While buying gold jewellery is part of Singaporean culture, it’s misguided to consider this tradition as an investment.
This article was originally published on 28 June 2016. Last updated on 28 October 2016.
Some Singaporeans think buying a lot of gold jewellery is the same as investing in gold. In particular, buying and gifting gold jewellery has deep cultural roots among Chinese and Indian Singaporeans, who tend to consider it as a sound investment.
However, this is a misguided tradition. There is a big difference between investing in gold bullion and gold coins (e.g. Canadian Maple Leaf coins), and buying jewellery from a store. In fact, many women have received unpleasant surprises when trying to sell their jewellery at a gold price peak, only to break even.
Here’s why buying gold jewellery is nothing like investing in gold:
1. Jewellery Comes at a High Markup
As a rule of thumb, the markup on gold as jewellery is about 100 to 250 per cent from big brand stores. Small neighbourhood jewellers or custom jewellery online can be less expensive. But even in those cases, markups tend to be at least 60 per cent.
Say a ring is made of 24 karat gold*. The ring contains five ounces of gold, which at present is worth around USD$1,350 per ounce. This means the market price of the gold is around S$9,613.80.
But a jewellery store can’t just sell a lump of gold. A goldsmith needs to melt that gold down and shape it. The store also needs to spend money on marketing, salespeople, and shop space. It also has insurance costs, shipping costs, security costs… you get the idea.
By the time the jeweller has factored all that, it shouldn’t be surprising that the ring will cost around S$22,000 to S$24,000. So if you bought the ring and want to break even on this “investment”, you need market prices for gold to rise by 200 to 250 per cent.
Even assuming gold prices rise constantly every year – something no one can guarantee – you could end up holding on to the ring for decades, and then only getting back its original worth. That would be a serious loss due to inflation.
*Gold that is less than 24 karat cannot be accurately compared to gold bullion, as it is mixed with other metals.
2. Jewellery Comes with GST
As of 1st October 2012, Investment Precious Metals (IPM) do not incur a Goods and Services Tax (GST) in Singapore. But jewellery does not fall under the category of IPM, and remains taxable.
The GST rate is a flat seven per cent on all items. This means a gold bracelet valued at S$10,000 sells for S$10,700.
Because of GST, you pay more for gold in the form of jewellery than you do for gold in the form of bullion (or any other form that counts as IPM).
According to the Inland Revenue Authority of Singapore (IRAS):
“Precious metals which do not meet the criteria cannot qualify as IPM (hereinafter referred to as “non-IPM”) and the supply of non-IPM continues to be taxable. Examples of non-IPM are jewellery, scrap precious metals, numismatic coins and precious metals which are refined by refiners who are not on the ‘Good Delivery’ list of the London Bullion Market Association or the London Platinum and Palladium Market.”
For details on what counts as IPM, visit the IRAS website.
3. It’s Tougher to Sell Jewellery Than Gold Bullion or “Paper Gold”
Gold investors either have gold bullion, or “paper gold” in the form of gold Exchange Traded Funds (ETFs).
There is a ready market for these, as gold is bought and sold almost every day. The gold can be sold at close to market price (there are usually some small transaction fees), and with gold ETFs you can sell your units and get the money within two days.
It is far more troublesome and expensive to sell jewellery. In most cases, you will have to go to a pawn shop; otherwise, you turn to jewellers. Whatever the case, you are likely to sell at a loss.
Most jewellers will only offer half the price or less, or try to sell on a consignment basis. This means you leave the piece with them, and they will get a commission if and when they sell it for you.
Furthermore, the resale price of jewellery is subject to the whim of whoever does the valuation. This is why two pawnshops might offer you two different prices for your gold jewellery. This raises the possibility of making a bad deal, as you cannot easily compare prices.
Gold investments, however, have well-charted prices. They are sold on regulated gold exchanges (or the stock markets in the case of gold ETFs), so you would know if you’re getting ripped off.
4. Gold Prices Fluctuate; Jewellery Prices May Not
Gold prices change every day. A big brand jeweller generally can’t accommodate that.
For example, jeweller buys gold at USD$1,350 an ounce to day to make a bracelet. Two months later, the price of gold has fallen to USD $1,200 an ounce.
Will the jeweller lower the price of the bracelet to match? If you’ve looked inside a major jewellery store, you’ll know the answer is no. Jewellery prices are quite static.
This means you can’t buy at a discount, like an investor during a gold crash, and sell for more when prices go back up.
That said, some jewellers might lower prices during a gold crash. But even then, there is a limit to how much the discount can be.
Beyond a certain point, the store is content to leave it unsold and till prices go back up.
There Are Perks to Having Gold as Jewellery
The upside to gold as jewellery is that it’s portable. In case you ever need to smuggle your wealth out of the country, jewellery is much easier to hide than gold bars. But we don’t think this is an issue for most Singaporeans.
The main advantage is that you can wear it. Jewellery is a much more touching gift than putting a gold bar, or a gold ETF certificate, into a loved one’s hands. This an exercise of the cultural, rather than monetary, value of gold.
There is also the prospect of jewellery as antiques. Certain styles of goldsmithing, such as Victorian-era pendants, are rare. These pieces may have value beyond the actual worth of the gold they’re made from. Investing in antiques, however, is still different from investing in gold.
Overall, you are better off keeping gold investments and jewellery as separate things in your mind.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.