Below article appeared on Straits Times, Prime News on 25 Dec 10.
Source:
http://admpreview.straitstimes.com:90/v ... 35010aRCRD
The real McCoy or just fool's gold?
Gold dealer's business model attracting fans and detractors alike
By Francis Chan, Companies Correspondent
A MALAYSIAN gold dealer operating in Orchard Towers is attracting plenty of investors - and some online scrutiny - thanks to the generous terms it offers.
The firm, called XXX, has an unusual business plan: It sells gold at a 2 per cent discount to the prevailing market price, with a guarantee to buy it back 30 or 90 days later.
Its business model seems to be counting on gold maintaining its steady rise.
The market has certainly been on its side, with gold prices climbing 25 per cent this year with no signs of slowing.
XXX, which started in Singapore in 2008, is licensed by the Police Licensing Division to deal in second-hand jewellery, gold and white gold, but it is not regulated by the Monetary Authority of Singapore (MAS).
A check with the Accounting Corporate and Regulatory Authority shows the firm has a paid-up share capital of $500,000. It has three Malaysian directors Marcus Yee, Ng Poh Weng and Chin Wai Leong, and a Singaporean director Leow Wee Khong.
A senior staff member who did not want to be named told The Straits Times that the gold sold to XXX's clients is priced at rates similar to those at local goldsmiths and jewellery stores, and not on spot prices in global markets.
'We give them a 2 per cent discount from the prevailing market price, and they take the gold with them. We don't hold the gold for them here,' he said.
Clients have the option of selling back the gold to XXX after a 30- or 90-day period for the price they would have paid without the discount. This means they make a 2 per cent return. They can also hold on to the gold and sell it on the open market.
Another senior XXX employee at the office said the gold is mainly procured from distributors here like United Overseas Bank. XXX selects gold randomly after it takes delivery of the metal for testing and certification at the Singapore Assay Office every fortnight.
'We can't certify every piece of gold we get because the tests conducted by the Singapore Assay Office is a destructive test, meaning they have to drill or scrape samples for testing,' he explained.
XXX's offer has been derided by some netizens as being too good to be true. Others questioned how firms like XXX can turn a profit offering such high returns.
The Straits Times understands from a source familiar with such business models that the gold price is usually marked up to include other costs, such as shipping, testing and certification, security, insurance and even marketing.
The mark-up could range between 10 per cent and 15 per cent.
Recently, a gold dealing firm called The Gold Label (TGL) hit the spotlight when it was placed on the MAS' Investor Alert List. TGL - which has no known connection to XXX - sold gold to customers, promising a return of up to 9 per cent over a six-month period. But it reportedly had cash-flow issues and filed a notice to appoint liquidators for voluntary winding-up in October.
XXX's parent unit in Kuala Lumpur is also in the regulatory spotlight. It is under investigation by Bank Negara Malaysia for conducting illegal deposit-taking activity.
However, someone at the XXX office in Singapore told The Straits Times, on condition of anonymity, that it remains confident no further action will be taken by the Malaysian authorities.
Malaysia's central bank is expected to release the findings of its probe in the first quarter of next year.
Customers The Straits Times spoke to at XXX's service centre in Orchard Towers earlier this week did not seem fazed by the Bank Negara probe or by concerns raised on the Internet.
For clients like Mr Christopher Tan, 39, owning an actual piece of the precious metal makes them feel secure about where they are putting their money.
'I hold the physical gold bar, which has an inherent value, (but) to me this is calculated risk,' he said.
Investor Andrew Tay, 29, said the firm kept its promise of buying back the gold.
A veteran financial adviser, who did not want to be named, said that, as with all investments, investors need to consider the risks involved and not be overwhelmed by the promise of high returns.
'Gold looks good now, but so did the 5 per cent returns or so offered by products like Lehman Minibonds and other credit- linked notes in their heyday,' he said.
Gold prices have steadied in recent months to US$1,384.38 per ounce as of yesterday, after soaring to a high of US$1,423.75 on Dec 6. A year ago, it was at US$1,105.40.
