My main concern regarding this investment was the loss of profits through exchange rates. When gold rises in USD, it means that USD has devalued. USD will weaken against SGD. This means that less SGD is needed to buy more USD, and hence the profit of gold made in USD when converted to SGD will be diminished.
The world economic and financial fundamentals are shaky, and though Singapore is economically strong, it will not be spared in a global economic meltdown. The fundamental reason is that SGD is also fiat currency not backed by gold. I've compared Singapore's M1,M2, and M3 (measures of currencies in circulation) against the Singapore GDP (measure of real goods produced) and found that the former is still more than the latter. What does this mean? Inflation in the future. At my last calculation, Singapore's M3 was $85 billion more than its GDP. Moreover, Singapore has been buying up lots of USD this year! Singapore will lose money on those USD it has bought. These 2 factors are quite enough to convince me that gold can gain in value in terms of SGD, or at least retain the value of SGD. To further back this statement up, let's take a look at some numbers.
I have very painstakingly collected data, put them into an excel spreadsheet and generated the graphs below. How I wish I still have access to the Bloomberg machine in NUS. It'll make my job easier.
This is the SGD/USD historical exchange rate, since 1970:
This is the average gold prices in USD and SGD. I converted USD into SGD using the exchange rates in the previous graph:
As we can see here, gold prices in SGD moves in tandem with gold prices in USD. So any concerns with losses due to exchange rates may be alleviated.
Jin
The world economic and financial fundamentals are shaky, and though Singapore is economically strong, it will not be spared in a global economic meltdown. The fundamental reason is that SGD is also fiat currency not backed by gold. I've compared Singapore's M1,M2, and M3 (measures of currencies in circulation) against the Singapore GDP (measure of real goods produced) and found that the former is still more than the latter. What does this mean? Inflation in the future. At my last calculation, Singapore's M3 was $85 billion more than its GDP. Moreover, Singapore has been buying up lots of USD this year! Singapore will lose money on those USD it has bought. These 2 factors are quite enough to convince me that gold can gain in value in terms of SGD, or at least retain the value of SGD. To further back this statement up, let's take a look at some numbers.
I have very painstakingly collected data, put them into an excel spreadsheet and generated the graphs below. How I wish I still have access to the Bloomberg machine in NUS. It'll make my job easier.
This is the SGD/USD historical exchange rate, since 1970:
This is the average gold prices in USD and SGD. I converted USD into SGD using the exchange rates in the previous graph:
As we can see here, gold prices in SGD moves in tandem with gold prices in USD. So any concerns with losses due to exchange rates may be alleviated.
Jin
Dear Sir/Madam.
ReplyDeleteI am looking for the raw data SGD/USD historical exchange rate since 1970. I saw you already get the data and made a chart. Where did you get the raw data from?
Sincerely,
Lee (From South Korea)
Hi Lee,
DeleteI got it by searching online. I do not know whether I've saved my sources.
Thanks for dropping by!
Jin