Gold Investment Program

Dear Mr Tan,

I've recently come across a gold program which provides a guaranteed return of 9% in 6 months through the purchase of physical gold - good delivery bars (999.9).

The outline of the program is as follows:
Day 1: Client purchases and collects gold based on retail price, less initial Cash Discount 3%, plus GST 7%
Day 90: Client receives 3% Sell-Back Incentive - credited into the client's bank account.
Day 180-187: At this point, client needs to decide whether to keep the gold or exercise a sell-back option. The two scenarios are included below.
(a) Keep the gold: Receives 3% bonus
(b) Exercise Sell-Back option based on purchase price: Receives 3% bonus, 7% Sell-back bonus equivalent to GST, agreed Sell-back price (100% of Purchase Price)


In effect, by choosing (b) the sell-back option, clients will receive a 9% nett return.
After the conclusion of the six-month agreement, clients may choose to take up a new 6-month agreement.
Would like your thoughts on the program?

REPLY
The retail price of the gold sold to you is likely to have a high markup from the wholesale price. If the price of gold drops, the promoter is likely to default on the buy-back option, so you will have to keep the gold at its depreciated price. You will suffer a further loss from the markup that you paid.

If more people are buying into this program compared to those who redeem, the promoter may honor the buyback option to entice you to re-invest and get more friends to join in. This is how a ponzi scheme operates.

Avoid all types of unregulated invetment products. Read the tips in my book, Practical Guide on Financial Planning.