Calculate the five-year cost of holding the same value of gold in three different ways.
Add up every cost each route charges over the whole time you plan to hold the gold, using the same amount for every route, and compare the totals. Then look at who holds the gold and how quickly you could sell it.
The route that is cheapest on the day you buy can cost more by the day you sell. Some charges are paid once and some come round every year, and each route mixes the two differently.
Aisha is deciding whether to own gold at all. If they do, they plan to put in about S$5,000 (an example figure) and keep it for around five years. They have three choices: a bar from a dealer, a gold ETF in their brokerage account, or their bank's gold savings account.
Put the same amount into every column. Aisha uses S$5,000 for all three routes, so you can read the totals straight against each other.
Treat the gold price as the same on the day you sell as on the day you buy. That won't happen in real life, and the assumption is unrealistic on purpose. A rise or fall in the price affects every route equally, so holding it fixed takes the price out and leaves cost as the only difference.
Count every charge: spreads, commissions, expense ratios, storage fees, and currency conversion if the route involves it. These comparisons usually go wrong because a cost was left off.
The dealer prices the bar with a 3% round-trip spread, which is the total spread you lose across buying and later selling. This is the same figure as the first example in Lesson 6.2, Physical gold: bars, coins, storage and spreads. On S$5,000 it comes to S$150. The bar qualifies as investment precious metal, so there is no GST and nothing is added for tax.
Where the bar is kept changes the total. At home, storage is S$0 and the five-year cost stays at S$150, but Aisha carries the risk of theft. In a vault charging S$100 a year, storage adds S$500 over five years, which brings the bar to S$150 + S$500 = S$650.
The ETF Aisha is looking at trades in US dollars. Their Singapore dollars are converted when they buy and converted back when they sell. The working assumptions are 0.5% for currency conversion each way, a S$10 commission on each buy or sell, a 0.1% round-trip bid-ask spread, and an expense ratio of 0.40% a year. The expense ratio is taken each year from the amount still in the fund. It is not worked out on the S$5,000 put in at the start. Listing the ETF costs in the order they happen makes them harder to miss:
Converting S$5,000 to US dollars: S$25 Buying commission: S$10 Bid-ask spread: about S$5 Five years of the 0.40% expense ratio: about S$98 Selling commission: S$10 Converting the proceeds back to Singapore dollars: about S$24
Together these come to about S$173 over five years.
The bank's gold savings account has a 5% gap between the price the bank sells at and the price it buys back at. It has no yearly fee, so that spread is the whole cost: 5% of S$5,000, or S$250.
From cheapest to most expensive over five years, Aisha's routes are the bar at home at S$150, the ETF at about S$173, the gold savings account at S$250 and the bar in a vault at S$650. The five-year vault fee was the biggest single charge anywhere in the comparison. Storage is also the cost people forget most often, because it rarely comes to mind while you're standing in a dealer's shop.
For the bar and the savings account, nearly all the cost is a spread paid once, so the total is much the same whether you hold for one year or ten. Vault fees are the exception. They are charged every year and keep adding up for as long as you hold. Most of the ETF's cost is its yearly expense ratio, which also builds up over time, so over a much longer holding period the ETF's place in the ranking could change. A much smaller amount matters too, because the fixed S$10 commissions then make up a bigger share of the ETF's cost. Work out the totals for your own amount and holding period instead of relying on Aisha's order.
Cost is one way the routes differ. Add two more rows under the totals for custody and liquidity.
Custody is who holds the gold and on what terms. With a bar at home, you own it and you hold it, and all the theft risk is yours. A vault may keep your gold allocated in your name, or pool it with gold belonging to other customers. A physically backed ETF uses a custodian to hold the gold for the fund. A gold savings account is often an unallocated claim on the bank with no SDIC cover, as Lesson 6.3, Gold ETFs and gold savings accounts explained.
Liquidity is how fast the gold turns into cash. Lesson 5.3 of How money works, Liquidity: how fast you can get the cash without losing value, gives you the words for this row. You can sell an ETF during market hours, and the money settles in your brokerage account within a few days. A gold savings account can usually be sold back to the bank in its app during trading hours. To sell a bar, you take it to a dealer, who may test it, and you sell it in person.
Real spreads, fees and expense ratios vary between providers and change over time. Use current figures from the providers rather than Aisha's.
Allow about 25 minutes. Make a sheet with one column for each route and one row for each cost, plus two extra rows for custody and liquidity. Put the same amount in every column and assume the gold price doesn't change over your holding period. List every cost for each route. Write the ETF costs in the order they happen: converting Singapore dollars to US dollars, the buying commission, the bid-ask spread, the yearly expense ratio over the holding period, the selling commission, and converting the proceeds back to Singapore dollars. Total each column for your holding period and rank the routes by total cost. In the custody row, write who holds the gold and on what terms. In the liquidity row, write how fast it turns into cash. Under the table, write a line or two on which route you would choose, if any, and whether custody or liquidity changes the order that cost alone gives.
When it's finished, your sheet has one column per route, every cost listed, a total for your holding period at the bottom of each column, a ranking by cost, the custody and liquidity rows, and your one-to-two-line choice note under the table.
Collect the real spreads, fees and expense ratio from the providers' own pages first, and then build the table.
Fill in the gold cost comparison for physical bars, a gold ETF and a gold savings account, then rank them by five-year cost.
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