Category Archives: Investment

Falling Gold and its YTD Performance in Different Currencies

Gold and Silver have been on a steady decline this year and having lost 17% and 25% respectively in USD terms got me curious to find out if there was any country where the value of these metals increased in the local currency terms.

After some research and marrying the Exchange Rates to the price of Gold and Silver at various points in time I got the below table ready…45 Currencies to look at :).

Gold Silver performance

I did not really find any country where the value had increased but Japan came very close to parity. Gold has lost only 2% value when measured in JPY. Given the massive weakness in JPY over the past few months the gold value has been able to off set the losses when measured in yen terms.

The second closest country was South Afria which has experienced similar currency weakness but not as large as the yen.

On the other extreme are countries like Mexico, China, Thailand and Malaysia where strengthning local currency and growth prospects of economy have aggrevated the losses for those holding gold or silver. Gold is down 22% in Mexican peso terms and 19% when measured in Yuan.

The stark contrast between Japan and Mexico does highlight how Gold and Silver could act as store of wealth when countries go through or are expected to go through inflationary periods or there is a general run on the currency.

Now you would be wondering what is my view on the metals?

Well i treat them as any other investment avenue and continue to have¬†my exposure to these through collectible coins ūüôā

Over 5% annualised return with Low Risk Funds in 3 months

Close to 3 months since I first talked about the Low Risk funds that are liquid and generate good returns in my post РGood returns and Low Risks with Funds that Invest in Singapore Bonds and its great to see that 2 funds have generated over 5% annualised returns in 90 days.

United SGD Fund and Fullerton Short Term Int Rt have gained 1.44% and 1.18% in this period clocking annualised gains of over 6% and 5% annually.

Fund Performance 3 months

My personal favourite Nikko AM has lagged behind at 2.64% annualised but still much better returns than a bank deposit, Though I must say that mid way I did re-allocate some money to United SGD and Fullerton Funds when the SGD crossed the 1.25 mark against the USD.

I have noticed that these funds generate better returns when SGD is strengthening. Looking at the¬†returns¬†in past 3 months I am going to¬†re-balance my portfolio and move some money from US¬†Equities to these funds before the “Sell in May, Go away” phenomenon hits the wall street. Till then¬†enjoy the¬†gains ūüôā

 

Is Bullion really a store of wealth and hedge against inflation?

I hear it all the times that Gold and Silver are a hedge against inflation but they do not always maintain purchasing power…a very simple example would be comparing mcdonalds Burgers in various years with price of silver:

1955 Hamburger 15 cents, Silver 1 USD per ounce

1967 Hamburger 18 cents, Silver 3 USD per oune

1979 Hamburgers 43 cents, Silver 30-40USD per ounce

1995 Big Mac hamburger $1.99, Silver 4.4~6 USD per ounce

2002 Double cheeseburgers $1.00, Silver 4.25~5.1 USD per ounce

2013 Mcdouble cheeseburgers 99 US cents, Silver 29.95~33.5 USD per ounce

Interesting to note that while price of Burger rose from 43 cents to 1.99$ an increase of 5 times, the silver value fell from 35(average) to 4.75 USD.

If one could buy 81 Hamburgers using an ounce of Silver in 1979 the same one ounce of silver fetched only 5 burgers in 2002.

There was no period of negative inflation between 1979 to 2002 to warrant a reduction in Silver price based on the theory that bullion is hedge for inflation.

I have used Mc for the comparison as BigMC index is a commonly used index for estimating cost of living across various countries. There could be asset classes that could throw a different result and compounded with Exchange rates the results would differ for different countries.

Would be great if you could contribute similar data in comments and lets see if the hypothesis holds good?

Good returns and Low Risks with Funds that Invest in Singapore Bonds

With the low-interest rates in most of the developed economies in the world the bank deposits tend to yield low returns. Singapore is no different and one could get as low as .25% interest on Savings Bank accounts. Fixed deposits do slightly better and could yield up to 1.68% p.a.

This clearly is less than the inflation that the country experiences, below are a few funds that invest in short dated Singapore government bonds and have yields good enough to cover inflation.

As these funds invest in Singapore Bonds they carry relatively low risk. of course they are not as safe as a Bank deposit but the yields are favorable given the risk-reward ratio.

Fund Info

Lion Global Singapore Fixed Income fund has the lowest risk and yielded a positive return even in 2008 (during the financial turmoil). On the other hand United SGD fund gives occasional stellar returns like that in 2009 and 2012 yet still remaining largely in positive territory.

Nikko AM fund has managed to beat inflation in most years and is the one I prefer.

Investing in Collectible coins

Its been almost a year since I wrote about investing in coins – Investment of a different Kind Buy collectible coins.

Gold and Silver prices have sea-sawed in this timeframe. We saw Gold hitting lows of 1536 and highs of 1794 whereas Silver went to highs of 37.14 and lows of 26.35.

But what happened to the value of coins?

The Bullion category like – American Silver Eagles, Austrian Phila and Canadian Maple leaves have moved slong with the silver price. However the Australian Mint – Kookaburras and Lunar Series, Chinese Pandas and Canadian wildlife series have shown reaonable appreciation.

The 2012 Lunar Dragon 1 oz Silver coin that was launched at SGD$60 a piece now sells for SGD$75 or more (25% appreciation)

The 2012 1 oz silver Panda moved from SGD$53 to SGD$60 (13% appreciation)

Canadian Wildlife Wolf 1 oz silver that was selling for SGD60 in the last year now retails for over SGD90 – a whooping 50% increase.

Silver however has remained flat year over year (One could have bought these coins for cheaper when  the silver price fell to 26-27USD).

So which coins am I looking to invest in for the next year?

Australian Lunar series and Kookaburra is a favorite, 2013 is the year of the snake and mintage remains at only 300,000 pieces. Kookaburra mintage however has been increased to 1,000,000 pieces from 500,000 for 2012.

Canadian Wildlife series – Antelope – mintage of 1,000,000 and 5th coin in the series. Only one more coin to come

Somalia Elephants – These are my new favorites. The finish is proof like (shiny back surface) and mintage only 5000 coins, These coins have been around for a few years but have only caught on now. The past years have appreciated substantially and difficult o find. years 2011, 2012 and 2013 are still available at a reasonable price

Rwanda Wildlife – These are great coins with a mintage of 5000 pieces as well, Just like the Somalia Elephants the past years are hard to find. The 2013 Cheetah is already becoming difficult to buy and 2012 Rhino is in great demand. Previous years like Gorilla and lion retail for over 250SGD.

What I also like about Rwanda and Somalia coins is that these are minted in germany and have excellent quality. With the wealth of these nations rising in next decade or so the appreciation of older coins from these countries is bound to increase.

2013 Gold and Silver price prediction by Leading Banks

Just a quick consolidation of what leading banks are predicting for Gold and Silver in 2013. The table has been left blank where information could not be found.

2013 Forecast

The forecasts for 2012 can be found at the link –

Gold – http://www.lbma.org.uk/pages/index.cfm?page_id=142

Silver – http://www.lbma.org.uk/pages/index.cfm?page_id=142

The general consensus was for Gold to breach USD2000 and silver to stay above USD44 Рneither of which has happened. Would be interesting to see if Gold and Silver can cross $2000 and $40 respectively this year.

The Fall and Rise of Indian Rupee: 45 days to lows, 45 to recovery

What a roller coaster ride the past 3 months have been!

The rupee was trading at 48.6 against in the US dollar on 31st Oct 2011 and precipitated to touch 53.70 on 15 Dec 2011, a 10% drop. These were the historic lows for the currency and with RBI’s policy changes the rate as I write is 50 against the dollar with RBI reducing the CRR rate and rupee gaining 7% from the lows.

Inflation, falling growth numbers, uncertainity in Europe (which by the way still exists) and political roadblocks to financial reform were stated as the reasons for the weakness. All the reasons held resposible for rupees weakness are still there. Yes, inflation has eased a bit but thats pretty much the only change.

Among numerous suggestions aired to aid the rupee was for RBI to conduct open market purchases in style of Indonesian Central bank which burnt 8-9% of its foreign reserves to stabilise the rupiah. RBI however refrained and relaxed rules to make term deposits attractive for Non Residents Indians – and NRI’s did bring in money into India.

Lets see how has rupee faired against the other currencies in the past 90 days

Surprised – right!! You did not expect to see these numbers, neither did I.

Interestingly after 3 months the INR has returned back to almost where it started against all major currencies and even managed a small gain against GBP and EUR

Against the USD the losses are paltry 2.6% which is close to long term volatility number. JPY on the other hand does come up as unexpected top winner against the Rupee with gains of 3.4%, but the real numbers are the ones shown in the last column.

Extreme volatility is what the data screams – with rupee having lost over 10% against USD and JPY and over 5% against the other pairs.

Question now would be are we expecting another such bout of swings in the market?

I would say unlikely unless a sovereign default event happens.

and how about the direction of Rupee?

I am putting my money on a stable to moderately strong outlook. The RBI has held the repo rates, the CRR ratio has come down and with a weakened currency there should be a a bigger impetus on exports which should all be Rupee positive. However the political instability and global financial turmoil could more than negate any positive factors so 49 Р51 against the USD is what I would  be looking at till end of 1st quarter.

NRE Deposit rates offered by Indian Banks

Here is a compilation of NRE deposit rates offered by a few banks

Now NRE Deposit yield 9.25%, and yes its Tax Free!!

NRE¬†or NRO – that was a constant questions NRI’s always had when¬†investing in deposits in India.

NRO accounts got paid almost same interest rates as the term deposit rates for resident Indians whereas NRE rates were much lesser Рalmost a half of NRO interest rates (Banks could not offer more than 275 basis points above the global benchmark London Inter-Bank Offered Rate (LIBOR) on NRE term deposits). So if NRO account was fetching 9% then NRE account would get 4%. The catch of course was 2 critical components:

  • Interest on NRE¬†deposits is tax-free whereas NRO attracts 30% tax
  • Both Principal and Interest¬†in NRE account can be repatriated without any restriction but for an NRO account only interest could be repatriated

With the RBI move to deregulate the interest rates on NRE and NRO accounts on 17th Dec 2011 the stage was set for reform. After 10 days Banks came out and increased the rates on NRE deposits.

The comparison between a NRE and NRO deposit now is extremely compelling in the favor of NRE account.

So here is my recommended strategy

  1. Use a bank that has a favorable online remittance service to India. The 3 which I prefer are money2india.com by ICICI bank, Axis Remit by Axis Bank, QuickRemit by HDFC (you could use Kotak bank as well but I have not used their service). All the above banks usually take a 0.5%~1.0% cut from the inter bank exchange rate.
  2. Check the cost of conversion when converting back to Forex (Citibank and other foreign banks have usually charge up to 2% so avoid them)
  3. Open the NRE¬†Bank account, if you¬†don’t have one,¬†preferably with the bank¬†whose service you want to use to transfer money – get in touch with a relationship manager¬†and negotiate a good exchange rate incase the bank has overseas branch

The only 2 downsides that I can foresee are:

  • Rupee continues the downward slide and the interest rate gains are wiped out by currency depreciation (the probability is low)
  • Finance Ministry introduces tax on the NRE account and bring it on par with the NRO account in the upcoming budget – if this happens then the yields would go down but the benefit of being able to repatriate money out of India would still remain

10% Stamp duty = 10% move in SGD

The 10% additional stamp duty on all house purchases by foreigners in Singapore took everyone by surprise and thwarted the plans of buying a house for many a people. This was the second drastic attempt of the authorities to moderate the Singapore housing market after the sales tax charge of upto 16% on selling a house within 4 years brought about earlier in February 2011.

One would question why such an extreme measure was needed which made owning a house 10% expensive for foreigners.
A policy to gradually strengthen SGD has helped control the inflation since the start of the year. The exchange moved from 1.28 in Feb 2011 to 1.20 by Aug 2011 Рa gain of 6%. This tamed the inflation  but did not have the desired effect to cool down the property prices.

On the flip side a strong SGD has impacted the exports of goods and services by making them more expensive. It would be worth mentioning that the Singapore Monetary authority uses Exchange rate as one of the means to implement its monetary policies.

Lets put some numbers around how exchange rate impacts the cost of housing and exports. Say someone wanted to buy a house worth 128,000 SGD in Feb 2011 (I know there is nothing available at this price) and there were others wanting to buy services worth the same amount. The cost in terms of USD would be 100,000 for either case.

Come Aug 2011 the same house was now costing 106,000 USD and the property markets were showing signs of slowing down. But the services that earn revenue for the economy and also generate employment had gotten expensive as well.

In the backdrop of slowing global economy organisations would look to move to cheaper destination to source the same goods and service. So to stay competitive something had to give way and in this case it was SGD. With the currency moving back to 1.28~1.30 range the situation turns back to Feb 2011 with the potential of housing market starting the upward journey again.

Housing is a cost of living for the residents of Singapore and rising rentals and property prices has contributed to employees looking for higher salaries to cover costs. Higher salaries again result in net higher cost for the employers.

So the next logical step was to introduce a deterrence for the foreign money chasing the Singapore property and here we have a property tax.

Possible Scenarios

The scenario could now play in 2 possible ways – Let the SGD move around the 1.30 mark or let it depreciate a little more to 1.35 range (same as 2008-2009 levels)

SGD stays around 1.30

With this new tax the same house now costs 110,000 SGD for a foreigner but the cost of services and exports stay put at 100,000.

SGD moves to 1.35 mark

If the SGD moved to 1.35 the same house would cost 104,000 USD. This would bring net cost of a house for a foreigner back to the Aug 2011 levels achieving the same impact as SGD trading at 1.20 against the USD but the exports and services would be only 95,000 USD making Singapore very competitive against other Asian countries plus the 10% revenue that the government earns from the tax could go towards benefitting the residents or tax subsidies to the companies.

So all in all the range I see SGD moving in next few months would be 1.27 to 1.34 against the USD depending on how the global events turn i.e. a 3% move either side of 1.3 mark against the USD