Gold makes an ideal investment product because of several key features: its liquidity, fungibility and ability to hold on to value as well as being a natural hedge against inflation. Moreover, the value of gold appeals to the sentimentality of most investors and conveys a sense of security. Unsurprisingly, there are a substantial number of investment products and schemes that use gold as their base to earn returns and yields for investors.
Unfortunately, the precious metal attracts more than its fair share of scams, which have tainted the value of gold investing. In recent years, Malaysia and Singapore have had to deal with a number of gold-related controversies. Companies such as Genneva Gold, Suisse International and Valiant Capital are but three examples of gold investing schemes that have allegedly defrauded investors by promising overly attractive returns on their investments.
In the case of Suisse International, the company promised customers a monthly payment of S$1,000 for every kilogramme of gold (valued at S$54,000) purchased, yielding an annual return on investment of over 20%. After a few months, the payments stopped and the company’s founders disappeared, leaving more than 250 investors nursing a S$35 million loss.
The Genneva Gold scheme was a more elaborate variant of the simple buy-back scheme where investors were promised an annualised return of 21% to 30% on their gold. The scheme came with an explicit guarantee that investors could sell the gold back to Genneva at the same price it was purchased. Not too much can be said about this case as it is still making its way through the Malaysian courts. But suffice it to say, investors did not receive the returns they were expecting.
However, it would be unfortunate to consider all gold savings or investment schemes as scams as the precious metal has important attributes that make it an ideal investment product. Canny investors should look for the following features and safeguards in the business:
- Reconcile the gold inventory records of the company with the records of the vault agent;
- Conduct a test on a random sample of individual gold bars against the records of the vault agent for identification numbers, refiner codes and purity of the bars; and
- Conduct a test on a random sample of gold bars to ensure that the bars are 100% genuine.
In addition to evaluating these features and safeguards, customers should also follow the usual investment best practices to protect themselves from potential fraud. Investors should remain wary of the fact that just because the underlying asset of the investment is gold, this does not by itself insulate them from the risks of investing. Finally, if the investment opportunity promises rewards and returns that seem too good to be true, then they probably are.
Robin Lee is founder and CEO of HelloGold, a Malaysian fintech that will be launching the world’s first shariah-compliant gold platform. He was previously chief financial officer of the World Gold Council.
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