12
Mar

Why you should not buy gold from gold shop

If you are buying gold for investment, gold shop is among the places you may go to purchase your investment. In Malaysia, our gold prices are standardized nationwide as most of our gold shop retailers are member of Federation of Goldsmith and Jewellers Association of Malaysia.

FGJAM
^ FGJAM website at http://www.fgjam.org.my

Federation of Goldsmith and Jewellers Association of Malaysia

FGJAM in short, set and publish standardized price for gold on a weekly basis. This creates a uniform gold price and healthy competition among gold retailers.

Price tag for a piece of gold in retail store is calculated by adding “Retail Gold Price” and “Workmanship”. Gold shop profits from margin over gold price as well as workmanship. Thus, for every gold ring, necklace or bracelet you buy from them, they will quote you two prices, the retail price of gold and workmanship.

Retail Gold Price

FGJAM price“Retail Gold Price” in summary is market price of gold – a price which includes overheads.

Salesmen need commissions, landlords want rents, security guards require bullets, lights run on electricity and a long list of other expenses. All these are compiled by FGJAM, which then published as “Retail Gold Price” on a weekly basis.

Workmanship

It is the price you pay for the time, effort and skill spent on creating a piece of jewelry.  It varies from one jewelry to another jewelry. The more complex a jewelry is, the more expensive the “Workmanship” is.

In general, you can bargain on the “Workmanship” price but not the “Retail Gold Price”. FGJAM prohibits discounting on “Retail Gold Price” – a rule which is agreed by all its members.

FGJAM’s Retail Gold Price Margin

Let’s look the price FGJAM published today – RM200/gram for 999 gold.

At the time of writing, gold is traded at COMEX for USD1,713/oz. Exchange rate for 1 US dollar is 3.05. A few quick punches on my iPhone returned RM168/gram for COMEX gold price.

With RM200/gram against RM168/gram spot price, that’s 19.2% premium over international gold price.

FGJAM VS Bank Negara

Kijang Emas prices
^ Historical Kijang Emas price published by Bank Negara

Kijang Emas is asking for RM5,424/oz. Convert that to gram, it is RM174.40/gram. FGJAM is 12.8% higher than what Bank Negara is asking. Do note that Kijang Emas price has already factored in the cost of overheads into its prices.

Jewelries are for Royalty

Buying the highest purity of gold at the lowest possible price is the basic mantra for investment in gold. From this perspective, a chocolate-shaped gold bar is as good as any crafted piece of bracelets. While bracelets are beautiful to look at, it is a jewelry. They come with a hefty premium to pay; a luxury that does not ryhme with investment.

It is not recommended to buy jewelries of any kind for investment. That is for member of the royalties.

So, why you should not buy gold from gold shop?

We should by now agree that gold jewelries are bad investment choice. Paying “workmanship” for a start will not bring any benefit to your investment. It is totally unwise to do so.

Poh Kong 20g Bunga Raya Gold Bar
^ Poh Kong’s Bunga Raya 20 gram gold bar. RM4,000 to buy at RM200/gram.

Switching lane to purchase gold bar from gold shop may seems to be a better idea. However, even if you opt to buy gold bar without “workmanship” fee, price tag for your investment is still pegged with FGJAM’s price.

Consider the above picture, Poh Kong’s house brand – The Bunga Raya. The price tag attached on it is RM4,000. If Kijang Emas has a 20 gram, it would have cost RM3,488 instead; a noticable RM512 saving.

Summary

If you are investing in physical gold and is buying from gold retailers, the person who is laughing to the bank are the retailers. Regardless of whether you are buying jewelries or gold bars, you are at disadvantage mainly because of the high margin.

While your investment may bling during festive occasions, chances are they will be locked in a safe deposit box somewhere. In the end, “workmanship” paid are to be admired only by the safe box instead.

Alternatives

I suggest you to consider the alternatives below:

1) Kijang Emas from Maybank

2) Wholesale PAMP Suisse (Switzerland) Gold Bars from BuySilverMalaysia.com.

Call them in advance to check for stock availability.

Please do your own due diligence before investing. All the best in your gold investment.

You may be interested in the following articles I wrote previously:

Kijang Emas Spread Margin Check!
http://investsilvermalaysia.com/kijang-emas-spread-margin-check/

Understanding Spread for Buying and Selling:
investsilvermalaysia.com/understanding-spread-for-buying-and-selling-gold-or-silver/

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There's 13 Comments So Far

  • Ah POrt
    March 18th, 2012 at 8:22 pm

    What about buying gold pamp bars or maple leaf gold coin from the 1-Stop-Gold company?

  • KH
    March 18th, 2012 at 8:47 pm

    I have not check out 1-Stop-Gold’s premium. Generally, the lower the premium the better. All the best in your precious metals investment.

  • Mat Cendana
    August 4th, 2012 at 5:44 pm

    As always, your posts on precious metals are very informative and sensible. I would say this blog/website is probably the best place to come to for Malaysians to educate themselves on investing in gold and silver.

    This particular post confirms what many of us know and are unsatisfied with – retailers are making too much profit at the expense of consumers. Just yesterday, we had asked a well-known jewellery chain in Kota Damansara about the value of a gold necklace (916) in our possession should we wish to sell. The salesgirl quoted RM138/gram while their selling price is RM185. Such a wide difference! The spot price is around RM160 – yes, it’s for 999 gold, but still…

    I’m wondering where we can get a fairer price should we decide to sell…?

  • KH
    August 5th, 2012 at 10:26 pm

    Hi Mat Cendana,

    Unfortunately, jewellery has a wide gap for buying and selling. It is normal to see spread between 20-25% for necklace. For investment, stick with gold bullion coin or bar for low spread.

    All the best in your investment. Cheers.

  • Mat Cendana
    August 6th, 2012 at 12:00 pm

    I guess you’re right and we’ll just have to live with the situation. Like other investors, I would much prefer bars or coins. But for Muslims, we have to pay an annual zakat (tithe) on this kind of gold. Not so for jewellery but it must be used/worn and not stored away.

    Anyway, we are considering this one as a bonus. Would you believe that my wife had forgotten about its existence?! It’s something that she had bought years ago before we were married (Feb 2011) and was with someone else for safekeeping. I estimate the price then was at RM45 or so per gram. So, whatever price she sells at now, she will be in the plus a few times over.

  • Frank
    September 1st, 2012 at 5:21 pm

    Excellent article! How do I check the FGJAM price? They have not been updating their price on their homepage for quite long already. A quick look now shows you RM0.00 does not matter weekdays or weekends they no longer up date it. Where else can I check?

    Oh, there is no such word as “in regardless”, just regardless.

  • KH
    September 4th, 2012 at 9:01 am

    Dear Frank,

    I am guessing that FGJAM is no longer valid due to new law on competition. Malaysia has just implemented Competition Act 2010 which rule out dominant pricing setting. You can read up more here at this link: http://www.mycc.gov.my/faq.asp

    Btw, thanks for the correction!

  • Frank
    September 8th, 2012 at 8:52 am

    So does this mean the “In Malaysia, our gold prices are standardized nationwide as most of our gold shop retailers are member of Federation of Goldsmith and Jewellers Association of Malaysia” is no longer valid due to the introduction of the Competition Act 2010?

  • KH
    September 21st, 2012 at 10:33 am

    Frank,

    This is just my assumption. Let me investigate this and come back to you again.

    Thanks for the question.

  • James
    September 27th, 2012 at 12:24 pm

    Hi KH,

    Would it be better to buy gold via investment accounts as compared to physical gold which requires additional investment on yearly rental for safe deposit and other factors? What would be significant differences if there are any. After reading your article i’m keen to pursue my first investment in gold. Thank you.

  • KH
    September 27th, 2012 at 11:08 pm

    Dear James, both have it’s pros and cons. In short, if you planning for short term investment, investment account maybe a good option. If you are planning for long term wealth preservation, physical gold maybe your answer. Cheers.

  • amirul
    November 19th, 2013 at 9:39 pm

    hi, i have several question here…few days ago i went to poh kong and bought goldbar for my investment about 30g..just for started…w/o wise plans and still amateur in this investment, i just realize that the price which the salesgirl just offered me quite higher than the other goldbar price at another retailer…which i compared it is quite huge diff amount of price…mine was offered at rm160/gm while other retailers offer at rm145/gm…is it normal situation or what??…

  • KH
    August 6th, 2014 at 11:42 am

    This is because you are buying off the retail shop. They have substantial cost to bear on rents, security and man power hence gold prices are reflected. Some retailer are able to offer lower prices. We sells gold bars at wholesale here: https://www.buysilvermalaysia.com/gold-wholesale/