Long term gold investment: what if Singapore Dollar did not appreciate
Both Gold and Singapore Dollar made great long term investments
In my previous story, ‘Besides Gold, Singapore Dollar has a decade-long bull run‘ I wrote that gold price had a great rally from 2002 (although mood is slightly dampened by recent fall) but the Singapore Dollar had a great run too.
The gold story has do to somewhat with a general commodity boom that started around 2000. But the legs that carried gold price to a high of US$1920 in 2011 certainly had to do with the current financial crisis and loose monetary policy run by major economies.
The Singapore Dollar’s rally also had to do with both reasons. Singapore is an economy that depends on imports for just about everything. Both commodity price rallies and loose monetary policy carried out by major trading partners can cause inflationary pressures on Singapore. Therefore MAS manages the Singapore Dollar’s exchange rates to curb imported inflation. In an inflationary environment, the SingDollar is allowed to strengthen.
Strengthening Singapore Dollar made gold cheaper
If you live in Singapore, earn an income in Singapore Dollars, are passionate about long term investment prospects for gold, the convergence of these two bull runs are definitely in your favour. That is because if the SingDollar exchange rate stayed put today at the USDSGD exchange rate of 1.8460 at the beginning of January 2002, Gold will cost a lot more to buy.
Price of Gold using Singapore Dollar exchange rate now and then
|Now||Back on 01 January 2002|
|Singapore Dollar exchange rate (USDSGD)||1.2350||1.8460|
|Price of gold now in US Dollars||1469.00||1469.00|
|Price of gold in Singapore Dollars||1814.22||2711.77|
|How much more expensive?||50%|
What does this mean for gold investors?
- MAS letting the Singapore Dollar appreciate to curb rising inflationary pressure is favourable to individuals who participate in long term gold investment.
- Together with the GST on Gold scrapped in October last year, gold investors living in Singapore are really in a sweet spot now.
- So there is a sliver lining in the cloud for rising inflation in Singapore after all.
This article is also published in IM$avvy Blog Corner.