You will be able to price buying, storing and selling physical gold in Singapore.
Aisha walks past a bullion dealer's window and sees two prices beside a small gold bar. One is labelled "we sell" and the other "we buy". She notices the "we sell" price is the higher one and assumes that is just the dealer's margin on new stock. It is, and it is also the first cost of every route into physical gold. Before she owns a gram, she is already down by the gap between those two numbers.
A dealer quotes two prices for the same item. The price at which the dealer sells to you is the higher one. The price at which the dealer buys back from you is lower. The gap between them is the spread, and it is the cost of a round trip: buying and then selling the same item on the same day, with the gold price unchanged.
The way to compare spreads is as a percentage of what you pay. Here is a worked example with made-up prices, so ignore how they compare with today's gold price. A dealer sells a 50-gram bar for S$6,000 and buys the same bar back for S$5,820. The spread is S$180, and S$180 divided by S$6,000 is 3%. A second dealer sells the same bar for S$6,000 but buys it back for S$5,880. That spread is S$120, or 2%.
The same bar, on the same day, costs Aisha 3% at one dealer and 2% at the other if she buys and sells back where she bought. That is why the activity for this lesson asks you to get two quotes on the same day. Gold prices move through the day, so compare quotes taken close together.
When Aisha eventually sells, the buy-back price will follow wherever gold has moved by then, and the spread comes off on top of that move. If the gold price is unchanged when Aisha sells, the spread is her whole loss. If gold has risen, the spread eats into her gain.
Spreads are rarely the same across products. Small bars and coins usually carry wider spreads than larger bars, because the cost of minting, packing and handling each piece is spread over far less gold in a 1-gram bar than in a 100-gram one. Coins with designs, especially collector editions, can carry a premium well above their gold content.
Another made-up example: a small coin sells for S$330 and the dealer buys it back for S$300. That is a spread of S$30 on S$330, about 9%, three times the bar's spread in the first example. Buying many small pieces for the same total amount usually costs more than buying fewer larger ones. The trade-off is that small pieces are easier to sell a little at a time.
When you ask for quotes, ask for both prices on the exact product, by weight, brand and form. A quote for "gold" in general tells you nothing.
Normally in Singapore, GST applies when you buy goods. IRAS exempts investment precious metals from GST, and that covers gold that meets its definition. The definition sets requirements on purity and on the form of the product, and only bars, wafers and coins that meet them qualify.
Jewellery does not qualify, and nor do products that fall short of the purity or form rules. If a product does not qualify, GST applies, and that is a cost you will not get back when you sell. So before buying, check that the product meets IRAS's definition. The dealer should be able to tell you, and the IRAS website sets out the current requirements.
Owning a bar means deciding where it sits.
Keeping gold at home costs nothing directly, but it brings the risk of theft and loss, and standard home contents insurance may not cover bullion or may cap what it pays. Check your own policy if you go this way. It also means anyone who knows you hold gold knows something valuable is in your home.
Vault storage costs a yearly fee, usually stated as a fixed amount or a percentage of the value stored, and often includes insurance. Over several years that fee can exceed the spread you paid to buy. Read how the gold is held. In an allocated arrangement, specific bars are set aside in your name and are recorded as yours. In a pooled or unallocated arrangement, you own a share of a larger stock, or simply have a claim on the provider for a quantity of gold. That difference matters a great deal if the provider fails, and lesson 6.3, Gold ETFs and gold savings accounts, looks at it closely.
Physical gold is easy to buy and slower to sell. A dealer may pay less, or want the bar tested first, if it is not a brand they recognise, or if it comes back damaged or without its packaging and certificate, so keep all of those with your receipt. Expect to bring the bar in person, too.
Aisha's next step is to see what these costs look like for real, using one bar size and two dealers, and the percentage method from the worked example above.
Get the buy and sell prices for one gold bar from two dealers on the same day and calculate the spread as a percentage.
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