The very strange case of UOB Silver and UOB Gold

First, a legal disclaimer. I am not an investment professional. I am not offering investment advice. Do not follow whatever I have written here blindly. Whatever I am writing is for my own entertainment. I will not be responsible for any decisions you make for any reasons what so ever. If you are fool enough to follow investment advice from some anonymous guy on the internet, with a netbook and some time to kill, perhaps your problems don’t end there. 

Okay, now back to some analysis

A few Singaporeans are well aware that UOB (www.uob.com.sg) offers it’s customers a Gold and Silver savings account. Basically you can go up to the bank and buy some Gold and silver from the bank. The amount of Gold and Silver you have purchased from the bank will show up on your account statement just like the number of Dollars shows up on you checking account statement. So far, so good.

Now the problems begin. First, you cannot take delivery of the Gold and Silver. UOB is not a gold dealer. You go to a gold dealer and you can pay him some Singapore Dollars and collect an ounce of silver. You can’t do that with UOB. They will not give you the silver. Nor can you ask for it. You can buy and you can sell. This is what they call an unallocated account.

So what exactly is UOB doing with the money you gave them to buy the gold/silver? The simple idea of an unallocated account is this

1. You give UOB to buy some gold. Say 10 grams. Say you pay 500 Dollars

2. UOB takes the 500 Dollars and buys 10 grams of gold and stores it in their vault.

3. One day you may want to sell that Gold because the price has gone up to 700 dollars for 10 grams and you want to take the 200 dollar profit. You go to UOB and ask them to sell the entire 10 grams. The price is now 700 Dollars. UOB takes the 10 grams from the vault and sells it and get’s 700 dollars. Of that 700 Dollars they keep 20 dollars (depends on how long you stored it) for themselves for handling/delivery/storage charges and give you the 180 Dollars.

4. You thus made a 180 dollar profit. UOB get’s 20 dollars for their trouble of sotring/buying/selling and everyone is happy.

But what if UOB is not buying any physical silver and gold at all with the money you gave them?

How does it work then?  There is a reason I got this doubt. When I asked them exactly what they are doing with this money I give them, they say that they do not share such details with customers. Now, this looks suspicious. Hell! Do they share this detail with the Monetary Authority of Singapore (MAS)? Does MAS even know?

My feeling here is that there are two cases

Case 1. UOB is dishonest: Several possibilities arise here. In this case you must just not invest in this scheme, close all your accounts with them and stop doing business with them altogether. I will not examine this option because, “come on, this is Singapore”. Things here are generally honest. Otherwise this Island would not survive.

Case2: UOB is honest: This is more likely. But if they are not really buying any physical Gold and silver, what’s really going on?

My guess here is that UOB is betting on the falling price of Gold/silver in the near Short term. That’s right. They are shorting the physical metals. I am sure they are not stupid enough to bet on Gold/Silver prices falling in the long term. You cannot run a successful bank like UOB for so long in a place like Singapore by being Stupid. There is also absolutely no way on heaven, hell or earth that the Gold/Silver price in SGD will be lower in 2017 than it is now. No way. So if people buy Gold/Silver now and sell in 2017, UOB will make a huge loss. So what’s going on?

I think the answer lies in the GST on Gold and Silver being lifted on OCt 1, 2012. On that day the Singapore Govt. will no longer charge a 7% GST on Gold and Silver purchases by the people of Singapore. The reason UOB Gold and silver is so attractive is that there is no GST/dealer premium applicable if you buy Gold and Silver from them. That is the real reason people are buying Gold/Silver via UOB instead of from their local jeweler/gold dealer (where you have the pay the 7% GST and another 2-10% dealer premium depending on the size and type of your purchase). Come October 1 this year, my guess is that several singaporeans will close their Gold/Silver accounts with UOB and use the proceeds to purchase real physical Gold and Silver. Thus if the Gold/Silver price in Oct 1, 2012 is lower than it is now, UOB will make a killing. I am strongly inclined to believe that this is their thought process.

Okay, but what if the Gold/Silver price in Oct 1, 2012 is higher than it is now? Won’t they make a loss? Yes, they will make a loss and depending on the size of their shorts, they may even go bust. But once again, I am inclined to think they are not stupid. They are a big successful bank. They have smart people and they have much more information than we do. They probably have plenty of information regarding what Gold/Silver will do in the short term. So let’s try to understand UOBs game plan

1. Oct 1, the price of paper Gold/Silver plunges and stays low for a couple months or so

2. Panicked singaporeans sell and decide never to buy Gold/Silver again. From Anyone. Ever. UOB makes a killing on these customers.

3. Astute and cautious singaporeans sell, but use the proceeds to purchase physical Gold/Silver. UOB again makes a killing on these customers.

4. Singaporeans with balls of steel do not sell any paper Gold/Silver but rather accumulate Physical Gold and silver. And after 3 months or so when the Gold/Silver price comes back up and over what they purchased at UOB, they sell! In this case UOB makes a loss.

5. Thus UOB is betting on 1,2,3. They are betting that there are not many people in category 4. As any investing veteran will tell you, UOB is correct to make this sort of bet.

Update April 17, 2013
Oct 1, 2012 has come and gone and as far as I can tell, Gold and Silver did nothing spectacular in or around October 1. Most of my speculation was wrong.
end of update

Okay, what’s a good course of action for a Singaporean? First what sort of person are you? Personally, I am the customer in part 3. So I will confine my analysis to that personality type. My balls of steel are limited to approaching cute women in clubs/bars/malls/MRT etc. When it comes to financials, I am a pussy. Right, So I was planning to sell on Oct 1 and pick up some physical. Let’s examine this strategy

On the Plus side

1. I get hold of physical silver without paying GST/Dealer markup. I also don’t care how UOB’s bet works out. Whether or not UOB wins or loses, I end with roughly the same amount of Gold and Silver which was my aim all along.

On the negative side

1. What if UOB loses the bet and has to close down and cannot pay me? The chance is very small, but it does exist.

2. What if UOB wins the bet and can pay me, but the Gold/Silver paper and physical market start diverging. I personally witnessed an example of this Divergence around 2008 when Silver plunged to under $12/ounce and Gold to under $800/ounce. But here was the problem. There was not a gold dealer on earth who was willing to sell physical metal at that low price. All of them were charging markups of up to 20% in case of Gold and 50% in case of silver. Some of them flatly refused to sell. In this case you may cash out the Gold/Silver from UOB, but may find yourself unable to buy physical at the price you sold thus incurring a huge loss. I believe this is quite likely. Dealers too are astute people. They will not sell if the price is too low. Man! this scares me shitless. Excuse me, I believe I need to go to the rest room or else I will crap my pants.

……………………………………………………………………………………………………………….Okay I’m back. And I have no bloody idea what to do now. Let me think about this. What do you guys think?

Edit on July 10, 2012

I see this post getting a lot of eyeballs but the next one on the same topic seems to get none. So I am just posting a link to it here to the next article in this series

https://masculineffort.wordpress.com/2012/05/08/uob-gold-and-uob-silver-can-they-change-the-rules-of-the-game-28-2/

 

 

Update: Dec 27, 2012
One of the hot girls I opened today told me that UOB paper Gold and paper silver is backed up by real physical metal outside singapore by some counterparty that she did not specify. But she did say that there was a counterparty. So this absolves UOB from any wrong doing. The Monetary Authority of Singapore is obviously on the Job. But counterparty risks still remain. If the counterparty fraudulent or goes belly up, I am not sure that Singapore authorties really have the power to punish this counterparty. So procedd at your own risk guys. But I am very happy that the Monetary Authority of Singapore comes up very competent in this whole drama

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About masculineffort

A Man should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, seduce a woman, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.
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36 Responses to The very strange case of UOB Silver and UOB Gold

  1. AJ says:

    Very well written and shows you do deep study of investments.
    But did not understand from where you go the info that UOB Savings dont charge GST right now?
    For Gold Savings Account: An annual administrative fee (in grams of gold) as low as 0.12 gram per month or 0.25% per annum. on the highest balance per month, whichever is higher. The fee is subject to GST, which will be deducted from your account in grams of gold.

    On the other note, I think gold trading would increase on the island by end of the year, and I personally feel that SGD will become stronger, what is your view on this?

    • Gold trading on the island will definitely increase by the end of the year since GST will be removed. But the trading will all be in physical Gold, not paper. I anticipate a few of UOB customers will sell of their paper metal and buy physical.

      Yes, the SGD will become stronger against the USD. At the moment the Monetary Authority of Singapore is trying to ensure that the SGD trades in a narrow band around around the USD, i.e. 1.25 SGD = 1USD. They do this by buying up any excess USD in Singapore at that Fixed rate. And they have been doing this since 2008. And that is when prices in singapore started going to the moon. However, I’m not sure they can carry this on forever. People are already beginning to complain about inflation. One day they will have to stop or else the people might riot. On the day they stop, the SGD will start rising against the USD. But my worry is that they may not stop until a very long time. By then bananas might cost $10 a dozen. And savings of local singaporeans might be worthless.

      • AJ says:

        Thanks masculineffort,

        what do you anticipate about gold? in market not much trading happening, also over all feeling is that gold is overpriced…Even if trading happen in gold in sg, it would not be the factor for gold price movement. do you think gold would increase, i think its time for correction from here… I want to invest in gold, not sure when to enter.

        AJ

      • Personally at the moment I feel that Gold is priced just right. It is neither underpriced nor overpriced. About future movements, it really depends on government action. Gold has been rising because of government printing money. If the Governments around the world, suddenly decide to stop printing money and Gold will actually fall a little bit, maybe come down to $1200/oz or even $1000/oz. But if they continue doing what they have been doing then I don’t see any reason why it should not keep rising along with all other commodities such as food, clothing, housing, rent and what have you. If they print money they way they did as in Zimbabwe recently or Weimar Germany in the 1920s then Gold and silver will both go to the moon. I am not an oracle. So I don’t know what governments will do eventually. My bet is that they will continue printing money and Gold will continue rising along with all other commodities. You must keep in mind that Gold is NOT an investment. It is actually money itself. At the moment I am buying gold purely as an inflation hedge. If the government stops printing money, great! My cash will not lose purchasing power every year. But if the government continues printing money, then atleast I can be sure that the Gold I have will protect me from losing my savings to inflation. As for as whether YOU must buy Gold or not, I don’t know. That is a question you must answer for yourself.

  2. Hi Aj, Thanks for your comment.

    UOB charges GST only on the storage charges. They do not charge GST on the Gold itself. Let us say you buy physical Gold from a dealer. Suppose you bought $100 worth. the dealer will charge you two extras
    1. A dealer commission usually around 4% –> $4
    2. GST from the singapore govt around 7% –> $7
    Thus you pay the dealer a total of $111 for Gold that is worth only $100. An extra $11

    When you buy Gold from UOB, you only pay $100. Now what UOB charges you is for storage. Suppose the storage charge is 1% of the value of the gold per year. Then UOB charges are as follows
    1. Storage charge = 1% of $100 = $1
    2. GST = 7% of storage charge = 7% of $1 = $0.07
    Thus, you pay UOB a total of $1.07 for storage

    So as you see, UOB does not charge GST on the Gold itself, nor do they charge a dealer comission. The GST they charge is only on the service they provide, i.e. storage. Thus if UOB is indeed dealing with the physical metal, then your best bet is to actually buy from UOB as there is neither GST nor commission. But my big doubts are that they are dealing in paper gold and paper silver.

  3. AJ says:

    OK I have made up my mind, and now I am thinking to go for UOB Gold Certificate soon

    what do you think the right price to enter in that instrument?

    • I also talked to UOB about the Gold certificate as I was interested in it. But I changed my mind on it when I found out the following
      1. GST of 7% applies: This may no longer be true
      2. UOB charges a high dealer premium: This too may no longer be true
      So you end up paying up to 12% over spot. For me anything over 4% is too high. Still, why don’t you do me a favor and find out abut this and let me know
      3. The initial investment is too high (about 1Kilo I believe which is SGD 70,000).
      4. And the deal killer was this. If I lose the certificate, I lose the Gold. if a thief steals your Gold certificate and turns up at UOB demanding your Gold, he will get it. I thought this was preposterous. I mean in singapore we all have an NRIC. Can we not just show them the NRIC and claim the Gold if you lost the certificate? Also there is so much biometric data such as fingerprints etc. In this age of information, it seemed preposterous to me that if you lost the Gold certificate, you also lose your Gold.
      Reason # 4 was the real deal killer for me.

      As for the right price to enter, I am the worst person to ask. My timing has consistently been terrible. Whenever I make a big investment, the first thing that happens is that the price drops. This has happened every single time. Ofcourse in the long run, I usually win because the investment itself was solid. But I am terrible at timing. So this is a question I must not answer. Instead here is what I suggest

      1. I am guessing you have a steady income every month. Let’s say $4000/mo
      2. I am guessing you save about $1500/month.
      3. You basic strategy must be to take $750 and put it in the bank. This is cash for emergency purposes
      4. With the remaining $750 you must buy Gold and silver every single month. I prefer a 1:1 ratio, i.e. $375 on Gold and $375 on silver. This is your real savings for retirement.
      By doing this, you end up buying Gold and silver at an average price for the entire year. The ups and downs get averaged at the end. The more spread out the buying, the lower the volatility. To start off, buy Gold and Silver every month on the same fixed day, i.e. the 15th of every month or the last day of every month. My friend who is mathematically inclined likes the following algorithm
      1. For every month, follow the Gold and Silver price from the 1st to the 15th. Don’t buy during this period. Note down the lowest price during this 15 day period. This is the observation period.
      2. From the 15th-30, is your zone of action. The moment the price of either metal dips below the lowest you observed from the 1st to the 15th, you buy immediately. If it does not go there, then you buy whatever price you find on the last day of the month.
      It is important to stick to the algorithm to make it work for you. You must not change it on the fly based on your emotions.

      • AJ says:

        Q7.
        Are there any taxes applied to my purchase of Gold Certificates?
        A7.

        Gold Certificates are not subject to Goods & Services Tax (GST). However, conversion of the Gold Certificate into physical gold is subject to GST. Charges are also subject to GST.

        Q8.

        Are there any fees for Gold Certificates?
        A8.

        There is a S$5 certificate fee for the purchase of a Gold Certificate. There is also an annual administration fee of S$36 per kilobar for Gold Certificates holders. Both the certificate fee and administrative fee are subject to the prevailing Goods & Services Tax (GST).

      • Thanks for the info AJ. Some more questions for UOB
        1. If you buy the certificate now and convert the certificate to physical Gold after October 1st, 2012 are you still subject to GST? After October 1st, Gold purchases are not subject to GST
        2. What is UOBs premium over spot? Is it the standard 2%-4% ?

        The Fees seem very very reasonable. So I am guessing you are comfortable making a full kilo bar purchase in one go? Also, you may need to rent a lockbox with UOB to place the Certificate there. The Certificate is too valuable to leave at home. The lock box could cost you an additional $100/yr

  4. AJ says:

    I had asked if they will charge me gst after oct 1, but they too dont have clear picture yet, they said we haven’t got any instruction on it, so we will update you as soon as we have info.
    however, i am not going to have it for long term, may hold for 2 yrs only, i anticipate 4-5% return by end of the year. will analysize EOY if i should hold further.

    Regarding spot price, i found it close to international price. hence not hesitating. Yes have some cash money lying and i expect that is going be in my account without getting used else where.
    Was going to invest in India, but considering its currency value degrading, don’t see returns.

    It was pleasure to have chat with you on this subject. Hope we interact often through your blogs to discuss on such topics. 🙂

    • 7% of SGD is $4500. That’s a huge amount. So before you buy the Gold certificate you need to be sure that they will not charge the 7% GST if you change the certificate to Gold after October 1. If they are not giving you a clear answer, I suggest to research the Gold/Silver dealers in Singapore. There is atleast one dealer in Singapore who will sell you Gold bars at very low premium without GST. The caveat is that you need to store it in Singapore Freeport facility with the dealer acting as the custodian. There is a 2.4% p.a charge. So buy it from him and have it stored in the Freeport. Then there is no GST. And you can withdraw from the facility after October 1 and store it on your own. Since october is 5 months away, you will end up paying 0.5% extra due to storage charges. Very reasonable. Now I cannot tell you the name of the dealer because I do not want to sound like I am advertising and I want to keep my blog commercial free. So do your own research. You’ll find him soon enough.

      India is a very bad investment option right now. Don’t touch it. One option I am looking at right now is U.S. Residential real estate. The rental yields are fantastic. Take a look at it. I intend to post on that topic soon. I have applied for a U.S. tourist visa so I can go there and take a look at some of this and also pick up some. But the issuance is pending administrative processing. But you sound like a singaporean. So for you going to the U,S. is no hassle. I suggest you take a look at U.S. real estate right now.

  5. guru says:

    Hello, on the UOB silver savings account,do you need to physically be at the bank to sell it or can we do it online? Similar for buying, do we need to be at the bank too? cheerx

    • Yes, you need to be physically be at the bank for buying as well as selling and you also have to have your passbook with you. This in my opinion is the proverbial last straw that breaks the camel’s back. First, we are not sure whether they are dealing with physical metal. Second, they will not tell us. Finally, you cannot do it online. This means if you are out of country and the Gold/Silver prices suddenly spikes, you cannot sell. This is most irritating. In my opinion, the best option is to hold physical metal. The next option is to have a custodian hold it for you in the Singapore freeport facility. The third best option is a Gold ETF on the Stock exchange. UOB is the worst option for storing physical metal in my opinion.

  6. Sam says:

    Hello , thank you for writing such a ‘deep thinking’ and interesting post. I am new to gold and silver investment. i am confused about the silver price. Is the UOB silver price based on international price such as london exchange , kitco etc ? because its like quite different and i know there is currency exchange rates affected. Please correct me if i am wrong 🙂 Thanks

    • Thanks for your kind words, Sam. The legal/information document you get from UOB is not very clear on this point. I did not ask for an official answer on this matter, but you could try. I asked the lady on the front desk how they decide the price. They said that the way they do it is by the price offered by a local dealer. She did not know which dealer it was. I am not too concerned at this point as my game plan is to wait for Oct 1 when GST becomes 0. Then I sell all UOB silver and buy physical with the money.

      • Sam says:

        Hi , thanks for your reply. Its a good idea to convert all your UOB silver to physical.I have searched on the internet and found a local precious metals dealer (http://www.silverbullion.com.sg/). What do u think about this dealer? Thanks

      • They charge incredible high premiums on Gold and Silver. Ask them and see what the dealer premium is. When I asked them, it was close to 20%. Are you okay with paying those premiums? That’s almost as bad as the GST.

      • Sam says:

        Hi , thanks for your reply. As i am new to this investment and would like to learn more, may i know what are premiums ? Is it the storage price or eg. Silver Spot Price is 35 sgd and the silver Amercian Eagle coins are around 46 SGD each or the minimum purchase price is 2000sgd ? Please correct me if i am wrong ! Thanks for sharing 🙂

    • Premiums are whatever you pay the dealer above the spot price. Suppose silver is $35/ounce on the international market. Then at silver bullion, you may have to pay $46/ounce. That is $11 over the spot price. Of that $11, $2.50 is the GST which the singapore government pockets. The remaining $8.50 is the dealer premium which the dealer pockets. In this particular case, the dealer premium is (8.50/35)*35 which is around 22%. In the international markets the dealer premium is around 4%. Thus I feel that the dealer premiums being charged by silver bullion are way too high.

  7. wrx74 says:

    The case of UOB gold and silver accounts are mainly naked short positions against customers who deposit there.They may use part but not all of these deposits to cover their naked positions but i dun think its fully covered as its more profitable to give out loans than become a shop for selling physical Gold and silver which incurs inventory cost, storage and security costs.Im enlightened by the 4 types of senario and im at no 4.The risk i understand is counter party risk where UOB is not able to honor its obligations to gold/silver depositors if it defaults.For physical, u can always sell to another party if UOB defaults.The removal of GST can help reduce cost of buying physical but UOB will may try ways to charge storage that will reduce ur returns.

    My argument is that the manipulation of Gold and silver is always there and be it physical or paper gold or silver to depress price.Central banks and commercial banks can manipulate(short selling,raise interest,throw their gold holdings) and cause u to lose money still against ur paper or physical holding.To win in the gold and silver game, whether physical or paper, u have to become investor type 4 to have balls of steel(im still learning to be), since u can hold physical and still lose money when Gold/ silver depress and u can are force to liquidate or cut losses.

    • Are you trying to say that UOB will unilaterally raise their storage fees in order to force their customers to liquidate. Can they do this? After all their contract says nothing of the sort.

      If UOB defaults, there is no question of selling to another party because the Gold is simply not there. How can you sell Gold that does not exist? When UOB defaults you neither get physical nor the cash equivalent.

      I’m not concerned about Central banks manipulating the price of physical. When I buy physical, I buy to hold for all my life and to pass on to my desendants. The only way I will sell physical is if it is an emergency and liquidity is not available. I welcome physical manipulation as it just lets me buy more physical cheaply. UOB worries me because it is paper which is most probably not backed by anything physical anywhere.

      • wrx74 says:

        They may or may not raise storage fees depending on the demand for such storage when pp go physical.But going physical, there are risks associated with storage eg theft of safe,fire,secret place where one may accidentally throw away or suffer dementia and forget about it. etc However, if pp feel safer to store in the safeboxes of banks,in the event of a bank default, the bank may use any resources available to settle creditors which means u may not find ur physical gold there.My opinion is that paper has slightly higher risks than physical but do not agree its much lower if u weight they two together.Paper risks are default risks of banks and exchange rate risk(USD).Maybe its a matter of preference since i see loss due to theft and accidentally throwing away higher than holding paper.
        Most manipulations are by paper since most institutions/pp do not have physical to manipulate it(short sell mostly by paper).Its the work of paper gold silver that u can accumulate cheap physical while i accumulate cheap paper.Be it either, im glad we are aware what game we’re in(than blind buying) and know how to manage the risks

      • In the 80s or the 90s I would agree with you that paper gold/risks risks are lower than storing physical. But in today’s environment when banks have made so many bad loans, default risks are very real and very high. Credit default swaps, sub-prime mortgages…….. quite a mess isn’t it? And several regulations permit a bank to stiff customers who hold paper gold without consequences. Witness what happened with Gerald celente. MF global stole his gold and stayed solvent. Granted, this is singapore and maybe this kind of stuff has a low chance of happening in singapore.

        You have considered the risks of bank default and said that it is just slightly lower than the risks of physical. But you have not considered the risks of paper/physical divergence. Let me ask you this. One day the paper gold and physical gold markets will diverge. There is every possibility that paper gold will be $3000/oz and physical will be $30000/oz. Have you considered this scenario at all?

  8. RK says:

    Hi, regarding UOB Gold & Silver saving a/c, you can check with Mr Alan Tin Bing Kee, (director,Precious Metals) at email: Alan.TinBK@UOBgroup.com. Maybe he can answer all your questions regarding the above matters. Maybe you can also ask him how they set the precious metal pricing,is it based on market spot price?

  9. wrx74 says:

    Paper/physical prices may diverging but their differences would not be too wide(eg 50% and above), or for too long(eg 2yrs or more).If it does, everyone will go into a futures paper contracts to fix price and ask for physical delivery asap and resell at the higher price.This will bid up paper contract prices and depress selling prices of physical.

    Or u could be rite when someone needs to honor the physical delivery and begins bidding up physical prices and leaves paper prices unchanged since all the action is in physical. But the divergence will open up profit opportunities for some who can capitalize on the divergence and we know arbitrage profits dun last very long and gap will close.The higher priced will come down and the lower priced will go up.PP will not remember what was the physical price then when the paper price that from goldprice.org showed gold/ silver peaking in 1980s, 2010 but they know it cannot be very far from that.

    From bank’s point of view a paper silver and gold contract costs nothing to the bank until the rate works against it.It might decide to hedge by holding some physical.This means supply of paper contracts is relatively elastic(not much, price fluctuations) and thus shortages in supply and demand has to come from physical mkt eg investors who hold physical ,industrial demand and production.This means paper is a like a derivative , the rite to sell to the bank at any future spot paper price when holder exercises it and it value is derived from physical.

    Thus, tho i prefer paper, i also wish there are more physical investors to be around.The rise of silver and gold in 2010 and 1980s shows potential for huge capital gains from paper speculation,physical speculation, shortages in supply and physical demand shows the link between is still there, if not, it would have been a flat line throughout the last 30yrs.

    • 1. in your first paragraph you say that ” if there is a divergence in price, everyone will go into a futures paper contracts to fix price and ask for physical delivery asap and resell at the higher price”. The problem is that if they ask for physical delivery, they will be DENIED. Try to go to UOB and ask for physical delivery. You will not get it. Several entities dealing in paper are similar. They make no commitment to deliver physical. Thus your statement is incorrect.

      2. You make similar assumptions in para 2.

      3. In the third para, you make the statement that “This means paper is a like a derivative , the rite to sell to the bank at any future spot paper price when holder exercises it and it value is derived from physical.” This statement of yours is incorrect as well. The future spot paper price is NOT derived from physical. The two markets are loosely correlated. The future spot paper price is derived from physical ONLY IF the holder of the paper has the right to exchange paper for physical. In the case of UOB, we all know he has no such right. And this is true with several paper trading entities on this planet.

  10. Sam says:

    hey guys , what is happening to precious metals this few weeks? as silver and other precious metals prices keep increasing.

    • Who knows? I treat this sort of short term fluctuations as simply noise. I know that precious metals have much more to rise and that central banks will continue to print. And I like betting on long term trends rather than tearing my hair on short term noise.

  11. RK says:

    Watch it, those guys still got a considerable amount of shorts. No way they going to let it go above $1700 and $33. Probably there going to ram it down again one more time. I think QE3
    only come in Dec before the fiscal cliff or early 2013.

    • Hmm! Gold is at 1760 and silver at 34. QE3 is already here. Your predication has been proved wrong in the matter of a month. Any more predictions, nostradamus? 😉 Short term prediction is a risky business my friend!

  12. RK says:

    Yup! Nobody knows what they are thinking. Data coming out of US looks quite ok, no reason for them to do QE3, only thing I can think of is pro Obama, to be re-elected, eh…

  13. Mervin Yeo says:

    Interesting read 🙂

  14. Karen says:

    Hi, am wondering if anyone did consider the good savings account and certificates at the bank of china? The only thing I worry is that they don’t seem to put up their rates out in the public domain…

    • Karen, what does public domain mean? They have to put up the rates somewhere, right? And where do they store this Gold? In mainland china? In Singapore’s Freeport? Somewhere in a western country? The Gold prices they buy and sell, are these international rates, or set by the BoC? If they store the Gold in Singapore and the Gold prices are international rates, I say go for it. If they store the Gold in China or some western country, I would be very very concerned.

  15. Ivan says:

    Hi,

    to be quite honest I am baffled that people have this almost religious belief that banks are safe and hey ”this is Singapore it could never happen here” attitude.

    If you read UOB’s Terms and Agreement there is 0 (ZERO) text or statements that refers to any kind of audit or inventory check of the gold or silver. Furthermore, if you read the text about the gold & silver certificate/savings account, there is actually NO word about physical metal that is stored in their vaults.

    The system of buying unallocated gold or silver with big banks works like this: they do not hold any physical gold or silver in their vaults. You are just buying a proxy to the actual international gold and silver paper price. You do not buy any piece of any actual REAL metal. UOB either does one of the two options:

    1. They hedge their exposure to the client by buying future contracts which is a derivative instrument used to gamble on the short/long side of gold prices, or;

    2. They don’t even bother to hedge, in other words, they do not even buy any paper gold because they know that most retail investor (way over 50%) actually make a loss in the markets (buying high, selling low, even in bull markets), thus UOB takes a calculate decisions to risk being short while retail investor are long.

    By legal definition UOB does nothing wrong, they charge you a fee, and their agreement towards you is that they will pay you the difference between the price you bought and the market price of the metals at the date you sell your position.

    To summarize, it is a scheme that is completely legal (even my MAS) since UOB never promised you any actual physical gold, either in their introduction or Terms & Agreement. They charge you a fee so that you can gamble against the bank. Unfortunately for retail investors, the casino in most cases always wins.

    If you want to gamble, then you buy UOB gold & silver. If you are a serious precious metals investor / saver, then you go for allocated (audited) bullion or the real deal —-> physical in your hand.

    Hope this clears out things, cheers.

    /Ivan

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