Gold Trading (I dare you)

Week 13.3 PM Trading (I dare you)

I’m sure you have read many articles on Gold and Silver’s gurus. Here is some of crucial idea for you to think. One of your biggest saving is the house you own. I do read the newsletter from Miles Franklin, the author told us that he and his son sold off their house during the peak period in USA and has been renting since then. He used the money to buy precious metal and as off now he has 40,000 oz of silver.

For most people, your house is the biggest assets you have and if it is correctly invested or leverage it can bring you tremendous profit.

Past analysis

Let said you have a house in 2006, you refinanced your house for RM200K and use the money to buy gold at RM2300/oz or silver at RM50/oz. You can buy 87 oz of gold or 4000 oz of silver.

Refinancing Cost

In case of RM200,000/- loan

Legal fee + stamp duty = RM10000/-

For simplicity of calculation assume a flat interest rate of 4% per annum which work out to 7.8% per annum for nominal rate.

For 5 years, the interest rate is 4% x 200,000 = RM80,000/-

Etc + safe box storage fee + insurance :- RM10,000/-

Total cost = RM100,000/-

Case 1: Brought Gold

If you convert gold at today April 2011 price, price 87 x RM4600 = RM400200.  Do you think you can sell off your house at RM400K. Most likely not! However it’s depends on location.

You still make a nett-gain of RM200,200 – RM100,000 = RM100,200/-

You make a gross gain of RM200,200.

Case 2: Brought Silver

In case of silver, the price at April 2011 is RM150/oz

4000 x RM150 = RM600,000

Your gross gain is RM400,000

Your nett-gain is RM300,200

You still own the house on loan, you can pay off your loan anytime. You don’t have to move anywhere. Zero moving cost. Off course, you can also sell off your house. Just bear in mind if you sell off your house, you need to pay the rent and may not be able to afford the same house you sold earlier.

Off course you cannot go back to the past, let us look at the future.

What do you think the prices will be heading to? What risk factor are you willing to bear?

Future Analysis

What is the price of your house now and in the future? Would you be better for you to refinance or sell-off your house and convert the additional cash to gold and silver? Consider all the cost of refinancing and sourcing of new house as well. Well, I have no answer for that. Do your own homework and run through the statistic/calculation etc. Then only you can tell yourself what to do.

a)      Price of gold in 2015

b)      Price of silver in 2015

c)      Your House price in 2015

Note: Taking a loan now is actually stealing if you consider the operation of the Fed Printing Press.

Your EPF money

Week 13.2 Your EPF money

I’m sure you have read many articles on fiat currency and many others’ gurus. Here is some of crucial idea for you to think. One of your biggest saving in your life is your EPF saving.

Housing Withdrawal

I always withdraw everything in my EPF account 2 to settle my housing loan every year since I get into gold in 2008. I ‘m not sure about you but I think by the time I reach 55 years old, the money in my EPF will not be able to catch up with inflation. Thus, you need a vehicle to withdraw your EPF money, thus buying a house using a long term loan 30years (or until you are 55 years old whichever is earlier) from a bank will do this job. If you think your EPF money is for your old time saving never to be touched then by all mean keep it there. Maybe if you bump on me sometime in future, I can talk more about this. I never withdraw for any other EPF’s investment scheme. Please note that you can only take the EPF withdrawal for two houses only. Whether you do well in real-estate investment is another story. However as for me a house is for me to stay and not an investment.

Government staff with Pension option

If you are government staff you can choose either the EPF option or the pension option. Your decision may dependent on your profession, position and age. For example, most doctors are likely to leave for private sector, thus they will take the EPF option where the government will contribute the 11% of the employer portion. This portion of contribution will be taken back if you choose the pension option. It’s a question of timing, cost benefit etc. I have no answer for that.

Worst Case Scenario

Just look at some of the pension fund in USA, Canada and Europe.

http://www.godlikeproductions.com/forum1/message1298746/pg1

http://www.pewcenteronthestates.org/uploadedFiles/Pew_pensions_retiree_benefits.pdf

What is happening there? Whether the same thing will happen here or not, I leave it to your own judgment. If you think the worst thing will happen also by the time you reach 55 years old maybe 60 years as they change the rule along the way, withdraw everything you can under the book of law.

Back then in 2006, I heard for a peak-oil activist, he said I’ve considered my pension fund is gone from day 1.

Bank Wire Telegraphic Transfer

Week 13.1 Bank Wire Telegraphic Transfer

Some of the consideration in bank wire includes

a)      The exchange rate offered

b)      Special discount for foreign exchange rate offered for transferring big amount of money.

c)      Bank Wire. Telegraphic Transfer charges. Varies from RM10, RM25 to RM30.

d)     Time spent to do the transfer (try to avoid month end).Some branches in certain bank are famous for traffic jam especially month end.

e)      Routing charges. How much less the receiver will get? That varies from bank to bank depending on how the routing is done.  Normally when you transfer fund oversea, the fund may not go directly to the receiver bank account. It may go through 1-2 intermediate banks before it reaches the final destination bank. For each intermediate bank, there are applicable routing charges. For routing to USA, on average you will lose USD15.00 for public bank and CIMB bank, for Maybank it about USD25 to USD40 dollar depending on the bank wire amount. Well, if you TT to USA or some part of the world to buy silver, your money may go through JP Morgan or HSBC first (the famous silver short).

f)       Certain bank like Standard Chartered, the bank wire must be deducted directly from the bank account because in case the bank wire failed, the balance minus the forex loss + routing fee will be refunded directly into the account.

g)      Kepo bank staff. Wow! You selalu beli apa ni. How professional is the bank staff in keeping your information private?

h)      Correctness of bank wire information entered into the system. Sometimes, you face with not so well-trained staff, there may be possibility that your bank wire is wrongly entered especially if there are specific routing instruction to follow. Normally, the bank wire information is double-checked by two staff before the TT is done.

i)        Prior to 1^st Oct 2007, a bank wire of RM50,000.00 is required to fill up a Borang P. I believe the amount was raised to RM200,001. The Borang P will go straight to Bank Negara for forex monitoring within 7 business day from the date of transaction. For amount RM10,000 to RM200,000, a consolidated bulk payment reports will be sent to Bank Negara within 14 calendar days after end of month.  For large amount, try to break up the transaction in multiples of RM200,000. Don’t get conned, OK some Tan Sri ABC used your name to do the bank wire RM1 million to Papua New Guinea for an ang pau of RM1000.00, then next 2 weeks, someone from Bank Negara or income tax will pay you a visit.

j)        Lastly, just gives them just enough info to complete the bank wire process. Try not to give them the invoice as it involved pricing and costing. Surely you don’t want the bank teller to know the cost of your product and over the cup of coffee they spread the info like wild-fire.

Survival of the fittest

Week 12.2 Survival of the fittest

Previously, there are not so many PM sellers. Life is good and I used to run out of stock. Now more seller coming on board, life is tougher, margin and profit is getting thinner day by day. It‘s not known how will the battle be fought. Let look at some scenarios,

Big fish eat small fish

A big fish come into the market with capital of RM10 – 100 million. Silvermalaysia will be gone by then, nobody will want to buy from me already as I will not be cost competitive.  I’m just like an old sundry shop competing with a big hypermarket like Tesco, Giant etc.

Many small fishes (piranha) eat a big fish

Some time ago, a friend of mine told me that he set up a restaurant in Puchong before. His food was better and cheaper than an established restaurant there. After a few months, profit was good and the established restaurant closed down due to competition. Later on within 1 year, a new nearby hawker center was opened with more than 50 hawker stalls. Each of them is an individual stall where if their food is not tasty and cheap they will be out of business and nobody will pity at them. It’s like a strong resistance fighter. He later told me that his business suffered a tremendous lost and on some days not even one customer visited his restaurant. He later closed down the restaurant for good.  He told me if there is 2-3 arrows (competitor) shooting at you, you can still block it or avoid it, but if there are 50 arrows flying to you, it’s a death penalty.

For this to happen, many of you need to be more braves and less chicken.

Outcome

In the river of Amazon, there will always some big fishes and some small fishes. It’s an eco-system where each of them will balance each other.

Income tax issue.

Week 12.1 Income tax issue.

For the case of silver, the margin for silver is quite small. Thus, let said for a start you want to earn RM1000.00 per month and your margin is 5%. To earn that kind of money, your money you need to have RM20,000.00 turn over per month. Definitely, your salary is not RM20,000.00. Off course since it is a large amount, you need to get it from oversea, the money has to be sent via bank wire. The bank will have a record of your transaction.

Most supplier will require the actual purchaser to do the bank wire. On top of that the shipping address must match the delivery address. A third party cannot send the money on your behalf. Well, you can also ask them to buy on your behalf by giving them your contact. They may want to take a cut of what you earn. However, over time then you will see silverselangor, silverkedah, silverpenang etc coming up like mush room. You decide what is the best option. Once it is given away, it is gone forever, that why there is always some trade secret only to be learned and never to be told.

In the case of gold, most of the supplier is local. However, the margin is even smaller around 0.5% to 2%. Thus, to earn RM1,000 per month, your monthly turn over have to be RM50,000.00. If you think it is cash deal and you can get away with it by all means go ahead but I do think LHDN is much smarter than that.

After some time, let said one year your bank account will show a transaction of 12 x RM20,000.0 0 which is RM240,000.00, however your monthly salary is RM5000/ month and yearly salary it is just RM70,000.00. Thus, hell lot of explanation is required when income tax department comes and audit you. Thus, you have no choice but go to KL Sentral and register at SSM. Then, by the month of March every year get a Borang B from LHDN and declared your profit or loss if any. Bear in mind you also need to keep a proper record of your transactions and expenses. The best way to do it is to do it every week or every month. Thus, continuous discipline is required. If you think it not worth the effort then limit yourself to become an investor, annual transaction within 50% - 70% of your annual salary. Then, you are exempted from capital gain tax. For more information about being a trader or investor, look at my previous article. Trader vs investor. For more info on taxation, you should consult an accountant not me.

Given the profit you made, you can also start to explore some other things in life. Other business venture or research which may required some capital to start with. With the profit made in this business, you may want to look at other things as well.

What type of bullion you choose?

What bullion will I buy given the choice?

Highest quality product at near bullion price

a)      Perth Mint product : not so easy to get stain. I think it’s surface is protected with a thin layer of wax etc though I can’t confirm it myself.

b)      Mexican Libertad

c)      USA Eagle

d)     Chinese Panda

e)      Philharmonic

f)       Canada Maple Leaf and etc :- easiest to get white spot or silver horn

Highest price appreciation, assuming it is brought in the year it is minted. Price appreciation is mainly due to numismatic value and rises in Bullion prices.

a)      Chinese Panda

b)      Perth Mint Product

c)      Mexican Libertad if kept in good condition

d)     Canada Wolf, Olympic, Bear etc if kept in good condition

e)      USA Eagle

f)       Canada Maple Leaf

g)      Philharmonic

Highest capital appreciation and easiest liquidation in Malaysia. No numismatic value appreciation. Appreciation by Price of silver only due to their low premium.

a)      Any 1 oz silver bar such as Morgan, Sunshine, Silvertowne.

Most high tech coin for fraud prevention

a)      Chinese Panda. Slanted Reeding, Different angle of light reflection

b)      Perth Mint Product

Best silver content in small denomination

a)      40% silver Kennedy Halves, sold at below spot.

b)      90% silver dimes better than 1/10 oz silver round.

Take your choice.

Muslim View

Week 11.2 Muslim View

I met a Muslim buyer, he told me something about some strong Muslim view on silver bar and coin design. If you decide to sell to Muslim market here are some of the considerations from the most patang (prohibited) one.

a)      No cross sign or symbol. Look around some bars and coin do have cross symbol. This one is the most patang!

b)      No nude symbol like Mexican Libertad.

c)      No face of people. Some coin got QEII face.

d)     No animal

Glad to say most of my Muslim buyers are realistic economically, thus many are animal lover like to collect kookaburra and lunar series. Most of them have their own supply chain in sourcing such coin themselves.

In addition to that, perhaps some design from silver dirham can be copied to 1 oz silver bullion. However, some advice and consultation with relevant parties is required before you can have your bullion wide-accepted by the Muslim community.

Another strong view from a Muslim buyer, he insisted that the gold to silver ration is 1:7 according to him by referring to Quran. He keep on insisting on it because it from their holly book. Well I can’t comment much on religion, I do see a lot of opportunities to sell to those people as the gold to silver ratio now April 2011 is around 35. Don’t know when we will get there (1:7 ratio) but in the process you get lot of opportunities to sell.  


Then recently, another Muslim buyer told me the actual ratio is 1:10, ask me to modify this post as it is a sensitive issue. I'm not sure what is the actual rate, you may want to consult your respective Ustaz/ ulamak on this. OK. with this I closed my case.

Here is an entertaining quote from Khalid Gibran.

Once there lived in the ancient city of Afkar two learned men who hated and belittled each other's learning. For one of them denied the existence of the gods and the other was a believer.

One day the two met in the market-place, and amidst their followers they began to dispute and to argue about the existence or the non-existence of the gods. And after hours of contention they parted.
That evening the unbeliever went to the temple and prostrated himself before the altar and prayed the gods to forgive his wayward past.
And the same hour the other learned man, he who had upheld the gods, burned his sacred books. For he had become an unbeliever.

Precious Metal (PM) Trading

Week 11. 1 Precious Metal (PM) Trading

At the end of the day, you want to make profit. Profit can be in term of $$ or amount of PM holding. This article is mainly for small investor with few thousand ringgits to play work.

Money profit only

Buy low, sell high. Buy at USD1000/= keep for a while and sold it for USD1400/-. Make some profit in term of money. Once you sold your PM, you may not be able to buy it back unless there is a major price correction. I‘ve seen many buyer who sold off their metal at early stage of price rally for some profit taking only to regret at later stage.

OK, for those of you who have been trading PM for some time, after you done some profit taking would you still be able to buy back the gold you sold considering the spread. Most likely the answer is no. But if you can use the money to repay your loan or buy goods that you need that it’s OK. If it just fiat then it is a lost.

PM Holding

You agree that fiat money is not worth holding. If you make a trade over time the amount of PM you hold should increase. Then only there is an actual wealth increase. Agree.

For seller, if he sells 100 oz of Precious Metal, he must be able to buy back at least 110 oz if his gross margin is 10%. Otherwise, one day he will be out of business.

Technical player

Your profit is based on appreciation of PM at spot price. Thus, the spread have to be small. The average spread in Malaysia is RM5/gram of gold thus not worth our effort. The only worthwhile option is

UOB Malaysia gold saving account spread is just RM2/= per gram. Spread is about 1.5%.

However, you need to physically present in the UOB bank counter to do the buy and sell transaction. Thus, if you are not working or staying nearby a UOB branch, then it‘s not viable. FYI, you can have a join account with your wife, girlfriend, mom or dad who have easy access to UOB branch. If not then it is not viable. You can only play this if you have UOB paper gold/silver account where the spread is small.

But if you are a frequent traveler or visitor to SG or HK, you can invest some $$ there. If you are staying in JB you can consider UOB gold and silver account in Singapore. However, you take your own risklah. Cash out before COMEX default lah.

E.g.

 UOB SG gold saving account spread is just SGD0.10 per gram

UOB SG silver saving account spread is just SGD0.23 per gram.

Hang Seng Bank gold Passbook spread is just HKD2.2 per Mace Troy

Back then I got one customer, who was scouting every money changer in PJ shopping complex to exchange RM to SGD because the next day, they will go to UOB SG to open silver account.

You must physically present in the UOB counter to do the buy/sell transaction.

You still loss 2% each time you go to a money changer and most likely when the prices is right you are not at SG or HK to perform the transaction. Thus, it is mainly for mid-term investment 3 months and above.

Kitco Pool Account or Gold Money etc.

Every time you do a TT transaction, on the sender side

a)      USD15/=  to USD25/- will be deducted as a commission for routing the money

b)      RM30/- bank wire fee by local bank

When you receive fund from overseas, there is a TT charges of USD40/- approximately

a)      Then at the local bank you will lost on the forex exchange.

On 10^th March 2011, Maybank

1 US Dollar 3.0675 (selling TT) 3.0005 (Buying TT)

Every time you TT, you lose 2.23%

You will need to do TT twice, the first time is to send and the second time is to receive money.

So, in total you loss 4.46%, plus the TT fee, routing charges, spread differences. In the end the spread is 6-7% before any profit taking. It is worth your effort? You think about it. That leave you with 2 options.

Option 1:  Unless you have a foreign currency account which allow you to bank wire in foreign currency that is another storylah. To qualify for foreign currency account is not easy.

Option 2: Thus, either you keep your money with them and continue trading for 6 months to one year before profit taking.

Chicken

Sorry to say I’m a FUTURE CHICKEN and MARGIN CHICKEN. I won’t dare to go into that area. I heard from many people that 90% of the player lost all their money. I heard you need about USD20,000.00 to start with at UOB. With that kind of money better buy physical lor. What I said is what I dare to do want only? For more information on type of chicken, see

http://silvermalaysia.blogspot.com/2011/03/type-of-chicken.html

I told you most of the stuff, you make your own decision ok.

Perth Mint Unallocated Account

Week 10.2 Perth Mint Blog.

Here is one of the Perth Mint announcements.

Perth Mint Announcement

We’re making the change from Unallocated to Pool Allocated because the amount of Unallocated silver we hold on behalf of clients now exceeds that required to support our business activities. We had targeted a certain amount of excess Unallocated “buffer stock” but rising insurance and other costs plus growing demand have accelerated our decision to close Unallocated.

From 1 May 2011, no new Unallocated silver accounts will be opened.  Existing Unallocated accounts will remain open and free of storage. However, clients will not be permitted to add to their unallocated balances and will only be able to sell or collect.

The Perth Mint cannot foresee reopening Unallocated silver for some time. This would only occur if we encountered significant and continued selling by existing Unallocated silver holders. We have primarily attracted buy-and-hold investors and we do not currently see, nor expect to see, any change in this regard.

Well, read between the lines. Not much silver left for sales.

-          Lot of paper investor, maybe to avoid GST, tax etc in their local country

-          Lot of buyers, virtually no seller.

Take delivery of your bullion now. B4 QE3.

Actual article located here.

http://www.perthmintbullion.com/blog/blog/11-03-30/New_Pool_Allocated_Silver_Storage_To_Replace_Unallocated.aspx