Investing in gold, a worthwhile option?

As gold price rose past USD 1,000, there seems to be a renewed interest in investing in gold. I am pretty curious to find out whether this is a worthwhile adventure.

USD quoted commodities

As with many commodities such as crude oil, gold is quoted in USD. When USD depreciates against major world currencies, gold prices tend to rise in assumption that value of gold remains unchanged (neglecting inflation to keep the discussion simple). If this assumption is true, then investing in gold for anybody leaving outside United States becomes more of a forex investment than a commodity investment.

Is gold expensive now?

The following charts shows the gold prices in USD and USD/SGD exchange rate over the same period.
source:

1. gold prices: http://www.goldprice.org/gold-price-history.html#36_year_gold_price
2. currency: http://sg.finance.yahoo.com/currency

Indeed, for Singaporeans, the gold price looks like a mirror image of USD/SGD exchange rate chart. Thus, is gold expensive or cheap now?

In January 2005, gold cost about USD $430 an ounce and 1.63 SGD fetch 1 USD then, thus it was about SGD $700 an ounce. Today, 18 September, gold cost about USD 1,014 an ounce and now 1.4149 SGD fetch 1 USD, thus gold cost $1,434.70 now (about twice as expensive). That is a growth of slightly over 100% versus inflation of about 10% in the corresponding period. Thus I do think gold IS expensive now.

A different conclusion might be derived using data stretching beyond 2005 but I could not find these historical figures. Nontheless, looking at historical gold prices:


gold was never more expensive.

Investment opportunity?

As with ANY rationale investment, I aim to buy low and sell high and profit from the difference. While buying high and selling higher can be potentially profitable, the risk could be disportionately higher and not a route I am keen to take.

However, assuming quoting gold in USD is a thing to stay (similar problem afflicts crude prices), as USD budget deflicit widened and current account deficit worsen as US try to spend their way out of recession (essentially printing USD), USD against major currencies (incl. SGD) could continue to slide, thus providing a strong lift for gold prices.

How far US deficit will grow, how far USD will continue to slide and how much lift could be provided for gold is anybody's guess and I'm NOT comfortable with betting on it.

Alternative investment?

On the assumption that US cannot allow fiscal deficit to grow indefintely and hence USD will not depreciate beyond gross cost of paper it's printed on, USD (against SGD) could be a better bet. i.e. an even riskier bet of buying 'cheaper' USD now, wait for the US recession and budget deficit storm to blow over (how long?) and buy gold when USD regains its strength. By then, gold price will have come down and USD will have traded much higher against SGD. Gold becomes cheap once more.

Physical Gold, anybody?

It is quite apparent I'm not keen on gold as an investment. But I did toy with the idea of buying some physical gold for fun, i.e. just to feel shiok. No, I'm not talking about gold jewellery, but real, solid gold.

Phyiscal gold can be purchased from UOB at a premium above traded price and prevailing GST. While a kilo-bar is too expensive to buy and crazy to leave it at home, a bullion coin is nice to keep as a souvenir. Maybe I'll get one when the gold becomes cheap, again.

Reinvested funds from SPC divestment in Thomson Medical Centre on 28th August 2009

Motivation

I see potential in SPC and was prepared to hold on for the long term since I got it when the oil industry was in its doldrums. I was still hopeful that more than 10% of minority shareholders of SPC could hang on to their shares. Unfortunately, PetrolChina easily collected more than 90% of SPC's shares and 'forced' me to divest my holdings. As a consolation, at least I'm fortunate to make slightly over 120% on my investment in SPC.

Anyway, with funds I raised from my sale of SPC, I plough some back into the market and bought Thomson Medical Centre, my 2nd investment into 'growing or recovering' but neglected businesses, after Food Junction (all in one day).

Thomson Medical Centre, TMC

One can read about TMC from their website and financial reports. In short, they aim to be a leading healthcare provider for women and children and its developments over the years indeed indicate that they are moving in the right direction. Other than the usual obstetrics and gynaecology (O&G), paediatric services and fertility treatment services, they set up the Thomson Women Cancer Centre, TWCC. TWCC is dedicated to the prevention, diagnosis and treatment of breast, gynaecological and colorectal tumours in women. Recently, they announced the setting up of the Thomson Chinese Medicine Pte. Ltd.

Performance


Is it explicitly mentioned in TMC's 1Q 2009 financial statements that the group seeks to grow organically. That explains its low gearing below 5%. As such, the fact the TMC can grow steadily over the years is quite impressive, at least to me.

Reasons to be optimistic

Branding (Singapore, not TMC)

Singapore's status as a Medical Hub in the region boded well to attract a healthy load of clients for TMC's services. Though the fertility rate of Singaporeans is pretty low, the countries in the region are still very productive. Given the growing affluence in the regional countries, especially the higher income group, more will come to Singapore and TMC will be one of those to benefit.

One of the first choice among private hospitals

Among my friends and colleagues, if not KK, TMC is the overwhelming first choice they choose for O&G services. It seems to me that TMC is the most affordable private hospital if couples choose to pay more. To gather more clients, TMC actually have 7 Thomson Women’s Clinic spread across the island to refer perspective mothers to TMC.

Risk

TMC seems to be more like a hotel than a hospital. In an attempt to grow, their services become more commercialised than personal. A few couples I know choose not to go back to TMC for subsequent child and instead headed to Mount Alvernia or Gleneagles Hospital (basic package is just slightly more expensive than TMC). Hopefully TMC will take note of all customer feedback and improve their services as they grow.

Conclusion

As the region's economies grows out of the current recession, there should be more babies to come along and help TMC to fulfill is dream to be the leading healthcare provider for women and children.