Why HNWIs Choose to Insure Their Wealth with Gold and Silver in Singapore

More and more wealth builders from around the globe turn to Singapore as Asia’s precious metals trading and storage hub to diversify their asset protection portfolio with precious metals such as gold and silver.

Singapore is conducive to the investment in precious metals because it recognizes Investment Precious Metals (IPM) as non-taxable financial assets. Certain investment grade gold and silver can be imported and bought free of Goods and Services Tax (GST – similar to VAT in Europe) in Singapore. This is still not the case with importing and buying silver in the EU, where silver is taxable in all EU countries except Estonia. This is one of the main reasons why Singapore is such an attractive destination for buying and storing silver and gold bullion.

Printing more currency means higher gold & silver prices

As more currency is created to pay interest and debts, fiat currencies such as the dollar, euro, and yen are depreciating on a regular basis. For example, according to the US Consumer Price Index (CPI), the value of the 100 USD note has steadily depreciated at an average of 3.2% every year since 1913. With the erosion in USD value, even an annual 2% return on the currency that depreciates 3.2% per year still means a 1.2% loss in real terms.

All things considered, saving in fiat currencies inevitably brings the risk from depreciation and the inability to generate the returns necessary for making up for the depreciated value of all the saved or invested currency.

By contrast, the value of gold and silver has appreciated in the same time period. For instance, the value of gold went up by 4% per year (in USD terms). The main reason behind gold and silver appreciation, as opposed to fiat currency depreciation, is that their physical supply enhances at a lower rate than is the case with fiat currencies. Put simply, with more fiat currency being printed, the value of gold and silver appreciates.

Interestingly enough, while the US monetary base has grown by over 450% in the past decade, silver reserves around the world actually diminished. Still, the value of silver (and gold) is still steadily appreciating, making investors turn to these two precious metals for investments.

Specificities of gold and silver investment

Given that precious metals do not produce yield, there is always an argument among investors whether gold and silver represent a good investment in the first place, especially for those hoping to gain higher returns on their investment.

Yet, for their historic monetary role and being the ‘’stores of value’’, both gold and silver represent a (usually small) part of any serious investor’s portfolio. These investments can take many forms such as stocks (of refineries, mines etc.) or Exchange-Traded Funds (ETFs). Financial instruments such the ETFs are very convenient and popular among those investors ‘‘betting’’ on the price of gold and silver as the costs are lower – there is no physical delivery and, therefore, no logistics and transportation costs. ETFs, being futures contracts, are traded electronically and are almost always settled in cash although there is an underlying asset (i.e. physical gold and silver) backing it up. However, there is always a concern among investors what will happen in times of economic crises and market crashes.

When it comes to using gold and silver as ‘’stores of value’’, inflation hedges and ultimately – insurance against various systemic risks, certainty becomes more important than the yield. Therefore, having physical possession of your wealth takes precedence over the convenience of smaller costs and easy trading (as with ETFs).

This is why nowadays an increasing number of investors are purchasing physical gold and silver and storing it in a safe jurisdiction such as Singapore, where their IPM gold and silver will be exempt from taxes, safely stored in one of Singapore’s cutting-edge vaulting facilities, and protected against government seizures.

Gold vs. silver

Given its monetary role throughout history, gold is generally regarded as a ‘’safer’’ investment option than silver. Moreover, gold has very little industrial use, meaning that only a small portion of mined gold is consumed and ultimately destroyed. By contrast, silver has a myriad of industrial uses, from solar panels and electronics to cosmetic and pharmaceutical industries. As a result, its value is more volatile. Although its industrial uses enable silver to produce better short-term returns than gold, it can also incur bigger losses.

All in all, seasoned investors follow the prices of silver and gold, and use the knowledge to plan a balanced portfolio between gold and silver.

Gold to silver ratio

When it comes to investing in precious metals such as gold and silver, investors should learn the art of patience and strategizing. By the same token, gold and silver do not make for good get-rich-quick tools. A very popular strategy among investors is prioritizing silver purchases over gold, only to switch back to gold and make a profit from the exchange, on top of the regular appreciation in the price of both gold and silver. To be able to do that, investors employ the ‘’gold to silver ratio’’ (GSR) – the ratio that demonstrates how many ounces of silver it takes to purchase one ounce of gold, and vice versa, where gold is the fixed variable. The fluctuations in the gold to silver ratio are used by investors to determine if the time is optimal for gold or silver purchase.

Throughout history, the gold/silver ratio used to be 15 to 1, where an ounce of gold was equivalent to 15 ounces of silver. The all-time high happened in 1991 when GSR exceeded 100. Nowadays, however, the ratio fluctuates between the lows of 45-50 and highs of 80-85, a trend that has continued for 30 years now. Given the ratio and the 30-year time frame, investors could employ a simple strategy: convert silver ounces to gold when the ratio was 45 and exchange the gold ounces for silver at 80. If they started off with 100 oz of gold, converted it to 8,000 oz of silver in 1989 when the ratio was 80, and then continued the exchange, they would have 561.9 oz of gold in 2016 after only 7 transactions. In USD terms, they would ‘’inflate’’ the 122,000 USD worth of gold to 665,000 USD.

Investors should take advantage of these ratio fluctuations, which are likely to remain within the same range for the next couple of years. More specifically, they should simply buy gold when it’s cheap relative to silver (at GSR 45), and later buy silver when it’s cheap relative to gold (at GSR 80).

Singapore’s Silver Bullion, a world-class bullion dealer, devised its own gold-to-silver ratio calculator with the aim of helping their clients make the best of the ‘’Gold-To-Silver Switching Rule’’; the clients can multiply their metal holdings by switching to the undervalued metal of the two, which will serve as the basis for their investment strategy.

The go-to place for gold and silver investment in Singapore

Investors that choose to harness the current GSR ratio need a reliable facility to store their physical gold and silver until the switch is made. Silver Bullion’s subsidiary The Safe House (TSH) and especially Bullion Storage guarantee buybacks of stored physical gold and silver. Clients can buy gold or silver bullion and store it in the premiere vaulting facility in Singapore, enjoy the benefits of ‘’all risk’’ insurance underwritten by Marsh Insurance, and sell the bullion back whenever when they need to make the gold-to-silver (or silver-to-gold) switch.