Inflation Kicking In

A report on the Edge caught my attention today. Inflation seems to be starting to hit after all the money printing. 

Singapore CPI rise beats expectations, economists flag: Update
Monday, 24 January 2011

© 2011 - The Edge Singapore

Despite the measures expected to curb inflation here in sunny, maybe too sunny, Singapore, it's apt to be mindful that some countries don't seem to be curbing inflation anytime soon, primarily U.S.. As precious metals, oil, and other commodities are traded in U.S. dollars, with rising prices due to rising inflation, perhaps investing in these may turn this "trend" into a friend.

The precious metals for example, have had a rather sharp fall last week and seem to be correcting still. However, to anyone thinking it's the end of the metals bull market, that's not true. Not yet at least. The major trend is still up. At a seminar I attended this evening, a professional trader who trades the silver markets as well, gave his opinion that prices were only correcting. Also, in the latest copy of the Edge, Jim Rogers comments that gold is long overdue for a correction. But we're still looking at a likely rise in prices in the coming decade. If we look at the charts for both gold and silver, I totally agree about the correction being long overdue. However, this correction may provide the ideal opportunity to finally get exposed to the precious metal.

Other ways would be to invest in either a precious metal ETF that tracks a basket of metals or to invest in  precious metal-specific ETFs, like copper ETF, platinum ETF, or silver ETFs, or even the mining company ETFs, or the mining company shares directly. A final way to profit is to trade the metal futures itself.

Aside from precious metals, other commodities like rice, cotton, corn and any other agricultural produce will also rise if and when inflation kicks in. As such, one may profit by either looking into ETFs that track a basket of commodities and agricultural products, ETFs that are agricultural-specific, owning shares of agricultural companies or as mentioned above, trading agricultural futures. 

Do note that like all investments, there are risks involved so I would ask you to seek more comprehensive advice from your brokers. Personally, I prefer investing in silver at UOB bank. However, on the downside, I do wish they sold physical silver instead of paper but I'll make do with what they have. It's just a nice feeling holding physical silver coins in your hand.

Cheers and have a great night,

~K

25% in 5 days - Lafite Rothschild 2008 Stuns Once More

A sweetheart is a bottle of wine and a wife is a wine bottle. ~ Charles Baudelaire

Seems that QE2 is really driving up the price of everything. I'm not complaining. In my previous wine news, see Fantastic Wine News - Lafite Rothschild 2008, I said I was nervous yet excited about the new high that Lafite Rothschild 2008 made due to its announcement of the placement of the Chinese symbol for the figure eight on its bottles. But to add another 25% gain in five days...wow! That's unbelievable.

I'm crossing my fingers in hope that I get the receipt of acknowledgement that the warehouse received my wine by early next year so that I'll know I'm not dreaming, and of course, more importantly, that it's all not a scam.

Wish me luck!
~K

Fine-wine prices hit new high in October; Lafite 2008 jumps 25% in five days
by Kelvin Tan

Prices of the world's finest wines surged to a new high last month, according to the latest monthly market report of London-based online wine exchange Liv-ex.com. The Liv-ex 100 Fine Wine Index, which represents the price movement of 100 the most sought-after wines, rose 2.5% in October, spurring year-to-date gains to 32%. Over a one-year period, the index was up 33.5% (as at end-October).

Wines of Bordeaux first growth estate Château Lafite Rothschild from the 2008 and 2009 vintages saw the biggest gains last month. Buying sentiment in these clarets was lifted on the back of strong buying at the Oct 29 Lafite ex-cellars auction in Hong Kong as well as the recent announcement made by the first growth estate that a Chinese numeric eight figure would be featured on its 2008 bottles.

"The Chinese symbol for the figure eight, said to bring eternal blessing and good luck, caused a large spike in demand for the wine," according to the report, which highlighted that the value of Lafite 2008 jumped 25% in five days towards end-October, after the announcement was made.

Indeed a case of Lafite 2008 (12x750ml), which was trading at £8,800 (S$18,260) prior to the announcement, skyrocketed to £11,000 in five days by end-October. For the whole month, the price of this highly sought-after vintage increased 28.3%. At current levels, Lafite 2008 is trading at a "premium" to the 2005 and 2009 vintages, observes Liv-ex.

Source:
The Edge Singapore
Week of Nov 22 - Nov 28, 2010

Ways to Buy Silver

Silver is my preferred metal of investment. I'll elaborate more on the reasons in future posts. This post is just an introduction into the ways one can own silver as a way to diversify their investments.

There are quite a number of ways to start buying silver if one is interested.

Here's a quick list of them.

1) iShares Silver ETF (SLV)

Pros:
Very liquid; trades like a stock
Buy & Sell online
No storage cost & maintenance fee

Cons:
May not be backed by physical silver
Dependent on US timezone to buy or sell as the SLV is traded on the NYSE
Traded in US$

2) UOB Silver Savings Account

Pros:
Liquid
Bought & sold in S$
Singapore timing

Cons:
Must head to the bank to buy or sell
Bank does not store physical silver. It's all paper silver.

3) Physical Silver

Pros:
Security that you own the "real thing".

Cons:
Storage cost unless you store it at home
Illiquid
Risk of scams depending where and who you bought it from especially if 1) you can't sell it back or 2) are not holding and storing the physical metal yourself

4) Mining Companies

Pros:

Magnified price increase compared to the above 3 when price of silver increases.

Liquid

Cons:

Magnified price drops when price of silver drops.
Must research what percentage of revenue does silver make up

5) Silver Futures

Pros:
Liquid
Leverage - chance of making more money than the previously mentioned methods

Cons:
Leverage - Risk of losing more money than you have

For Singapore citizens, my suggestion would be to start a UOB Silver Savings Account. Though a little inconvenient to get to the banks, before 4pm (weekdays) or 12pm (weekends), and waiting in the queue to buy silver, this method eliminates the currency spread and brokerage fees per transaction. Especially useful if you're planning to do a monthly dollar-cost averaging investment for the long term and if you are investing in small amounts. Each transaction is subject to the minimum of 10oz, which at the current price is a total of S$361. (The daily price of gold and silver at UOB can be found here. This link can also be found at the bottom right of this blog under the Precious Metal section)

I also like the idea of owning physical silver. It's nice to admire a collection. =) But unfortunately, owning physical objects here seem to result in unbelievable premium prices above spot price. Also, there are a lack of sellers of physical silver. The only one I know of is Silver Bullion, which gets its silver from the Perth Mint, which also results in seriously huge price differences. GST also doesn't help, I'm sure you all would agree.

However, for non-Singapore citizens, my choice would be either the ETF or owning the physical. Your banks too, may have their own silver programs/products that you could invest in. But of course, I wouldn't know what other options are available in your country. Therefore, doing more research would be needed as the information here is probably incomplete.

Till next post,
~K

Fantastic Wine News - Lafite Rothschild 2008

Personal comments: I'm all excited and nervous about this piece of news in the Edge Singapore which I read 2 weeks ago. Invested in a case of Lafite 2008 with Assetton last year, Sept-Oct thereabouts. Cost price €3,600. Excited from the potential. Bit nervous that it's too good to be true.

Lafite 2008 with auspicious symbol set for price surges

~by Kelvin Tan

Bordeaux’s first-growth estate Château Lafite Rothschild, the favourite label of wealthy Asian buyers, will engrave the Chinese eight figure on its 2008 bottles to commemorate its vineyard venture into China, says Decanter Magazine. The auspicious eight symbol will be featured above the label on each of Lafite 2008’s 750ml and magnum bottles.

In partnership with China’s largest state-owned investment company, CITIC, Lafite will cultivate 25ha in Shandong’s province’s Penglai peninsula, which has been called “China’s Bordeaux” by some wine commentators.

“The shape of the symbol seems to offer a perfect representation of the slopes of the vineyard and commemorates the launch of our Chinese wine project. We wanted to remind all those who will have the pleasure of drinking these wines in a few years of this exciting undertaking,” a spokesperson of Lafite owner Domaines Baron de Rothschild told Decanter Magazine in a recent article.

“Lafite’s decision to feature the Chinese symbol of luck on all bottles of the 2008 vintage has ignited a frenzy of activity on the exchange, as merchants prepare for a sharp increase in demand from the Far East,” observes UK-based online wine exchange and research firm Liv-ex in its blog.

Lafite 2008, which is rated 98 to 100 from renowned US wine critic Robert Parker Jr, “has seen keen trade since the announcement”, according to Liv-ex, which predicts more price upside for 2008 claret. A 12x75cl case of Lafite 2008, which has quadrupled in value since mid-2009, has been bid to a new high of near £10,000 (S$20,665) at end-October from £8,300 in September, according to Liv-ex.

Source:

The Edge Singapore

Week of Nov 8 – Nov 14, 2010

How Interest from Your Foreign Currency Fixed Deposit Affects Your Returns

Over the last couple of days while turning the idea over in my head of opening a foreign currency fixed deposit account, I’ve been looking up interest rates quite voraciously. To my surprise, and disbelief, the US dollar (US$), the Euro (€) and a couple others have such low interest rates that I’m wondering why anyone would want to open such an account with any of our local banks in the first place. Also, when coupled with the FOREX risk involved (refer to The Risk of Foreign Currency Fixed Deposits for a discussion on FOREX Fixed Deposits risks), it’s unbelievable anyone would find it worth the gamble.

That said, there was only one currency that stood out in terms of interest rates. The Australian dollar (A$).

Here are some figures pulled out from the relevant banks’ websites to illustrate this.

ICIC bank offers the best interest rates for their fixed deposit account for a 12mth period, with CIMB coming in second. However, CIMB offers more flexible deposit time periods and has the best rates other than the 12mth.

So with such high interest rates does this make it a good investment? Lets see.

Using ICIC bank’s interest rate of 6.59% p.a., a deposit of S$10,000 and an exchange rate of S$1.00 = A$0.90:

Conversion of S$10,000 into A$: S$10,000 = A$9,000

Interest gained after 1 year: A$9,000 x 6.59% = A$593.10

Total amount: A$9,000 + A$593.10 = A$9,593.10

Looks like a gain doesn’t it? But unfortunately, this doesn’t take into account foreign exchange risks. Take a look at these points.

1) If rates remain the same after a year, then converting A$9593.10 back into S$ will give us a total of S$10,659, a gain of S$659 or 6.59% as promised by the bank.

2) However, should the S$ rise in strength against the A$, a 10cent move upwards (i.e. S$1.00 = A$1.00) will result in your investment now being worth only S$9,593.10 or a 4% net loss of S$406.90 despite the interest paid.

3) On the flipside, a 10cent move downwards where S$1.00 = A$0.80, will result in your investment now being worth S$11,991.37. A nifty gain of almost $2000 or 20% profit.

If you’re a person who thinks that the upside must be twice that of the downside, then perhaps this investment might be something to put on your radar. However, do also consider the minimum investment amount and the buy/sell spread which I didn't mention. These vary from bank to bank. 

For me, I doubt I’ll be opening an account any time soon, at least not till I’ve set my other investment plans in motion. But once I do, I'll definitely consider this.

Cheerios!

~K

The Risk of Foreign Currency Fixed Deposits

We all know that the banks interest rates at 0.1% is rubbish. Even the fixed deposit interest rates are rubbish. So I've been tinkering with the idea of converting a portion of my funds to a foreign currency to be locked up in a fixed deposit account for the sake of portfolio diversification as well as to earn the higher interest rates. However, like all investments, this comes with their own risks. The most important of all is foreign exchange risks, where the original currency gains in strength to the foreign currency thereby resulting in a lower value of the original invested sum when the foreign currency is converted back. Confused? Don't be.

Here's an example to illustrate:
2010 S$1 = A$0.90
2011 S$1 = A$1.00
2012 S$1 = A$0.80

Therefore if you converted S$10,000 into Australian Dollars (A$) in 2010, you'd get A$9,000. In 2011 however, if you were to convert the same A$9,000 back into Singapore Dollars (S$), you'd wind up with S$9,000. But if you were to hold on to 2012, the A$9,000 would now have been worth S$11,250 instead.

So you can see from the above example how a simple shift of 10cents can drastically affect your invested amount.

Note that this is without any interest paid by the bank.

In my next post, I'll elaborate on how interest affects your deposit in the foreign exchange fixed deposit. But for now...

Ciaoz Amigos!
~K

Gold a Better Buy in the Short Term, Silver for the Long Haul

Prepost outburst: See how the Fates are. They never give you what you want!

So I took a look at the chart for gold today and realized that gold dropped and then bounced off its 50day moving average twice. This is definitely a bigger drop than the fall silver did. Check out Gold & Silver Correction Over? for a brief discussion on last week's silver price movement.

Furthermore Stochastics has fallen to oversold regions and now show a buy signal, with the signal line cutting the red line upwards. These two indicators lend weight that the correction is indeed over and that buying will resume and that prices will go up. However that remains to be seen.

This video from Zen Trader, entitled Why Gold Could Fall to $900, provides more insight into the recent run up that gold has had, pointing out strong negative divergence between RSI and Price which could indicate a correction of about 35% or more, bringing down the price of gold to $900 thereabouts. This video is cluttered with other charts so if you want to listen to the brief discussion on gold, you gotta scroll to about 8mins 30secs.

Anyway, I'm not buying gold for now despite the recent dip to the 50day ma. I've put enough of my funds into this metal and am rather satisfied with the allocation. That's not to say I won't buy if it does drop to $900/oz though.

Personally, I believe silver is still a better buy in the long run and am holding onto my funds while I wait for an attractive buying price.

Wish me luck! =)

~K

Gold & Silver Correction Over?

Correction does much, but encouragement does more. ~ Johann Wolfgang von Goethe

I've been eyeing to increase my silver holdings for awhile now but I've been waiting patiently for the price of silver to drop. Alas, when it finally did start to correct on the 12th of Nov, I didn't have the spare funds to inject. On the 16th of Nov, a rather bullish doji appeared, appearing to signal a change to the selloff and the start of the rebound. Again I didn't have the funds to inject into my silver account. Today, when the price has rebounded strongly upwards, supported by the 14 day moving average, back to where it was before the correction, my funds to inject are finally available.

What a waste of an opportunity! *lament lament* Or is it?

The demand for silver is still there with the uptrend clearly intact. What's uncertain though is that most of the previous corrections last for at least 2-3 weeks, some more than a month. This recent upturn happened after only after 1 short week. So there's a chance that the correction hasn't played out fully. If this is the whole correction however, and not just a lame rebound, it's a rather short correction, proving that there's still ample demand for the shiny metal.

Lets see what happens tomorrow and next week.

Hopefully we'll get our chance!

~K

Note:
Not vested in iShares Silver ETF. I'm using the iShares Silver ETF as a reference as there isn't any chart plotting silver price in S$ in ChartNexus software. Nonetheless, this is accurate enough for me.