5 common misconceptions about investing in gold in Singapore

Gold has occupied a unique position in financial history for centuries.

It has functioned as money, as a store of wealth and as a reserve asset for central banks. During periods of market stress, inflation or geopolitical uncertainty, gold often returns to the forefront of investor discussions.

In Singapore, interest in gold tends to rise during:

• Periods of elevated inflation
• United States Federal Reserve tightening cycles
• Global equity market volatility
• Currency concerns
• Heightened geopolitical risk

Although gold is frequently described as a “safe investment”, safety in investing is rarely absolute.

This article clarifies five common misconceptions about gold investing and evaluates them using long-term data, portfolio research and practical Singapore considerations.

Misconception 1: gold is risk-free because it cannot default

Gold carries no credit risk.

• It does not depend on corporate earnings
• It cannot go bankrupt
• It is not a promise from a government or company

This is why central banks, including the Monetary Authority of Singapore, hold gold as part of national reserves.

However, absence of default risk does not mean absence of risk.

Price volatility

Since the early 1970s, when gold began trading freely:

• Annual volatility has averaged roughly 15% to 20%
• Drawdowns exceeding 40% have occurred
• Multi-year declines are possible

For example:

• After peaking in 1980 at around USD 850 per ounce, gold fell sharply and remained depressed for nearly two decades
• Between 2011 and 2015, gold declined more than 40% from peak to trough

Gold does not default, but it fluctuates significantly.

Financial planning reality:

Gold removes issuer risk. It does not eliminate market risk.

Misconception 2: gold always goes up over time

Gold’s long-term price history appears impressive.

• 1971: approximately USD 35 per ounce
• 1980: approximately USD 850
• 1999: approximately USD 250
• 2011: approximately USD 1,900
• Mid 2020s: above USD 2,000

However, the path between those points includes prolonged stagnation.

The 1980 to 2000 period

After the 1980 peak:

• Gold lost nearly 70% in nominal terms
• In real terms, losses were deeper
• Equities compounded strongly
• Bonds delivered steady real returns

Gold required roughly 25 years to regain its previous high.

Long-term return profile

Over the past century based on United States data:

• Gold’s real return has been modestly positive
• Equities’ real return has been significantly higher
• Gold’s volatility has been comparable to equities

Gold does not generate:

• Dividends
• Earnings growth
• Compounding productivity

Its return depends entirely on price appreciation.

Financial planning reality:

Gold can preserve purchasing power over very long horizons. It does not reliably compound wealth like productive assets.

Misconception 3: gold Is the best inflation hedge

Gold is often promoted as protection against inflation.

The relationship is more nuanced.

When gold performs well

Gold has historically performed strongly when:

• Inflation is elevated
• Real interest rates are negative
• Monetary policy is accommodative
• Confidence in fiat currency weakens

The 1970s stagflation period remains the most prominent example.

When gold does not track inflation

In 2022:

• Global inflation rose sharply
• Central banks increased interest rates aggressively
• Real yields rose
• The United States dollar strengthened

Gold rose modestly but did not mirror headline inflation.

Research indicates that gold responds more strongly to real interest rates than to inflation alone.

Over multi-decade horizons, gold has tended to preserve purchasing power. Over shorter periods, its inflation-hedging characteristics are inconsistent.

Financial planning reality:

Gold may protect long-term purchasing power. It is not a precise short-term inflation hedge.

Misconception 4: gold always protects you during a crisis

Gold often performs well during systemic stress, but not universally and not immediately.

Global Financial Crisis

Between 2008 and 2011:

• Gold rose significantly
• Interest rates fell
• Central bank balance sheets expanded

March 2020 liquidity shock

During the initial phase:

• Gold fell alongside equities
• Investors sold assets to raise cash
• Liquidity pressures dominated

Gold later recovered as monetary stimulus increased.

Gold’s crisis behaviour depends on:

• Liquidity conditions
• Real interest rates
• United States dollar strength
• Investor positioning

Diversified portfolios historically provide more consistent resilience than concentrated exposure to a single defensive asset.

Financial planning reality:

Gold can cushion volatility. It does not eliminate drawdowns.

Misconception 5: the more gold you own, the safer your portfolio

Gold’s primary benefit arises from diversification.

Its long-term correlation with equities is generally low to moderate. This allows gold to reduce portfolio volatility when added in moderation.

Portfolio research commonly suggests:

• Modest allocations may improve risk-adjusted returns
• Allocations in the range of 5 to 15 percent can reduce volatility
• Very high allocations may reduce long-term growth potential

Singapore context

Many Singapore investors already hold:

• Residential property exposure
• Central Provident Fund balances that function largely as bond-like assets
• Regional equity concentration

Gold may enhance diversification.

However:

• Excessive allocation may reduce compounding potential
• Overly defensive positioning may limit long-term wealth accumulation

Financial planning reality:

Gold is most effective as a complementary allocation within a broader framework.

How Singaporeans can invest in gold

There are several practical routes available.

1. Physical gold

Bars and coins purchased from authorised dealers.

Advantages:

• Tangible ownership
• No issuer exposure

Considerations:

• Storage costs
• Insurance
• Bid and ask spreads
• Liquidity constraints

In Singapore, qualifying investment precious metals are exempt from Goods and Services Tax under Inland Revenue Authority of Singapore guidelines.

2. Gold exchange-traded funds

Physically backed exchange-traded funds provide exposure via brokerage accounts.

Advantages:

• High liquidity
• Transparent pricing
• No personal storage

Considerations:

• Management expense ratios
• Brokerage fees
• Market price fluctuations

These are typically cost-efficient for smaller or tactical allocations.

3. Bank gold accounts

Some banks offer gold savings or accumulation accounts.

Advantages:

• Convenience
• Smaller transaction sizes

Considerations:

• May be unallocated
• Counterparty exposure may exist

Investors should clarify ownership structure before investing.

4. Investment-linked insurance sub-funds

Certain insurers provide gold-linked sub-funds within investment-linked policies.

Advantages:

• Integrated into broader portfolio planning
• Suitable for long-term structured allocation

Considerations:

• Layered fee structures
• Liquidity terms
• Policy conditions

Fund fact sheets and policy documentation should be reviewed carefully.

How much gold should a Singapore investor own?

There is no universal allocation.

A practical framework:

• If heavily concentrated in equities, a small gold allocation may reduce volatility
• If approaching retirement, modest exposure may dampen drawdowns
• If young and focused on long-term growth, gold is typically a minor allocation

Gold does not replace:

• Emergency savings
• Insurance protection
• CPF planning
• Diversified equity exposure

Frequently asked questions

Is gold a risk-free investment?

No. Gold has no credit risk but remains price volatile and subject to market fluctuations.

Is gold safer than stocks?

Gold does not depend on corporate earnings, but it can experience significant drawdowns similar to equities.

Does gold protect against inflation?

Over long periods, gold tends to preserve purchasing power. In shorter inflation spikes, performance depends heavily on real interest rates and currency movements.

Is physical gold better than exchange-traded funds?

Physical gold removes issuer exposure but involves storage and transaction spreads. Exchange-traded funds offer liquidity and convenience but involve management fees.

Can CPF funds be used to buy gold?

CPF Investment Scheme rules limit gold exposure. Investors should review CPF guidelines carefully before considering such investments.

Should I buy gold during a crisis?

Timing crises is difficult. Strategic allocation decisions made before periods of stress tend to produce more stable outcomes than reactive shifts.

Key takeaway

Gold is not risk-free.

It can:

• Preserve value over very long periods
• Provide diversification benefits
• Act as a partial stabiliser during systemic stress

It cannot:

• Generate income
• Compound through earnings growth
• Eliminate volatility

The more important question is not whether gold is safe in isolation, but how it fits within a structured asset allocation aligned with long-term objectives.

Investors considering adjustments to their gold exposure may wish to conduct a comprehensive portfolio review and consult a qualified financial representative to ensure alignment with their broader financial plan, risk tolerance and liquidity needs.

Written by: Great Eastern Lifepedia team