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An Investment You Can Wear
Thais, like many other people in Asia, invest a significant proportion of their savings in gold jewelry. Its not a bad idea and certainly a better way to flaunt your wealth than buying a Rolex, Herme`s scarf or other designer wear...
Thai gold jewelry costs only around 4% over the spot price of gold. This is about the same as gold coins . If you buy gold in the form of jewelry you have the added advantage of being able to use and enjoy it. You can't wear your coins or your share certificates to your friend's party! Another advantage is that the customs rarely bother about gold jewelry that you are wearing so it is a tax efficient way of bringing gold into your country from overseas.
Hallmarked gold jewelry in the western world so exceeds the value of the bullion it contains that it could never be considered an an investment. Retail jewelry is often marked up by 300% or more in the shops (Note that insurance valuations are a fantasy based on replacement cost at retail. No piece can be sold at this value.)
You can buy gold bars in Thailand. These are called Tong Tang and are sold at the selling price of a baht of gold ie about 1% above the buying price.
In the West pension funds and mutual funds keep typically around 4% of their assets in gold partly as a hedge against inflation, partly as an alternative to major currencies such as the dollar and partly as an insurance against a major financial crisis. To invest in gold they buy shares in gold mines or futures contracts.
Keeping your savings in gold is unlikely to make you rich but historically it has been a safe investment. Gold maintains its value over time. It is durable (can withstand fire, water, or trauma), and can be used to fund getting out of town in a hurry.
Understanding the many nuances that cause the yellow metal to fluctuate in price is quite thorny. On one occasion, a report showing an overheating economy will be quite bullish for precious metals because gold is considered a hedge against inflation. Then another report will suggest a robust economy, and gold prices sink with thoughts of higher interest rates. News of intensifying conflicts in the Middle East can whip gold traders into a buying frenzy, yet gold prices fell for days following the terrorist attacks on September 11.
A Lesson from History
Holding some of one's savings in physical gold can sometimes be a wise precaution.
In 1767 the Burmese attacked Ayutthaya, at that time the capital of Thailand. Some wealthy Thais suspected what was going to be the outcome and buried their wealth, in the form of gold, in the ground. The Burmese captured and totally destroyed the 'jewel of the East'.
6 months later the Thais were able to re-enter what remained of the city and recover their gold which the Burmese had never found. Although the Ayutthayan civilization was destroyed at least the Thais managed to preserve some of their savings.
In 1997 the Thai baht (the currency) fell 50% against the dollar overnight. Despite this there was little social unrest. Why? Because the Thais had much of their savings in gold.
"Money is the seed of money, and the first guinea is sometimes more difficult to acquire than the second million." - Jean Jacques Rousseau