Gold Buying Strategy

Week 10.1 Gold Buying Strategy

If it is solely for investment I will buy gold in the following order. I believe majority of you will also agree with me

1.      Buy from UOB  1 oz bullion

2.      Buy from Maybank Kijang emas 1 oz.

3.      If you are buying a lot RM50,000 or more then better become a Public Gold agent. You may get 1.5% discount. However, there may be a possibility that you are required to buy lot of different product, product of not your choice.

4.      Buy from nubex agent Bunga Raya 10 gram gold or MKS agent Pamp Sussie 100 gram.

5.      Buy from Public Gold agent

6.      Buy from agent Logam Mulia

7.      Buy other gold such as

http://www.sgnet5021.com/

Kuwait Finance House.

http://www.kfhonline.com.my/kfhmb/ep/kfhContentView.do?contentTypeId=3000&channelId=-8146&displayPage=%2Fep%2Fcontent%2Fkfh_editorial_content.jsp&programId=8546&pageTypeId=8683&contentId=11048

For your information, only UOB maple, Australian Nugget, Sussie Pamp and Logam Mulia are good for London Bullion Market Association Good Delivery. The rest are not.

For more info about LBMA Good Delivery, refer to

http://silvermalaysia.blogspot.com/2011/03/meaning-of-lbma-good-delivery.html

I always believe in taking physical possession of my goods. No paper gold, paper silver or any storage based program whatsoever, just physical. You pay your own storage fee at safe deposit box operators. For more local safe deposit box operators, look at these URL

http://silvermalaysia.blogspot.com/2011/03/bank-with-additional-safe-deposit-box.html

http://silvermalaysia.blogspot.com/2011/03/private-safe-deposit-box-operator.html

In case you want to buy paper gold, I would suggest you go for

1.      UOB Paper gold (if your location is near to UOB branch). RM2 /gram spread

You must be physically present in the bank counter to do the buy and sell.

2.      Public Bank paper Gold

I would not advise on oversea purchase because every time you do a bank wire you will lose out about 3-5% in forex exchange, there goes your profit.

Capital Gain Issue. Investor vs Seller. Which one is better?

Week 8.3 Capital Gain Issue. Investor vs Seller. Which one is better?

 I have spoken to an accountant recently he told me there is no tax for capital gain since it is an investment. For example UOB gold, you brought at RM3000/- now sold at RM4300/- you have made a gain of RM1300/- and this gain is not taxable. There is no capital gain tax in Malaysia other than Real Estate. Since you are buying and selling through via a company e.g

Buy and sell gold /silver bar via Public Gold

Buy and sell gold physical or paper gold via Maybank, UOB, Kuwait Finance House etc.

This has clearly distinguished you that you are an investor thus the gain should not be taxable.

However, the story is different in the case of silver, you need to buy from someone like silvermalaysia who is selling in ebay.  To make a profit you have to sell off your silver right. Thus, you are indirectly involved in buying and selling. How do you convince LHDN (inland revenue department) that you are investing and not involved in buying and selling.

Here are a few suggestions to assist you on this matter.

1.      Your recorded transaction amount should not exceed your annual salary lah. Otherwise it is buy and sell already. For example your salary only RM5000.00 per month but monthly bank statement show an activity of RM25,000 or monthly bank wire exceed RM25000/- month.

2.      You should keep your goods maybe for 1 – 2 year before you sell it off. Just like a collector selling off his old coin collection for years. Is it taxable?

Mathematic calculation

Investor

Assume you are an investor, you invested in RM10,000.00 of silver. After paying the 15% tax RM1500, you then keep the goods for 3 years. The price of silver gone up 4x, the goods can now be sold at RM40,000.00. You have made a nett gain of RM30,000 – RM1500 = RM28,500.

Seller

Assume you are an seller, you invested in RM10,000.00 of silver. After paying the 15% tax RM1500, you then keep the goods for 3 years as a backup inventory. These inventories are used whenever you run out of goods for sales. The tax is negligible for you since you can always treat it as an expense nevertheless you can include in this calculation.  The price of silver gone up 4x, the goods can now be sold at RM40,000. You have made a pre-tax gain of RM28,500. However, since you are a trader, you need to pay the capital gain tax of 26% of RM28500 which amounted to RM7410. Your actual nett gain is RM21,090. The RM7410 hopefully can be off-set by other business expenses. Why 26% and not 10% or 15%? It is because precious metal are high capital business, thus those who involved are in higher income bracket.

Thus if your business is just making a slight profit, you may need to make a distinction at the first place when you purchase your goods on whether it is for buy and sell or for investing.

You decide what you want! So that is not need to clear the mesh when the times come. I already screw up long time back. That’s part and parcel of learning.

Meaning of LBMA Good Delivery

Week 8.2 

Bars accepted by LBMA(London Bullion Market Association) as Good Delivery.

Here is the list of 400 oz gold bar and 1000oz silver bar accepted by LBMA as Good Delivery.

http://www.lbma.org.uk/pages/index.cfm?page_id=29&title=gold_list

http://www.lbma.org.uk/pages/index.cfm?page_id=30&title=silver_list

What does it mean when the Precious Metal brand you brought is good for LBMA Delivery?

Here is the summary of the procedure that refiner must go through in order to be certified as LBMA Good Delivery.

1. Application for listing

Company must be in existence for 5 years and involved in metal refining operation not less than 3 years.

Company’s annual refining production of not less than 10 tonnes of gold or 30 tonnes of silver.

Company’s with net tangible asset more than $10 million pounds sterling.

The application fee is £1400 + VAT (17.5%).

LBMA reserve the right to arrange a short inspection visit before accepting the application. Cost of inspection visit, including business class flights, local subsistence and travel must be paid by applicant.

2.  Technical Assessment Procedure

LBMA will check the applicant assaying capability (stage 1) fee

LBMA will exam the applicant and test it bars. (stage 2) fee

Stage 1

LBMA will send a reference samples (cross checked by multiple referees) to applicant

Gold: 24 samples of 10 gram each with 995.0 to 999.9 parts per thousand

Silver: 10 samples 999.0 to 999.9 parts per thousand

Applicant must be able to determine correctly the exact gold or silver content on each sample within a small margin of error.

Stage 2

Applicant must send 10 bars to LBMA for testing.

Each bar is 395 to 405 oz for gold and 900 to 1050 troy oz for silver.

Applicant have to bear the freight and insurance cost to LBMA.

The bar will be sent to referee examiner and extensively tested. Some of the test includes Visual inspection, weighting, assaying of cut, drilling samples taken from each bar.  Full melt assays on 4 to 5 bars.

Fees Payable by Good Delivery Applicants (in £ sterling – subject to VAT where indicated) Fees (all fees are payable to the LBMA)	Gold	Silver
On Application (plus VAT at the applicable rate)	1,400	1,400
Stage 1: Assay Test (not normally subject to VAT)	11,500	4,500
Stage 2: Testing of Applicant‟s bars (not normally subject to VAT)	13,100	13,100
Total	26,000	19,000

Result

Upon passing all tests, the applicant details will be included on the Good Delivery list.

3. Proactive monitoring

Applicant may be required to send in a dip sample of their normal production melt. The sample will meet the stringent criteria within a small margin of error.

Annual monitoring fee of £1000/

Membership fee = £6000/- per year, Associate Member is £2500/- per year. Subjected to UK VAT. 17%

Upon reading this article, you realize that the cost of getting a LBMA good delivery certified is very high and not many refiners has the capabilities and annual capacity to do it. That explains that only countries with Precious Metal mining or deals with high volume of precious metal have refiners that are accepted as LBMA Good Delivery.  That why you need to pay for premium on gold and silver with brand names listed in LBMA Good Delivery List.

Thus, buy Engelhard, Johnson Matthey, PAMP, Perth Mint, Canada Mint, etc. It’s worth the money.

Safe Deposit Box Break-in Cases

Week 8.1 Safe deposit Box. Break in Cases

Maybank Finance Taman Cheras. 2^nd March 1995 till 6^th March 1995

http://www.ipsofactoj.com/highcourt/2003/Part4/hct2003%284%29-008.htm

Court Cases. Susan Cheah Vs Maybank Finance

If you have time, do read the article. Here is the summary,

The alarm from the strong room did ring on March 3, but the CMS security people and police unable to go inside the bank because the two key holders of the bank premises cannot be contacted (none of the officer are available).

The defendant did not take steps to reinforce the floor of the safe deposit box room. The defendant was also not advised to connect the room floor to the alarm system.

There is no infra-red motion detector on the floor of the strong room. No evidence that a security expert was employed to ensure the safety of the plaintiffs’ valuable.

http://findarticles.com/p/articles/mi_8016/is_20061026/ai_n44338593/

Banks. (taken from Newspaper archive)

MBF Jalan Tukang, Kajang.

On June 21, 1993, burglars entered the MBf branch in Jalan Tukang, Kajang, by making a hole in the wall.

In the incident, which occurred during the Maal Hijrah holidays, the burglars used oxy-acetylene torches to cut through the vault and enter the strongroom. They emptied 130 of the 1,017 safe deposit boxes and took about RM200,000 kept in the room.

Although the exact amount of losses incurred by the customers was never disclosed, it was reported to have run into millions of ringgit.

Following a public outcry, the customers were offered compensation, but the total payout was not made public.

Public Bank. Sri Kembangan Oct 24. 2006

After gaining entry by drilling through the ceiling, the gang emptied 92 of the 708 safe deposit boxes of the Public Bank branch.

Selangor police chief DCP Datuk Ismail Omar said this took place at the five-storey MCA building. Public Bank occupies the ground floor and the first and second floors.

"The burglars entered the building through the back door about 5am and made their way up the staircase to the third floor," Ismail said.

It is understood that on the third floor, which is leased by a solicitor, the burglars broke the grill and made their way in.

They drilled a hole, measuring 0.3m in diameter, on the floor and one of them lowered himself with a rope to the second floor where the strong-room is located.

It is learnt that there were no closed-circuit television cameras in the bank.

At Press time, the losses suffered by depositors had not been estimated as the bank tried to ascertain which boxes had been broken into and what they contained.

The break-in was discovered when an alarm signal was detected by an officer on duty at the Public Bank headquarters in Jalan Ampang.

The officer called the police as well as despatched a security guard to the branch.

It was discovered that safe deposit boxes had been prised open and the room was in a mess with documents strewn on the floor.

"The bank has not been able to make a calculation of the losses and they are still working on the matter," Ismail told newsmen at the district police headquarters here yesterday.

Police are investigating why the Central Monitoring System in the building failed to detect the entry of the burglars when they went through the back door.

Police seized several tools, including an electric drill.

Other Cases.

In April 1995, burglars bored their way into a Tenaga Nasional branch office and carted away a safe containing RM70,000 in cash and cheques in Taman Midah, Cheras.

During the Hari Raya holidays last year, burglars broke into the Perwira Habib Bank branch in Subang Jaya after disconnecting the alarm system and took RM64,220 from the ATM.

>> 

This article is taken from The Star Online (Wednesday December 20, 2006)     

KAJANG: Burglars drilled a hole through the wall of a goldsmith's shop in Taman Taming Jaya here and carted away RM1mil worth of jewellery during the early hours of Monday.

The break-in appears similar to the Oct 24 theft at the Seri Kembangan Public Bank branch, where thieves escaped with more than RM500,000 in jewellery and other valuables. In the latest case, the burglars drilled a hole measuring 1.5m by 1m wide through the rubbish chute behind the shop, which led into the washroom of the premises.

Once in, the burglars disabled the alarm, telephone and CCTV before drilling at least 18 holes measuring as small as 4.5cm each through the concrete wall of the vault located next to the washroom. They used their hands to scoop out jewellery worth RM1mil and only left behind some worth about RM600.

Five workers, who were staying on the second floor of the three-storey building, slept through the burglary.

Kajang OCPD Asst Comm Rusli Mohd Nizam said police believed that at least three to four people, including one who had stood guard near the rubbish chute, were involved in the burglary that was believed to have occurred between midnight on Sunday and early Monday morning.

He said the workers only discovered the burglary when they opened for business at about 9.30am. “Our investigations show that the CCTV had not recorded any image of the burglary while the security alarm did not go off as the burglars had cut off the wires.

“However, we have lifted at least five fingerprints from the premises,” he said in a press conference here yesterday. It was learnt that police also found tools, believed to have been used by the thieves, in the shop.

Safe Box Action Plan.

Week 7.4 Safe Deposit Box Action Plan.

Let have an action plan on

Things that we can do without assistance of others

1. If a private safe operator has a major break in then their business is finished. Thus, they will make sure it will never happen. If a bank safe deposit box is broken into, the bank will still in business. So better put it private operator lah.

2. Private operator operation hour is longer than bank operation hour. Thus, the time required to break-in much lesser so it may be safer. According to statistic, most of the break-in happened during long holiday break.

3. Insurance and court case settlement take years. E.g. Susan Cheah vs Maybank Finance, The incident happen in 1995, the compensation is not still settled in 3rd March 2003 (high-court case). If you want earlier settlement can but it’s RM10,000.00 only wow. So, if your box is lost due to break in considered it is lost forever. You should hedge your bet by putting your items in few separate safe deposit box preferably from different operator. Just factor in the storage fee depending on your budget. For example, UOB Singapore silver account charges 0.375% per annum for silver account. Thus, it should be ok to factor in a storage fee of 0.5% of the stored value.

4. Do you think it with a RM100,000.00 insurance protection, you will get paid RM100,000.00 compensation? You need to prove it beyond any doubt. That also depends on what’s stated in the fine print of the insurance policy you signed. Insurance on antique old coin, notes may be difficult to assess. Just look at the compensation paid-out given in most insurance cases then you have a better idea. In the end, insurance is still an issue.

5. If it is tax deductable for sole proprietor or company, why safe? Just insured it lah, get few more boxes.

6. Many banks in KL are located near the Klang and Gombak river. Some of the vault is underground and may be prone to major flood. Just don’t store anything than can get wet. If this happens, it ‘ll comes and hentam U just like that. You won’t realize it, if you about to realize it let say raining non-stop for 2 days, then KL may be traffic jam, LRT crowded etc. E.g. Cars in underground parking dataran merdeka was fully submerged with water. You never know which building water pump is working or not. They also will never tell you. Preventation is better then cure.

http://thestar.com.my/news/story.asp?file=/2007/6/11/nation/17990137&sec=nation


Things that we can’t do without assistance of others

I think it may take few more safe deposit box break-ins then only something is done. After the Sri Kembangan cases, Public bank offered Lon Pac insurance for all safe deposit box hirer. I’m not sure what was the case before the incident?

Authority 

If you happen to be someone in power or in a position to influence someone in power then the following are my recommendations

1. Information on Insurance option for safe deposit box must be widely to safe deposit box hirer. I have to spend so much time checking which bank got insurance, which bank don’t have. Apparently most banks don’t have it.

2. What is RM10,000 insurance today consider the inflation? The minimum insurance rate should be raised at least to RM50,000/-. Then there is an incentive for people to use the safe deposit box.

3. There should be an independent audit on each safe deposit facilities deployed by bank nation wide. Those facilities which found to be unsafe should be closed down.

4. Insurance coverage should be best provided by third party independent from the safe deposit box operator.

Banks and Safe Deposit Operator

During the bird flu incident in Thailand in 2004, Prime Minister Thaksin urged people not to scare and eat the chicken. He then ate the chicken himself. Thus, the bank can also do the same thing. Introduce a self-confident program. All senior staff will get a free safe deposit box in the branch where they are working. There will be a periodic check on the safe deposit box in order to qualify for next year free rental, they must show that there is something worth RM50,000 stored in their box. If there is a break-in, they also will kena because their box inside is there also mah.

Auction

Some location the safe deposit boxes are always full and the waiting list is very long. I don’t understand why the operator doesn’t want to auction it out. You can get a better deal.

Bank with Additional Safe Deposit Box Insurance

Week 7.3 Bank with safe Deposit Box Insurance

Most of the bank has a standard insurance of RM10,000.00 per safe deposit box.
From my survey, there are only 2 banks with additional insurance protection.

Public Bank
Safe Deposit Box under coverage by www.lonpac.com a subsidiary of Public Bank Group, you can add additional insurance protection up to RM200,000.00
The problem is most of the safe deposit box is full in most branches especially the strategically located one. You need to call each one of them one by one to find out. I just done have the time to do that.

RHB Bank
Safe Deposit Box under Underwritten by RHB Insurance Berhad a subsidiary of RHB Group, you can add additional insurance protection up to RM40,000.00 with a fee of RM90.00 per year. All the info is below here, you can do your own home-worklah. I’ve done most of the work already.

http://www.rhb.com.my/insurance/bancassurance/mysafe_deposit_box.html
http://www.rhb.com.my/rate_charges/service-charges/sc_others_sdbr.html
http://www.rhb.com.my/rate_charges/service-charges/sc_others_sdbr_tier1.html
http://www.rhb.com.my/rate_charges/service-charges/sc_others_sdbr.html

CIMB Bank

CIMB has a new building in Jalan Raja Laut, since it’s a new building it must have a safe deposit box facilities and perhaps it may be quite secure. New building, new technology perhaps!. Visit them some time back, they ask me “Are you a CIMB preferred member?” I asked how to qualify to become one. Just maintain RM200K balance with us. Wow! I guest silver need to be RM2000/- oz then I will qualify. The person is kind enough to give me details on other branches.

Tips now! CIMB Jalan P Ramlee still got safe deposit box available. Go go go!
But only RM10,000/- insurance only

Third Party Insurance
I think there are some third party insurance available for safe deposit box. You just need to put more effort in finding it.

Private Safe deposit Box Operator

Week 7.2. Private Safe deposit Box Operator

There are three private safe deposit operators in Malaysia. Please do spend some time by visiting their website or go for site visit.

a) http://www.safedepositbox.com.my/


USJ summit (shopping complex)
Damansara (4 storey shop lot).
Insurance coverage by Lonpac insurance
Min is RM10K coverage
Max RM80K coverage.

Wisma MPC, Jalan Raja Chulan is closed down on 15th March 2011.

Apparently, the Wisma MPC location is not good enough. There are 16,000 boxes there yet there are not many takers. If not why closed it down. It heard many of the banks are not helpful in promoting the safe deposit box services. I think the facilities there is quite OK, considering it is a high rise building and not shop lot.

If you want good location e.g Time Square, then rental going to be expensive then customer won’t want to pay. If location no good, no customer. Catch 22. I think later, customer going to pay for their ignorance. You go and find which bank in KL still have empty safe box for rental, let us know. How many phones call you have to make? How many deposit you have to pay before they allow you to rent the safe box?
It’s the cheapest among all the 3 operators.

b) Royal safe cum Public Safe
http://www.rsdb.com.my/ or http://www.publicsafe.com.my

Min coverage is RM100K /box.
Max coverage RM400K /box
Insurance Coverage by Kurnia insurance and ACE Synergy Insurance Bhd
Spend some time visit their website or go for a site visit.
Only 6000 boxes per site to prevent congestion.

All side of the walls, top and bottom are steel reinforced. Only one customer and his co-hirer can enters the facility at one time. However, there is only one small space for customer to access their belonging. Thus, you may need to wait if there is lot of customers. At the time of my visit, saw one guard and one operator in the facilities. The guard can accompany you to your car. Reserve parking for customer. There is a lot of empty parking space there. Public Gold Office is just on top of the royal safe. Thus, you may expect that most of the hirer are Public Gold Agent.

I was told that safe boxes are heavy stuff thus it should be located in the ground floor. However, I have seen many safe box facilities located not in ground floor. Thus, I need to get some verification from a structural engineer.

To go there is quite jam unless non-peak hours. It located near Sunway pyramid. Price wise it is 2nd most expensive.

c) http://www.mysafebox.com.my/

24 hours.
Sri Kembangan
Insurance per box RM10,000 to RM20,000/-
Max coverage per box RM$150,000/= by Kurnia Insurance.

I went and visit them some time back. The box is not located at ground floor, I was told that if robber/pencuri get in they must climb to the upper floor to access the safe. Sound logical. There won’t be any burglar since it is a 24 hour facilities. There is some steel beams reinforcement at the ground floor to support the weight of the boxes in upper floor. They show me the video on how to access the box, I was impressed with the procedure. There are ample spaces and few private rooms for customer to spend some time with their precious belonging. I saw 2-3 guards. This is the most guarded facilities. Their price is the most expensive. I think they cater more for Sri Kembangan people.

Drawback:
The traffic congestion is very bad at Sri Kembangan especially at South City Plaza area and near the race course at Mines.

Price wise and other info: I didn’t put it here even though I have it, operators may not like it. If you want just give them a call they will be more than happy to entertain a potential customer. Do your own due diligent before you engage their services. It not so much about the charges, it is more to protection of your assets.

Point to consider.
1. Maximum insurance amount is an indirect indication of how secure the safe deposit box facility.

2. Location of the safe box where it is convenient for you to access it. Petrol is going to be very expensive in 2012, 2013.

3. Adequate parking space for the hirer to get in the safe facilities and make a quick exit

4. Opportunity to Hide in the masses
The place must have many people walking around so that you cannot be identified. Unless the robber targeted you then that is another story. If it is a shopping complex, then it’s difficult for people to tell where you are heading to whether to the safe box or elsewhere.

5. Expansion. No movement is the best movement
Some safe facilities are in the process of expansion where there are some vacant spaces for new safe boxes to be added in. At the meantime, the old boxes are already rented out. Thus, this may pose some security threat during the process of adding new boxes.

See you on the next few articles on Safe Deposit Box.