.
We’re talking gold today. People have a love-hate relationship with the metal. Mostly love in where we live in this part of the world and the analysts that have come in our program have different takes on it. People say if you want to buy gold buy an ETF or buy a gold fund, our doctor money that on Kiwi always says buy gold, put in a zip lock bag and put it in your refrigerator. Well, our guest today tells you differently. They want to advocate the purchase of physical gold which is uh you know physical stored and in the only facility in Singapore that has this sort of service you can even go and touch it.
We’re speaking today with Victor Foo–he’s the Chief Executive Officer of the Singapore Precious Metals Exchange and Josh Phair–he’s the president of the Scottsdale Mint. Josh and Victor, welcome to Moneywise.
Precious metals. Gold. People seem to like it. As for myself, I don’t understand it. We know about trading if you want to buy into gold. People say buy a fund if you want to buy gold. There’s a certain bank in Singapore where you can buy physical gold but same question I’m going to address to both of you–what is paper gold and what is physical gold? But let’s start with Josh.
Josh Phair:
Yes, the banking system all around the world has created electronic traded funds. They’ve created mutual funds and if you look at their prospectus of what they’re saying, they’re saying that it does have physical metal backed. But is it 100% or are they using derivative instruments–very similar to what we’ve seen during the housing crisis the mortgage backed securities were the were the homes really even there so that the paper gold
You’re trusting that bank or that institution to tell you that they own that gold but did they commingle the gold? Did they lease that gold out to another bank another government? These are these are big issues that even the US and Germany are having right now. When the Germans asked for their gold back from from the United States, the US told them that it’s going to take a number of years to get it back.
Keith:
Trying to be facetitious, is Fort Knox empty?
Josh:
We have no idea idea and you typically you buy gold or silver to get out of currency risks and financial risks so the banks want to keep that money within their network and within their system. So the paper gold or paper silver keeps it within their grasp. They don’t want consumers buying the physical, tangible 100%-owned product.
Keith:
All right let’s throw this open to Victor. Victor is the CEO of the Singapore Precious Metals Exchange. What is the Singapore Precious Metals Exchange?
Victor Foo:
In a nutshell, what Josh has a shared what we’ve done is to realize exactly what Josh shaped to provide a solution a platform for private individuals. This is because when you talk about precious metals, gold and silver, the natural reaction is, “I don’t have enough money. It sounds too expensive. I don’t have the means to buy gold and won’t get done”.
Because of the pooling of resources, we managed to reduce a minimum amount equivalent to only $1,000. So with a little as $1,000, you can actually purchase physical gold, which is fully allocated and dedicated.
Keith:
What do I mean by that?
I just want to find out today the price is something like $1,300 US for an ounce and $1,000. What does that get me?
Victor:
Fully allocated and segregated– what this means is if you bought a gram of gold over 100 days, you have accumulated 100 pieces of 1 gram. So when it’s allocated and segregated, in our walls you will find 100 pieces of individual wafers stored in your name so there’s no sharing, there’s no pulling. Yours is yours, and mine is mine. So the uniqueness of the platform allows you to even visit us, come and pick it up, or even have a viewing where you can bring your whole family to take a family picture.
Keith:
How big is your vault?
Victor:
We have been storing since 2009 at Piley Bar, San Francisco and also at the Singapore Freeport. So we don’t run our own box; we rely on very reliable sources who run the two vaults, where we basically use our own allocated spaces to store for our individual customers.
Keith:
OK. This is a question for the both of you. Owning physical gold can be a cumbersome process. You’re talking about wafers, but what if somebody wants to buy bullion? So I want to buy a bar of gold–how much that would cost? I don’t know because I believe each one is segmented as there’s a certain amount. Where does your gold come from, Josh?
Josh:
My background is mining. I ran corporate finance for many of the mining companies based in North America and a lot of the silver and gold comes from US, Mexico, Latin America… quite a bit of gold does come out of other places in world such as Africa. We manufacture. We fabricate. Take from the big bars that institutions use. We fabricate it down to smaller retail sizes. So it’s smaller as Victor said. One gram piece all the way up to kilo gold bars. So we produce various sizes shapes different you know whether it’s a coin or a bar, what we produce is primarily foreign investment.
Keith:
OK, we’ve also read just last week on Friday that the price of gold has dipped as well. Why advocate the ownership of physical gold, Victor?
Victor:
Most customers come to us because they want to look for a medium for capital preservation. People who buy physical gold versus paper gold is a different category of fish. It’s like when you buy a physical gold, you’re basically coming in for the long term. You’re not here for a day trade where you buy a kilo and then sell for small profit tomorrow. It is better to go on a paper platform where you can just trade quickly. It’s like buying a physical home. You don’t buy it today and sell it tomorrow.
So, what we’ve done is basically to attract this segment of customers who wants to diversify part of their portfolio into physical metals, gold and silver, where they can have a place to store safely. More importantly is to provide the liquidity. Because if you bought bullion and took it home, obviously you’ll have to find a place safe to keep it.
Keith:
OK but is it insured?
Josh:
So you’re getting out of the banking risk–the currency risk–but now you’re susceptible to a home break in or you forgot it or you forgot where you left it.
Keith:
Why would the consumer again for my uninitiated purchase, dabble in such instruments? Why physical gold, first foremost?
Josh:
I have the American perspective and a lot of people in the US are waking up that the US dollar is losing some of its prominence throughout the world. And the reality is the same problems exist in Europe, so you can’t just go into the Euro. And the reality you just keep looking around. Everyone’s currency is all tied together. And people are getting into these precious metals because they’re looking for not only diversification from their own currency, but it’s a diversification against the politicians. So whether your government is running correctly or not, the reality is politicians all around the world are spending more money than they are bringing in, and they are wanting to tax more, and grab more, and spend more. So physical metal is an asset that you control. There’s only so much of this metal on the on the earth. The currencies devalue over time–all of them. And as they race to the bottom, metal prices over the long term will go up.
Keith:
Before this you talked about physical versus paper gold. What’s involved in investing in physical?
Victor:
The difference between physical and paper gold is the intrinsic value. If you buy paper gold, it is basically backed by a contract. If you buy gold, there is a physical delivery of the actual metal physical, the gold and silver. And most people are trying to move away from the financial disaster that is invaluable but what they want to do is to take refuge, to basically diversify. We’re not saying sell everything and buy metals saying that runs for cover.
In Asia, physical metals, especially in jewelry is common. Our forefathers, basically our inheritance, came in gold and silver jewelry. There must have been a reason. Of course today people are moving to bullion because it’s easier to to liquidate. It’s pure and there are a lot of options out there if you talk about the liquidation part of it.
Keith:
I’m glad you talked about the liquidation part of it. If I want to liquidate a kilo of gold… If I’m holding this and it’s not in your vaults and it’s in my refrigerator and I have a kilo of gold. Where do I go? Someone said just go to bank. Is that what you do?
Victor:
You could go to a bank or you could go to a friendly neighbourhood goldsmith or jewelry shop. But the problem is once you take possession of that physical bar and you want to resell it, the buyer is going to be questioning you. “Is this pure? Is it’s tungsten bred? Is it what I really sold you?” There’s so many knock off counterfeits in the market. So what we basically provide now is an option for you to store with us, fully insured and we give you a liquidity option by a click of the mouse. Because when you do want to liquidate your bar, all you need to do is just put for sale on the platform, and the buyer who’s going to buy could be in Singapore or could be in the US, will just buy it straight away. So that’s physical bar does not move but the ownership changes hands, and you get paid without having to go through the hassle of moving it or getting authenticated.
Keith:
Josh, we got the Asian perspective because we’ve grown up with precious metals. Is it as transferable as Victor would like us to believe?
Josh:
Absolutely. Gold ownership was actually illegal in the United States until just over 30 years ago. But it is a one of the largest markets in the world both gold and silver and it is highly liquid. Even on Ebay alone on a daily basis, thousands of transactions take place in the US. I’m going to imagine if we look at just Ebay sales of bullion around the world, it’s pretty high and these are just small consumers all over the place.
Keith:
Let’s talk about the the retail investor. How much gold would you advocate he has in his portfolio? I’ll put that to Victor. Especially the local consumers.
Victor:
I’m no financial advisor. Looking at a typical case of the demographics of customers that we have, when we speak to them they will say this is some cash that I have in my cash portfolio sitting in fixed deposits earning almost nothing. So they’re looking at probably between 5 to 10% of the portfolio where they basically set aside to physical bullion. There’s no right or wrong. At the end of the day it’s up to the individual comfort.
Keith:
So do I get the prevailing price of the day or would you guys take a cut as well?
Victor:
The prices are real time and unlike if paper exchange which has a bid and offer price because its unitized. So if I bought a kilo gold at $1,002 and today’s trading at $2,000 for example. If I want instant liquidity, I could sell it for $1,900 or $1,950 because I’m not compelled to the prevailing price to sell because i already own the precious metals.
Keith:
Asia has been a hotbed of precious metals. India–big market. China–big market. Is this going to continue? What do you think, Josh?
Josh:
Without a doubt. Our company is now promoting storage outside the United States and we’ve done a lot of research and selected Singapore as one of the strongest, most transparent governments. And much wealth is now traveling over here. So people, whether they’re from Asia, Europe or US, they are moving their capital, physical tangible assets here.
Keith:
Let’s talk about the novice who wants to get into this sort of investment. Is it for the fainthearted, Josh?
Josh:
It’s really for anybody. You don’t have to jump all in at once. Most people start and they say I want to allocate X amount of dollars and you can go in and make five purchases over the course of the year. And the reality is that the metals will go up and down a little bit in value, but by leaving a little bit in cash reserve, you’re able to continually accumulate, cost averaging. Is it for the faint hearted? It depends on your time frame, so if you’re looking for a quick turnaround, maybe this isn’t for you. But if you’re looking to build wealth for your family for many years, this is something that really is for everyone.
Keith:
Victor, what would you say to the naysayers who say that, you know, the best return I can get these days is from the Stock Exchange. Given its lackluster performance does this bear through?
Victor:
Following what Josh shared, when people diversify their portfolio to physical metals, it’s not for you to come in for a quick punt.
Keith:
OK when time frame should I be looking at?
Victor:
Essentially the last three years we’ve seen metals on bear to all time low in the last three years. I will look at this as a medium to long term; i.e. you come in as a hedge to preserve your wealth. I will not encourage individuals to come in to say oh I’m gonna put in $1000 because I want this to be $2000 in the next six months or a year ’cause it may or may not but if you want to basically preserve your paper money into an intrinsic asset, like a home right piece of land, but how many people can buy a home? But with a little we could buy a few pieces of gold and silver.
So it’s basically a different asset class where you know that if all fails, your one kilo is still a kilo. Its value may change if you ask me gold and silver prices or commodities have actually not changed in value. What has happened is overtime because the metals have been persisting that seemingly the prices have gone up. In actual fact because of inflation, our paper value has dropped. So if you go back to 1,000 years ago. A kilo of gold is still a kilo gold today. Same.
Keith:
But the price may have differed.
Victor:
Which was not caused by the metal but it was caused by the reduction of the paper money value.
Keith:
Josh, let’s talk about again the production of physical gold and the sources that you get them from. With all these legal avenues, there’s still reports that people are smuggling this sort of commodity. Will it always be that case?
Josh:
It’s no different than art, gems, cars. Things are always smuggled in the black market, and usually that occurs when the government gets involved with taxation. What Singapore has created with this wonderful facility at the Freeport is a tax free zone. There’s no need to smuggle gold. Most of the the gold that is being smuggled is coming from poor countries such as Ghana; places that may have been mined without authority of the government. The metals that are coming out of our facility in the United States are all certified. We are audited, reviewed; this is genuine product–it has our name on it that says this is who we are. Our product circulates the whole world. But I think that the transparency and the openness is that’s when there’s no need for a black market because it’s all sanctioned and blessed by the government and that’s why I think so many people are now transferring their wealth. Singapore is now the number one wealth center of the world and taking that throne from Switzerland. And so this is this is something I think that the government here has really standing behind and looking forward to the future.
Keith:
Again we were talking that this is an investment for the long term. We’ve seen swings in the market in particular the silver market dropping, at one particular point in time while it was riding high, it dropped about 22%. I’m talking about two years ago when people were investing in silver. What do people really have to realize before they put this physical investment in gold? That this is a commodity that will fluctuate? That the price will fluctuate if you’re playing with equities. It’s going to happen is it going to happen here? And how much should we be prepared for?
Victor:
Like any investments, there’s always volatility. If there’s no volatility, there’s no market. Gold and silver has certain correlations. Gold fluctuates less. Silver is like the maverick; it moves a bit more up and down. So again if our investment strategy is medium long term, if it goes down by 25 or 30%, it’s actually bullion on sale. You should not wary; you should not be worried. In fact, you should be happy because you’re going to be able to dollar cost average of purchase with more silver and gold. So if you are investing metals you’ll be looking how much you would like to accumulate in terms of weight and then average the price of silver and gold that you buy.
Keith:
In our final moments, Josh, what advice do you have for investors taking that not a plunge but putting their toe into the water to test it?
Josh:
Visit the Singapore Precious Metals Exchange website–www.sgpmx.com and read a little bit. There’s various authorities on the Internet, various analysts, different writers on why invest in gold or silver. And this is something that it may not be for everyone, but if you are looking to build a strong nest egg outside the banking system, this might be for you.
Keith:
On that note, thank you so much for joining us this evening gentlemen.
Source: Channel News Asia, April 24, 2014