12 questions to ask before investing in gold

Published by Ian Tai Wealth Publications Copyright © 2016 by Ian Tai Wealth Publications All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, photocopying, recording or otherwise without prior permission of Ian Tai Wealth Publications and Goldsilvermethod.com Disclaimer: This book contains the ideas & opinions of the author. It is intended for education & illustration purposes. It is not intended to be a recommendation to buy, hold or sell any securities discussed herein. The author and publisher are not stockbrokers, registered investment advisors, or substantial shareholders of any securities mentioned in the digital book. Although we have made the best efforts to provide the most accurate & uptodate information, no warranty or guarantee is given for the the accuracy, reliability, or completeness of the information provided. The author and publisher disclaim any rewards and responsibilities for any gains and losses, which may arise as a consequence, directly or indirectly, from the application of any ideas, strategies, techniques and case studies mentioned in the digital book. The author and publisher do not guarantee any results or investment returns based on the information contained herein. We suggest the consultation of the relevant investment professional prior to embarking on any investment plan.

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Table of Contents

Introduction - The Prophecy Came True!

Question 1 - Seriously, for youngsters like me (age <25), invest in gold and silver is purely a waste of time. I can simply get 200 – 300% return from equities / properties for the same tenure of investment.

Question 2 - How does gold and silver make good investments? They don’t provide dividends.

Question 3 - What is the best market condition to buy gold and how is it better compared to investing in equities market?

Question 4 - Should I hold my current gold investment or sell it since the market is down now?

Question 5 - What makes the Gold Price move?


Question 6 - When not to buy gold?

Question 7 - Why gold has plummeted to such low levels?

Question 8 - What are the common mistakes when investing in gold?

Question 9 - Should we invest in bullion or coins / rounds for long term investment?

Question 10 - Who are the trusted sellers in Malaysia? Why they can be trusted?

Question 11 - Does dollarcostaveraging work for gold and silver investments?

Question 12 - How are we able to realize our investment (gold and silver) at the end of the day?

Conclusion


Introduction The Prophecy Came True

It was the end of 2013. I was typing away on my laptop, accounting for our nation’s major events happened during the year. In May 2013, the Barisan Government has emerged victorious in the 13th General Election (GE13). However, celebrations were shortlived. Since then, the Ringgit had plunged from RM 3.00 per US Dollar in May 2013 to RM 3.30 per US Dollar in August 2013. In attempt to save the Ringgit, the government trimmed fuel, sugar and power subsidies and approved GST which is implemented starting in April 2015. The announcement of these initiatives had helped to stabilize the Ringgit at RM 3.20 RM 3.30 per US Dollar. Over the longerterm, I am concerned. I have doubts over the midtolong term stability of the Ringgit. This is due to our country’s weak fiscal condition which includes continuous budget deficits and rising national debt. This gave birth to the publication of my 3rd book, ‘The Shrinking Currencies’ in 2014. From which, I wrote about the origins of the Malaysian Ringgit and gave my views on its future prospects. Fast forward 2 years, my concerns have materialized. Indeed, Ringgit had shrunk in value. It had dropped to as low as RM 4.41 as of September 30, 2015. Most complained about the rise in cost of living and cost of doing business. It is definitely tough times for the Rakyat.


While Ringgit lost 25% of its value in 21 months, gold has appreciated by 22% against Ringgit Malaysia. This is despite gold remained flattish at US$ 1,100 per ounce.

Source: Goldprice.org

As a gold investor, a portion of my personal wealth was effectively protected against the huge depreciation of the Ringgit. Hence, that is why I believe every Malaysian should hold some bullion as an insurance policy against devaluation of currencies rather than thinking to gold as a means to making more money. Since end of 2014, I have partnered with KC Lau, Malaysia’s top personal finance blogger, to reach out to more likeminded people who are equally concerned about the future state of our currency. We have created an online course to cater to customers who wishes to protect their personal wealth from the ‘Shrinking Ringgit’. In 2015, KC had launched a survey relating to gold and silver investment. The response was overwhelming. Many asked valid questions and thus, gave birth to the creation of this digital book.


It is written to answer and to share my personal views on the questions received. I sincerely believe that your questions would not only enhance your own personal investment knowledge, but also, greatly benefit other participants and myself included. Regardless of your current background, savvy investor or novice, I hope this interactive book will impart some knowledge or at least, share some ideas to enrich ourselves in the knowhow of investing in gold. Also, it is my wish to further enhance our level of communication, interacting with you much better. Hence, please do not hesitate to provide more feedbacks and ask more questions. I would be delighted to entertain them. Sincerely from, Ian Tai Malaysia’s Leading Author of Precious Metal Books CoFounder of goldsilvermethod.com


Question 1 Seriously, for youngsters like me (age <25), invest in gold and silver is purely a waste of time. I can simply get 200 – 300% return from equities / properties for the same tenure of investment.

Answer 1 I think it is difficult to make a fair comparison between different asset classes as each is uniquely different from one another. Here, I would share my views from 3 different angles. They include:

Investment Objectives - Equities & properties are to build wealth. Shareholders are entitled to future earnings as they are partowners of a corporation. Landlords let out properties to generate rental income. Shareholders and landlords enjoy capital appreciation if the companies and the properties held have increased in value. Hence, the investment success of equities & properties are usually measured based on “cash flow” and “capital appreciation”. Gold and silver are not to build one’s wealth. Savvy investors buy and keep precious metals as insurance policies against economic uncertainties. It is a strategy to preserve wealth against paper currencies which fall in value.


They are hard metals and not businesses that provide steady stream of regular income to people. Hence, I believe one way to measure the effectiveness of gold and silver to preserve wealth is to compare them against prices of oil. This is because oil is commonly used as an indicator to measure inflation as it is the lifeblood of today’s modernized economy.

Same Tenure of Investment – The feedback given does not specify what ‘the same tenure of investment’ means. Is it 1 year, 3 years, or beyond 5 years? Allow me to make an assumption. If one uses “capital appreciation” to measure investment success, then, from 2012 to 2014, equities and properties have done fairly well against gold and silver. Precious metals have failed miserably based on this measure during the period and thus, look to be quite inferior against stocks and properties. However, it is common for every investment class to experience ups and downs. It is like a pendulum. Stocks move from undervalued to becoming overvalued and back to being undervalued. So do properties. Commodities have cycles too. Even in a longterm commodity bull run, it is normal for gold, silver and oil to experience drop in prices. Hence, it is unusual to see an investment going up by another 200 – 300% continuously after appreciating some 200 – 300%. Usually, it is increasingly difficult to buy low after some 200 – 300% increase in prices. For instance, in the local scenes, I’ve discovered that share prices have been moving at quicker pace than earnings growth achieved by most public listed corporations. Market capitalization is at its recordhighs. P/E Ratio is moving into the 20s with some into the 30s. Meanwhile, gold and silver prices are now at 30% and 70% lower than its peak in 2011. This is despite maintaining solid fundamentals in the global market. Thus, as prices drop, investors who seek value sense opportunity, buy low when others chase for the flavour of the month. When things become highly priced, that is the time to think about selling in order to reap investment rewards.

Metals are Homogeneous –


This is a huge difference between metals from stocks and properties. A piece of gold is a piece of gold. You are buying gold at nearly the same price regardless whether it is a coin or bar whether it is PAMP Suisse Gold Bar, the American Gold Eagle, or the Canadian Maple Leaf. The price is determined by its weightage and its metal content. Obviously, equities and properties are different. Let us start with stocks. In Malaysia, there are some 800 – 900 public listed corporations that you can choose to invest in. They differ in business models, corporate structures, involving in different industries and thus, yielding different investment results. The same goes with properties. It differs in types of properties, location, size, demographics of the population surrounding the area. Thus, it is not fair to sum up the performance of “equities” or “properties” in just a few words. Making comparisons between investment classes is not practical. In my opinion, I believe becoming an expert or gaining specific knowledge upon the investment class you are interested into is of importance. I believe that the investment plan, philosophy and method one pursues in should be prioritised over choosing an investment product itself. After all, there are successful investors in every single investment class regardless of its market conditions.


Question 2 How does gold and silver make good investments? They don’t provide dividends.

Answer 2 Have you read Robert Kiyosaki’s Rich Dad Poor Dad? For those who had, I believe you may recall Robert’s simplicity in defining what an asset is and what a liability is. An asset is something that puts money into your pocket while a liability takes money out from your pocket. Many believe gold and silver could not be defined as assets as they do not generate dividends or cash flows to its investors. I agree. I do not view precious metals as assets. Just take a second to think about it. Would you consider our Ringgit Malaysia or the Singapore Dollar as assets?


I believe not. You may refer them as currencies, money, medium of exchange or store of value. But, you would not regard saving money as the same as making an investment. So, why do you save Ringgit Malaysia into your bank account? I believe the answer is because Ringgit Malaysia is our national currencies or a store of value decreed by the Malaysian government or Bank Negara Malaysia. The currency is widely accepted as a medium of exchange by all Malaysians in Malaysia. As long as Ringgit Malaysia can hold its value, not just against the US Dollar, but also against food, gasoline, property prices and cost of living, then I believe, it is pointless to hold onto gold and silver. This is because Ringgit Malaysia is effective as a store of wealth. If the value of Ringgit is the same today and tomorrow, then, we do not need precious metals. Unfortunately, the situation depicted above is merely a fantasy. We know that, in general, Ringgit tomorrow will worth lesser than Ringgit today. If Ringgit could not hold its value, people would start to seek for a replacement to hold wealth. One of the candidates is the US Dollar. While Ringgit is a national currency, accepted and traded within the borders of Malaysia, the US Dollar is a global reserve currency, accepted and traded across the globe. The amount of people accepting and using the US Dollar is far greater than the amount of people using Ringgit Malaysia. Usually, when people distrust their own national currency, people would switch to the US Dollar. I think it is quite logical. Again, when you swap Ringgit for Dollars, do you consider yourself an investor, investing in the US Dollar? Similarly, when people sense trouble in the US government and the American economy, people would seek gold as a hedge against the falling value of the US Dollar. After the subprime crisis, the US Government had launched a series of QEs to inflate the supply of US Dollars by some US$ 2 – 3 Trillion. These trillions were stored within the US Banking System and have yet to be lending out to the public. If banks start to lend and multiply these trillions, there is a threat of high inflation as money has moved faster with increasing velocity. That is why more and more central banks today are diversifying their reserves into gold. This is because more governments are having less faith and trust on the creditworthiness of the US Government.


Many stash up gold as a preemptive move against another currency crisis or another economic meltdown like the one in 2008. Gold is not accumulated as an investment or a moneymaking asset. We consider gold as the ultimate form of money when people lose confidence on paper currencies such as the US Dollar, Euro, and the Pound. Conclusion, I buy gold as an insurance policy against financial calamities, not as an investment.


Question 3 What is the best market condition to buy gold and how is it better compared to investing in equities market?

Answer 3 I do not say one investment class is better than another. I’m not into making comparisons. I sincerely believe that there are pros and cons in all investment classes mentioned above, gold, stocks or properties. Also, I believe in investments move in cycles, waves and seasons. This means, there are times that gold is good and there are times gold is bad. The same applies to stocks and properties. So, I believe the key is about identifying the right time to get into the right investment class. Basically, there are two types of investment cycles. The first is known as the stock cycle and the second is known as the commodity cycle. Every cycle would last for on average 18 years per cycle before switching to the next cycle. It is like a pendulum. The way to tell which cycle we are in today is by calculating the Dow / Gold Ratio. An overall longterm increase in the Dow / Gold Ratio signifies the reigning of the stock cycle. A longterm decline in the Dow / Gold Ratio signifies the reigning of the commodity cycle.


Source: goldsilvermethod.com

From the Dow / Gold Ratio graph above, the Dow / Gold Ratio had peaked in 2000. Since then, the Dow / Gold Ratio came crashing. This means, the stock cycle has ended in 2000, paving the way for the commodity cycle presently. Hence, over the longterm, the trend is with commodities like gold, silver and oil. Stocks, in general, have not gone and will not go very far in the commodity cycle. Understanding investment cycles are important and will give you an advantage over people who are just focusing on shortterm events and shortterm price movements. Next, I believe the next thing is to study how both stocks and gold move in both stock and commodity cycles. In the last commodity cycle (1966 – 1981), gold have done well while stocks went nowhere. Gold went up by 24 times but it is not a straight line. Gold went up from US$ 35 in 1971 to US$ 200 in 1974 before dropping and lying flat to US$ 100 in 1978. Then, gold went manic, pushing prices up to US$ 850 an ounce in 1980. Stocks, however, have experienced 3 crashes with each taking around 2 – 3 years to rebounding to hitting 1,000 points before crashing to an ‘alltime low’.


In the last stock cycle, the gold rush was over, paving way to the equities market. Gold prices have dropped from US$ 850 in 1981 to US$ 280 in 2000. Stocks jumped by 11 times, up from 1,000 points to 11,000 points. However, the decline in gold prices and the increase in stocks do not occur on a straight line. In 1987, stocks went down by 40 – 80%.


Everyone thought that was the end of equities and started to buy gold in 1988 – 1990. They were wrong. The increase in gold prices in 1988 – 1990 was temporary. Gold went down from US$ 500 to US$ 280. Stocks, however, boomed crazily. This is particularly in the late 1990s. The stock cycle has ended with a manic. If you look at the performance of the Dow, it made the stock market crash in 1987 pretty insignificant.


Today, we are in the commodity cycle. It is a cycle for gold, silver, and oil. Today, most look at the decline in prices of gold, silver and oil and believe that it is the end of commodities. I am in a different opinion. This is because the drop in prices is temporary. The same goes for the present uptrend in stock prices such as the Dow. There is one last outburst for gold and possibly another stock market crash looming in the near future. Just take a look at the present performance of both gold and the Dow and compare them with 3/4 of graphs of gold and the Dow in the previous commodity cycle.


So far, the performance of gold and the Dow resemble the pattern achieved in the last commodity cycle in 1966 – 1981. The Dow’s recovery is in a way dubious. This is because of the implementation of a series of QEs since the subprime crisis in 2008.


In fact, at this time, it may not be the best idea to get into stocks especially the Dow as the Dow is now on an ‘alltime high’. Meanwhile, gold is just entering a correction phase much as what happened from 1975 – 1978. If I put graphs of gold prices in 1966 – 1976 together with 2000 – 2014, then, I believe you may have a sense of what’s coming in the next few years.


Question 4 Should I hold my current gold investment or sell it since the market is down now?

Answer 4 The answer to this question is not as simple as ‘yes’ or ‘no’. Let us make quick recap. Since 2011, gold prices went down by 30 – 40%, declining from its peak of US$ 1,900 per ounce to US$ 1,200 per ounce today. The performance over the past 3 – 4 years has been disappointing. Meanwhile, if you’re living in Malaysia, the KLCI and property prices have been on the rise during the period. Thus, they seem to be attractive investments. What’s the correct strategy, to buy or to sell? It depends on one’s objective when investing in the gold market. For instance,

Wealth Preservation – This group of investors are concerned of inflation arising from the devaluation of paper currencies, including Ringgit Malaysia. If you are one in this group, then, 2014 has been a noteworthy year. This is because almost all currencies around the world, including the Ringgit, has depreciated against the US Dollar. When priced in Ringgit, gold had increased from RM 4,167 per ounce to RM 4,645 per ounce throughout 2014 despite staying flat at US$ 1,200 in US Dollars. This means, gold has done its job effectively as a hedge against inflation in Malaysia.


Value Investing – Value investors seek for investments with great fundamental strength which is priced attractively, preferable undervalued. They avoid buying things when it becomes overvalued. This allows them to ‘buy low, sell high’. The drop in gold prices is not backed by poor fundamentals. Demand is strong while mine production struggles to supply. With good fundamentals, the drop in prices appeals to value investors as they can gold at attractive prices. Malaysian stocks, however, are now priced at its alltime high without much increment in profits. P/E Ratios are moving towards 20 – 25. This means, they are moving towards being overvalued and more expensive, in general.

Technical Investing - Technical investors are people who study price trends and use them as guides to make investment decisions. In 2014, gold had stayed flat at US$ 1,100 1,200 per ounce. Personally, I use the SMA 50 – 150 crossover method to detect a change in price trend. So far, prices are moving on a sideway trend, not moving upwards or downwards. This means, the market is undecided whether to go up or down. In this situation, investors may become inactive. Those who have bought gold may choose to hold onto gold. Meanwhile, those who are interested to buy gold may adopt a ‘waitandsee’ approach.

The Bull Market – The bull market for gold has not ended. It is now undergoing its correcting phase since 2011. It is normal. A longterm bull market in gold would last some 18 years. Starting in 2001, it may end sometime in 2019, which is some 4 years from today. The final phase of a bull market usually ends in a mania. It may resemble the gold rush in 1978 – 1980 and the dotcom bubble in 1997 – 2000, the final phase of their respective investment cycles. Hence, based on historical events itself, one may choose to hold onto gold despite the drop in prices since 2011.


Hence, ultimately, regardless of whether you choose to sell or hold onto gold, I think it is important for everyone to keep an eye on gold prices today.


Question 5 What makes the Gold Price move?

Answer 5 It is essential for us to understand the history of money. Gold and silver are the truest form of money. Paper currencies are created as a substitute to gold and silver.

Good Times, Bad Times - In times of optimism, people trust paper currencies as their value are as good as gold and silver. It seems useless to keep precious metals as they are not productive. Hence, there is little demand for gold and silver when times are good. In times of pessimism, people start to doubt paper currencies as inflation skyrockets. People would exchange their currencies for gold and silver as precious metals hold value better than paper money which constantly falls in value. It is the application of Gresham’s Law of Money. In bad times, more bad money is put into circulation and unwanted. Good money which is high in demand would be out of circulation.

Example of a Good Time - In the 1950s, the US Dollar was peg to gold directly at US$ 35 per ounce. Meanwhile, global currencies were peg to the US Dollar and thus, enjoyed an indirect fixed relationship with the US Dollar.


For instance, the Pound was peg at a fixed rate of US$ 2.80 per £ 1. America had exported more than imports, maintained a balance budget, and had become the largest creditor nation in the world. The whole world trusted the US Dollar and for the most part of the Western World, gold is soon to be forgotten. There was no such a thing called “inflation”. Gold prices were flat at US$ 35 per ounce.

Example of a Bad Time – In the late 1960s, France, Spain and Switzerland had lost their trust on the US Dollar. They cashed in their excess dollars for gold. Gold demand rose and overwhelmed supply, particularly from the US government who was disposing gold to keep prices at US$ 35 per ounce. In 1971, President Nixon had unpegged the Dollar from gold. Inflation skyrocketed. Gold started to move away from its official price of US$ 35 per ounce. When US citizens were allowed to buy and keep gold for themselves in 1974, gold went up as high as US$ 850 per ounce.

Supply & Demand – In the 1980s, miners scrambled for gold in Australia, Canada and the United States as gold was high in demand. Production figures soared. Supply exceeded demand, causing prices to fall. Slowly, people forget about gold as the stock market was creating instant millionaires in the 1990s. It was a period of high optimism. In 2008, the subprime crisis had served as a wakeup call to our financial problems today. Central banks which were net sellers of gold have become net buyers of gold to diversify its reserves away from the US Dollar. The mines developed some 20 – 30 years ago have aged. Demand is outstripping supply and thus, leading to gold’s longterm bull market today. In conclusion, I believe the answer is “people’s perception on paper currencies” & “global supply and demand” for gold.


Question 6 When not to buy gold?

Answer 6 In a way, this question is more important than ‘when to buy gold?’ It is helpful to avoid making investment mistakes. There are times when gold is not a good buy. They include:

In a Stock Cycle – There are two investment cycles, commodity cycle and stock cycle. Each cycle has an average timeframe of 18 years per cycle. Stocks do well in the stock cycle. Gold and silver don’t. The previous stock cycle had started in 1981 and ended in 2000. During this period, gold prices were depressed, gradually dropping from US$ 850 per ounce to as low as US$ 280 per ounce.

Weak Fundamentals – Fundamentals refer to the study of supply and demand. In general, fundamentals resemble investment cycles. For instance, from 1981 – 2000, the fundamentals for gold were poor. Central banks were dumping gold in massive quantities. Mine productions were increasing in Australia, Canada and the United States with new mine discoveries, development and expansion. High supply and low demand are the recipes for depressing gold prices during the period.


Record Highs – Today, we are in the commodity cycle. It is ideal to buy gold as the fundamentals are solid. Demand had been increasing while supply struggles to keep up with consumption. However, to maximize returns, it is best not to buy when gold prices are trading at its highest. Looking at gold price chart, the ideal time to buy is when gold price starts to trend upwards and before it reaches US$ 1,900 per ounce. Once prices go above US$ 1,900, it is best to hold and sell them when prices reach its new high.

Downtrend – In a commodity cycle, gold may move on a downtrend in the midst of a longterm bull market. When prices are falling, we do not know the magnitude of the fall. Hence, it is not a good time to buy. However, this is exciting times for savvy investors as falling prices are great times to buy solid assets at bargain prices. Savvy investors would wait for prices to switch from a downtrend to an uptrend first before buying. While there are many methods to confirm the switch in price trends, I personally use the SMA 50 – 150 crossover method to do so.

When Your Friends Buy – This is just based on gut feelings. When everyone is recommend each other to buy gold without emphasizing on education & research but solely based on rapid and continuous hike in prices, then, there is a mania on gold. This is similar to the stock market in the late 1990s when many buy shares without considering its fundamental strength. I believe it is the worst time to buy gold but it is probably a fantastic time to think of selling gold and cash in.


Question 7 Why gold has plummeted to such low levels?

Answer 7 This is because gold is now entering the ‘confusion’ phase of its long-term bull market. Allow me to explain. There are 4 phases of a typical long-term bull market for gold. Gold prices move according to these phases. In other words, it is normal for gold to move up and down in the short-term when it is moving upwards in the long-run. Here, let us run through the 4 phases quickly.

Phase 1 - It is when the public distrust or unaware of the investment potential of gold. Savvy investors enter at this stage. Phase 1 had started from 2001 and lasted to 2007.


Phase 2 - This phase starts when awareness is built and gold is becoming more wellknown to the general public. This is supported by rising gold prices. Phase 2 started from 2008 to 2011 when the stock market was hit by the US subprime crisis.

Phase 3 - This is the tricky stage of a typical gold bull market. There are people who think gold has become overpriced and decided to sell. Prices have plummeted. Results were discouraging. People think this is the end of gold’s bull market when it is too premature to think so. When people are selling, this is where investors look for bargains. This is because, in reality, gold prices are correcting and making way for Phase 4 of the bull market. We are now in the midst of this stage.

Phase 4 – It is the most awaited stage of gold’s bull market. It is manic. Gold prices would rise to recordhigh levels, which is higher than the price achieved in 2012. Phase 4 is probably one of the worst times to buy gold as prices have reached its peak. However, this is when the public are buying while investors are looking to cash out and exit from the gold market.

Examples for Phase 3 – In the previous commodity cycle, gold prices have dropped from US$ 200 per ounce in 1975 to US$ 100 per ounce in mid1976. It was a decline of 50%, which was more than the decline of 30 – 40% drop from US$ 1,900 to US$ 1,200 per ounce experienced in this present commodity cycle. After the 50% drop in prices, gold prices have moved upwards over the next 4 years to hit US$ 850 per ounce in 1980. In the previous stock cycle, stocks went down by 40 – 80% in 1987. People thought that was the end of the stock market. Many panicked and started to buy gold in 1988 – 1990.


It was similar to 2012 – 2015 when people buy stocks and dump gold. In 1988 – 1990, those who bought gold were wrong. Stocks were correcting at that time. In 1990s, stocks boomed, reaching new heights. Hence, by looking at the past and understanding how bull markets work, we find that the present price drop in gold is merely following the normal course of a typical longterm bull market.


Question 8 What are the common mistakes when investing in

gold?

Answer 8 Here, I would list down the top 7 mistakes that investors make when investing in gold. They are:

Mistake 1: Gold Investment Scheme – This is particularly towards operators who promise their customers ‘buyback guarantees’ and ‘monthly cash payments’. These promises had enticed members into believing that gold investing is ‘riskfree’, ‘lucrative’ and ‘able to generate cash flows’.

This is a huge mistake. The famous one, like Geneva Gold, has been raided by Bank Negara Malaysia. Why they were being raided? The reason is simple. Geneva Gold is suspected to be insolvent. Media reported that every $ 1 in asset, they have $ 12 – 13 in liabilities. Their promises have sounded to be ‘too good to be true’ and they are in indeed. It is best to keep gold investing simple. Gold is a precious metal. It cannot and will not generate cash flows to their owners.

Mistake 2: Invest on Hot tips –


Some are lured into an investment because the person next to them is making money from the investment. Some will invest on hot tips suggested by their friends and family members. Some jump in quickly, fearing that they will lose the ‘dealofthecentury’. In my opinion, if my friends and relatives start to recommend me to buy gold, I would probably start to think about selling gold. This is particularly towards advices from family and friends who did not spend time in education and research. The point here is this. I believe one should do their own homework before investing a dime into anything. Rather than chasing the next hot tip, I believe one should exercise own independent judgement, be an expert in the investment that you’re interested in and not be swayed rumours and the next ‘flavourofthemonth’.

Mistake 3: Buy Local Products – There are several local gold bullions in the market. They include Bunga Raya, Kijang Emas, Tomei Gold bars, and Public Gold bars. These bars are not widely recognized among global investors. Thus, they are harder to dispose if you want to sell them. For just about the same price, I think it is better to better gold bullions which are widely recognized among both local and overseas investors. They include the PAMP Suisse Gold bars and Perth Mint Gold bars. Starting in April 2015, for Muslim investors, it is better to buy the international branded gold bars than a Gold Dinar. This is because the Gold Dinar coin is subjected and will be charged GST of 6% as the Gold Dinar has purity of 91.6%, falling short of the 99.5% requirement of an investmentgrade gold bar.

Mistake 4: Overpayment for Gold Products – There are brokers that sell gold bullions more than 10% above the international spot price. This means, if the international price is RM 140 per gram, the broker sell you at a price above RM 154 per gram.


Let say, you have paid somewhere RM 160 – 170 per gram for your gold bullion, then, you have been overcharged. This is because there are brokers in Malaysia that sell gold bullion at 6 – 10% above the international spot price. Obviously, the weight of the gold bullion product matters. Hence, it is not advisable to buy 1g and 5g gold bars as they are most expensive in terms of Ringgit per gram. The optimal weight recommended would be 20g – 50g. They are popular and less expensive in terms of Ringgit per gram.

Mistake 5: Non-Transparent Brokers – There are brokers who are not transparent in their business dealings. They are not necessarily evil. But, they are less convenient. For instance, some brokers do not publish their buy and sell prices of gold bullion products on their website. These brokers are like money changes that only publish only the price of exchanging Ringgit for US Dollar but not the price of exchanging back the US Dollar into Ringgit. It is hard to tell what their buysell margin is if they do not publish their buyback prices. If you intend to sell your bullion back to your broker, you would not know how much you are expecting to get back. Hence, it is inconvenient. The tip here is to find a broker that offers the best buysell margin.

Mistake 6: Only Looking at the US Market This refers to people who only look at the US market when analysing the gold market. Some buy or sell gold depending on the wellbeing on the US economy. For instance, when the US economy is believed to have recovered, people sell gold. When people believe the US Dollar is strengthening, they sell gold. While the state of the US economy is important, most investors overlooked the fact that gold is a global commodity, needing a globalized perspective which is broader than just the US market. In fact, the US market is relatively small globally, only accounting for 5.6% of global demand presently. I think it is time for investors to switch their focus into Asia. This is because Asia is now dominating the gold market, accounting for as much as 60 – 70% of global demand today.


Mistake 7: Don’t Know When to Sell When most people buy an investment, they have no clue of their plan of exiting the investment. Do not be one of them. Have an exit strategy in place. More importantly, continue your study in the field of investment you’re involved in currently. When it comes to precious metals, it is important to know how to read investment cycles, analysing the overall state of the gold market, and interpreting gold price charts to gauge when the right is to enter or exit the gold market. Hence, the education materials prepared are meant as a guide to help investors to speed up the learning curve so that you’re able to understand the market better and quickly.


Question 9 Should we invest in bullion or coins / rounds for long term investment?

Answer 9 I would share my views in two different parts.

Part 1 – The 1st part focuses on the product itself. I recommend keeping physical gold bullion, particularly gold bars. Some examples include PAMP Suisse Gold Bars and Perth Mint Gold Bars. There are two types of gold coins. Gold coins which are of investment grade are recommended. This is because you can buy them close to its international spot price. There are coins for collective purposes. They are higher priced products as you are paying for their workmanship or craftsmanship to design and mint these coins. Several gold coins which are popular among investors worldwide. They include the American Gold Eagle coin and the Canadian Maple Leaf coin. From these products, I would recommend the ones that are the most popular among local and international investors. Public Gold bars, Tomei Gold bars, Bunga Raya and Kijang Emas are not preferred as they are not internationally recognized. Hence, they are a little harder to dispose as they are less demanded. PAMP Suisse Gold Bar is highly recommended as it is hugely demanded due to its accreditation by the London Bullion Market Association (LBMA) and prices are almost the same as other brands of gold bars. In Malaysia, most brokers would carry PAMP Suisse Gold Bars to attract potential investors to become their customers. If brokers do not accept or trade PAMP Suisse Gold Bars, they risk losing customers.


Part 2 – The 2nd part focuses on the word ‘longterm’. Here, I would attempt to provide a specific timeframe to answer this question. First, it is essential to understand investment cycle in order to do well in precious metals. There are two investment cycles, stock cycle and commodity cycle. Each cycle lasts for an average of 18 years per cycle. In 2000, the stock cycle has ended, paving way for the present commodity cycle. Adding 18 years, the commodity cycle is expected to end in 2018 – 2020. Hence, I would say we have about 3 – 5 years before the end of the commodity cycle. That is my personal timeframe for gold and silver. Once the commodity cycle is over, the boom in gold and silver would end. Hence, apart from precious metals, I’m also keeping a watch list on shares of companies which have solid fundamentals in order to capitalize on the upcoming stock cycle in the near future. It pays to be observant and agile towards investment cycles.


Question 10 Who are the trusted sellers in Malaysia? Why they can be trusted?

Answer 10

There are several trustworthy brokers that one can shop around. For gold, you can try buysilvermalaysia.com, silverbullion.com.my, nubex.com. Meanwhile, for silver, you may compare the three brokers mentioned with silvermalaysia.com. There are several reasons why these brokers mentioned above are trusted. I would also share why some other brokers may be as trustworthy. They include:

Physical Bullion Dealings Only – A trustworthy broker is one that deals only with physical bullion. This means, they are only dealing with buying and selling physical bullion which are of investment grade. They are not involved in providing “innovative schemes” like gold accumulation plans or promising cash flow returns to their customers from gold and silver. These ‘innovators’ are to be avoided.


International Brands – A trustworthy broker which is investorcentric must carry international brands. They include PAMP Suisse Gold Bar, Perth Mint Gold Bar, American Gold Eagle Coin, and Canadian Gold Maple Leaf Coin. These are gold bullions that are accepted by local and international investors. It gives these brokers a huge advantage over local brokers which offers locally minted products such as Public Gold bars, Bunga Raya Gold bars and Kijang Emas gold coins. Locally minted products do not a wide market with smaller pool of buyers and sellers. Since Public Gold bars and PAMP Suisse Gold bars are about the same price, why not go with an internationally recognized gold brand.

Buy-Sell Margin – A trustworthy broker is one that publishes both the buying and selling prices clearly on their website. It is convenient for investors to make informed decisions on buying and selling gold and silver. There are brokers who do only publish their selling prices. It is inconvenient for investors as they have to call the brokerage office to find out their buyback prices. When a broker shows their buyback prices, it means the broker is prepared to accept gold as the stated price and has cash to do so. Meanwhile, if a broker does not show their buyback prices, it is possible that the broker is not prepared or lacks the confidence to buyback your gold. The point here is to find a broker that shows both buying and selling prices just like what the money exchange is doing. By having these 3 criterions in mind, you would have greatly reduce your risk of being conned, scammed, and excessively charged by people who intend do so. You would pay investmentgrade gold and silver bullion close to their international spot prices respectively.


Question 11 Does dollar-cost-averaging work for gold and silver investments?

Answer 11 There are establishments which offer gold accumulation plans in order to cultivate a habit of investing in gold and silver. I’m personally not a big fan of it. This is because dollar-cost-averaging is about buying gold at a specific designated time regardless of its prices at that particular time. I believe there are times when gold is a good buy and when gold is not a good buy. Thus, it is better to determine when’s the right time to buy to maximize returns.


To sum it up, there are several frameworks and tools to reasonably pinpoint an ideal time to buy gold. They include:

Supply & Demand – Gold prices move according to its global supply and demand. On the demand side, we focus on two markets, private investors and central banks. On the supply side, we focus on mine productions. You may want to ask questions as follows:

1. Are gold demand rising or declining?

2. Are retail investors buying gold or selling gold?

3. Are central banks net buyers or net sellers of gold?

4. Can supply keep up with demand?

5. Are there new discoveries of gold?

Investment Cycle – The fastest way to gauge the current cycle we are in today, whether it is a stock cycle or a commodity cycle, is to measure the Dow / Gold Ratio. The Dow is a representation of the US stock market performance. You may use other stock indices such as the S&P 500 or even the FBMKLCI to represent the performance of stocks. A rising Dow / Gold Ratio indicate a stock cycle. Meanwhile, continuous decline in Dow / Gold Ratio indicate a commodity cycle and thus, perfect time to invest in gold and silver. We would demonstrate how to build your own Dow / Gold Ratio in our video training session in goldsilvermethod.com.

SMA 50 – 150 Crossover - This is a popular method to identify changes in price trend. It is recommended to buy gold when prices are starting to trend upwards. It is not a good time to buy gold when prices are at the peak of an uptrend or is moving on a downtrend.


A sideway trend shows that the market is pretty much undecided in its direction in the shortterm. It may also serves as a possible indication of a change in price trend. The SMA 50 – 150 Crossover is useful to confirm a change in price trend and thus, allowing investors to enter the market at bargain prices and exit the market at reasonably high prices. We would also demonstrate the application of this technique in goldsilvermethod.com.


Question 12 How are we able to realize our gold investment at the end of the day?

Answer 12 Having an exit strategy is one of the most important questions that one may ask. Many do not know exactly have a plan when embarking on an investment plan. This is not a recommended practise. For me, I have a few desired selling prices in mind when it comes to my personal holdings into gold. They include: The Dow / Gold Ratio will tell us which investment cycle we are in today, the stock cycle or the commodity cycle. If the Dow / Gold Ratio are to hit its bottom, then, I would sell. This is because that signifies the end of the commodity cycle, paving way for the beginning of a new stock cycle. However, if we invert the Dow / Gold Ratio graph, we would get a Gold / Dow Ratio as follows:


Gold peaked in 1932 and 1980. They marked the end of the commodity cycle. Both ended similarly at when the Gold / Dow Ratio hit 0.80. Hence, if the Dow hit 18,000 index points, then, I would sell gold at US$ 14,400 an ounce. If the Dow hit 10,000 index points, then I would sell gold at US$ 8,000 an ounce. Hence, the formula I use is as follows:

Peak Gold - Gold / Dow Ratio = 0.80 Gold = Dow x 0.80 = My Desired Realized Price Hence, I continue to monitor the relationship between gold prices and the Dow in order to find out whether I should exit the gold market or not. Also, if you look at the last commodity cycle, gold had risen by 24 times, up from US$ 35 an ounce in 1966 to US$ 850 an ounce in 1980. Based on the similar price movements, gold would increase from US$ 280 an ounce in 2000 to as high as US$ 6,720 an ounce at the end of the present commodity cycle today. You may ask why it is plausible for gold to hit as high as US$ 6,000 an ounce. The reason is apparent if we look at the difference between the previous and the present commodity cycle.


Previous Commodity Cycle (1966 – 1982) There were US$ 1.8 Trillion in circulation in 1980. The market was mostly participated in the Western World, North America and Western Europe. China was on a closedoor policy. There were ‘easy gold’ deposits which have yet to be discovered in Australia, Canada and the United States.

Present Commodity Cycle (2001 – Present) There is too much money to be counted in this world. Quantitative Easing (QE) alone had inflated money supply by US$ 2 – 3 Trillion in 2 – 3 years. This excludes QE launches in Japan and Europe which are also in the Trillions in their respective currencies. China had lifted its ban on gold ownership in 2000, opening up its gateway to 1.3 Billion potential gold buyers. Almost all of the ‘easy gold’ deposits have been dug out. Gold mines in Australia, Canada and the United States are depleting, struggling to keep pace with rising investment demand today.


Conclusion Congratulations! You’ve discovered the answers to the first 12 Questions you need to ask before investing in gold. I believe that the knowledge presented here would put you among the top 5% of Malaysians when it comes to investing in gold. Still, as we produce this digital book, we continue to interact with our customers and subscribers. From which, we have received more indepth questions relating to precious metal investing. Hence, please do stay tune for our next digital book. Also, we have produced goldsilvermethod.com, an online course dedicated to investing in gold and silver in Malaysia. It contains over 50 videos on how Malaysians can protect their personal wealth through gold and silver investment. Presently, we are working closely with industry players which include the top precious metal brokers in Malaysia and Singapore to bring you closer to understanding the bullion market from their point of view. This is done through our online seminars which are conducted regularly by goldsilvermethod.com and our respective partners. Please do stay tune to goldsilvermethod.com and join us in these highlyinteractive sessions. Cheers Ian Tai Malaysia’s Leading Precious Metal Author CoFounder of goldsilvermethod.com


12 questions to ask before investing in gold

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