| October 11, 2012
A bunch of greedy people thought up a clever way into manipulating greed, hence gold investment schemes.
Yes, ladies gentlemen this is I, perhaps the most loathed columnist in FMT due to his insistence in pointing out the inconsistencies in Pakatan Rakyat and the incompetence of its politics. It is so incompetent that it takes a columnist in FMT to come out with a shadow cabinet for them.
But fear not, this time around I would not berate on politics. I would like to focus on a rather testy issue of late which is the controversy surrounding gold investments.
Now if you could remember about a year ago I actually wrote an article with regard to gold investment schemes in FMT entitled “All that glitters is not gold”.
I had warned readers of these gold investment schemes and even pointed out that Bank Negara had been investigating these companies for some time. I even got into an argument with a commenter who called himself/herself MyGoldenGoose or something.
Now with all the shenanigans happening, something that I had predicted about a year ago conspiracy theories are abound and the latest, having Umno Youth coming to the rescue.
As sympathetic that I am with those who had invested their savings into these golden bars, I have to say that I find it really hard to be on the side of this so-called gold trading company and if one were to sell me the idea of a grand conspiracy by Bank Negara and the government, well bear in mind that even Singapore raided some of these companies as well.
Now before we go on to the endless internet debate with determined gold investors who would flood us with throngs of articles and numbers to strengthen their argument, which ironically is made up by the people who sold them the gold, I would like to invite you into looking back upon the fundamentals of this issue – how do you make money from gold?
Three options
Gold or Aurum (AU79) in the periodic table is a metal mined from the earth, it has many useful purposes like being a fine electrical and heat conductor and it is also known for its shining and attractive characteristics which is used in cosmetic jewellery. Due to its rarity and popularity, it is, even today, used as a form of currency. How do you make money from gold then?
Since it is a metal and it has to be mined from the earth making money from it should be the same with other kinds of precious mined material like silver, coal, copper and etc. So basically there is only three ways for you to make money from gold which are:
1) To actually mine it from the earth and sell it to the market.
2) Buy these blocks of raw gold and turn them into something even more precious with additional value like jewellery or use it in some electric wiring in some high energy application.
3) Be a trader, where you buy gold when the demand is low and sell it when the demand goes up.
If you are not a miner or a goldsmith, then number three is your only option, which is also known as investing in gold.
Now let us think outside of the box for a bit and take the example of investing in a house. When people say investing in a house, what they mean is that you buy a house at a certain price and sell it in the near future when the value of the house goes up – meaning that you calculate that in 10 years, the house that you bought would be more expensive than what it is now.
The reason for thinking this way is because as time goes by our population grows and since there is a finite amount of land in our country naturally the demand should be higher in the future and that the price of that particular house wouls go up as well. The same principle should be applied to gold.
So like the house, you transfer the gold in your hands into the hands of another, a trade, a person who is willing to give you cash for that block of gold in your hand. As long as you do not transfer ownership of the house to another person, you are not making money no matter how much your evaluator says your house is worth. So here comes the million dollar question: how do these gold companies make money from gold trading?
You buy a block of gold from them at a certain price, you keep that gold and you sign an investment contract with them stating that you would not sell the gold to anyone else for a period of time, in return for that guarantee they would repay you a fixed amount of interest monthly.
They say that through the magical calculation of gold calculus that the price of gold would hardly ever go down and that they can make money through gold trading, basically they go to some mysterious gold trading international board and trade gold and make money to pay you that certain amount of interest.
Manipulating greed
Now here is the thing, how can they make money from gold trading when the gold is with you? Yes trade is usually done through papers and numbers but eventually the commodity has got to be delivered. If the gold is in your hands all this while, where do they get the money to give you the so- called dividends?
From their own pockets? With the hope that they get back the gold from you and sell it at a higher price? Why would they need you then, why don’t they just buy the gold from a mine and do the trading themselves?
I think it is very likely that there never was any gold trading in the first place. All they did is sell you this block of gold at a price which I suspect is higher than the market price, they hold your money for a fixed amount of time (perhaps a year) and use that money to invest it elsewhere. My guess is that a good chunk of that money goes to importing more gold and selling them to other investors.
Now if you have the gold in your hands and if it is as precious as what those salespersons from those companies told you, even if Bank Negara raided that company shouldn’t you be just fine, after all you still have that block of gold right? Try selling that block of gold elsewhere? You think you would get the same price as what you bought it at?
You would notice that the block of gold isn’t as precious when it is traded outside of this scheme, because they designed it specifically so that you would only trade through their mechanisms, you are tied to them, basically they have got your money and all they offer is the fake assumption that you have the option of bailing out.
Only now when Bank Negara raided these companies and froze their assets you would notice that the gold that you hold is not amounted to the money that you had invested in and that the only way for you to recover your money is if this whole system is back online.
It is a group of greedy people who thought up a very clever way into manipulating greed. Just my two cents worth.
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