Versatile, ‘safe haven’ asset: What you should know before investing in gold

Gold is traded in the global market, so its price depends on supply and demand. Demand for gold is influenced by multiple factors such as demand for jewellery, central banks buying or selling gold reserves, concerns about inflation and macroeconomic conditions, as well as geopolitical turmoil.

Some investors believe that higher interest rates would reduce demand for gold. Because gold investments do not yield interest, interest-paying assets such as bonds, which move in tandem with interest rates, would be more favourable when interest rates rise. 

4. It is not a risk-free investment

Unlike placing money into a fixed deposit, bonds or selected stocks, investing in gold does not pay interest or dividends. To profit from gold, investors sell the yellow metal at a higher price than what they paid. Despite its popularity as a safe-haven asset and inflation hedge, it is important to recognise that there is no guarantee that gold prices will always increase.

For instance, the price of gold fell between April and September last year amid a series of rapid interest rate hikes by the US Federal Reserve and a strengthening US dollar, before stabilising towards the year end.

Therefore, gold prices can fluctuate and it is possible for investors to lose money, like in any other investment. Investors should be mindful of the risks involved before buying into gold.

5. Gold can be held in various ways

Physical gold comes in the form of gold bars or gold coins, while paper gold refers to an asset that tracks and reflects the international market price of gold. Forms of paper gold include gold-linked mutual funds or exchange-traded funds. There are advantages and disadvantages to both investment options.

Physical gold is tangible, has intrinsic value and is valued globally, but investors pay a premium due to costs associated with manufacturing. Meanwhile, paper gold can be traded quickly but is subject to counterparty risks. This means there is a chance that the other party in the transaction does not fulfil his or her end of the deal.

With the UOB GSA, investors can convert their gold holdings bought with non-Central Provident Fund (CPF) monies into 100g Argor gold bars at a physical conversion premium of $100 per piece*. The bars can also be repurchased by UOB at the prevailing market price as long as the seal, original packaging and receipt are intact*. UOB fully backs all its GSA exposure according to requirements set by the Monetary Authority of Singapore.

Mr Alan Liew Yong Wee, UOB head of Bullion and Commodities Trading, says: “By making gold investments accessible and flexible through the UOB Gold Savings Account, we hope to empower customers to optimise their portfolios and maximise their potential for financial growth.”