New gold player emerges with 'buyback offer'

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#1
Business Times - 09 Apr 2012

New gold player emerges with 'buyback offer'


But customers may be buying overpriced gold

By KENNETH LIM

(SINGAPORE) Another gold trading company marketing an 'offer to buy back' has emerged even as others have folded or come under regulatory scrutiny.

The Gold Guarantee, an outfit headquartered in Boat Quay, claims that it will buy back gold at a premium to the original sale price, becoming the latest to offer such a product.

This newest entrant comes in the wake of Genneva Pte Ltd, whose Malaysian arm is under investigation, and The Gold Label Pte Ltd, which has since shut down. Those two older companies have been placed on the Monetary Authority of Singapore's Investor Alert List, a cautionary document of parties whose activities are not regulated by MAS.

This, or some variation, is what such companies typically offer: They will sell investment-grade gold to you today and give you the option to sell it back to them at a premium after a fixed period of time.

If gold prices have gone up significantly, you can potentially sell on the open market instead and make an even better return.

The typical marketing language can lead customers into thinking they are getting a cheap, low-risk deal. In fact, customers may be buying overpriced gold and a promise whose real strength is not known.

The Gold Guarantee's brochure cites an example where a customer can buy 'gold bullion at market price ($80/gram) with 1.7 per cent discount', suggesting that it is selling the gold at a discount to current 'market' prices.

In reality, 'market' price may turn out to be a premium.

The Gold Guarantee founder Lee Song Teck initially said that the company sets its market price off the Singapore Jewellers Association's recommended gold prices. But a check with the trade association revealed that the SJA has not been recommending prices for quite a while to comply with competition laws.

Confronted with this, Mr Lee clarified that his prices were benchmarked on 'goldsmith prices' that are gathered from sources on the ground.

But goldsmith prices come with quite a hefty premium, which means that The Gold Guarantee may be selling investment-grade gold at a more expensive price than a straight seller, like a bank, for example.

Buying overpriced gold could still make sense for the customer who can get a minimum positive return from the buyback option.

But what is the real value of that 'offer to buy back'? The promise to buy back the gold is only as good as the promisor's credit.

The quality of The Gold Guarantee's credit is anyone's guess.

Mr Lee said The Gold Guarantee maintains some capital to meet its obligations, but did not say how much capital the company holds. The company was set up with just $1 million in paid up capital, according to filings with the Accounting and Corporate Regulatory Authority in Singapore.

How the business can withstand the test of mass buyback demands is another question. Mr Lee said The Gold Guarantee does not hedge its exposures using 'fancy financial stuff', sticking to physical gold and a 'buy low, sell high' strategy. He told BT that if the price of gold drops, he will buy more gold and that will drive down the average cost of his stocks.

But such a strategy could backfire if prices go down for a sustained period, because The Gold Guarantee will face both a depreciating inventory and a wave of buyback demands.

These gold companies are similar in more than just business model. The Gold Guarantee's website lists four core corporate principles - honesty, loyalty, trust and integrity - that are described almost word-for-word as on Genneva's website.

Mr Lee said The Gold Guarantee and Genneva are unrelated, and any similarity is coincidental.

Genneva director Leow Wee Khong declined to comment, citing the regulatory spotlight that has been cast on the company.

The attraction of the two selling points - gold at a discount and an offer to buy back - has helped The Gold Guarantee, which Mr Lee said targets 'middle class' customers, to grow extremely fast.

Mr Lee said that since it started in July and August 2011, The Gold Guarantee has sold about 2 tonnes of gold to about 500 customers, and has about 35 in-house staff and about 300 'sales consultants'.

The company already has a marketing presence in Malaysia, and Mr Lee, a self-proclaimed savvy investor, even shared his hopes to expand regionally, to Japan, Hong Kong and Taiwan.

It is not clear who regulates such companies, which usually say that they only need a licence from the police to deal in second-hand gold. Mr Lee took pains to stress that he was not selling an investment product. If he was, it would put him under the purview of the MAS.

One gold industry veteran said such businesses have found a foothold because of the rising price of gold over the past decade and the lack of easy access in Singapore to investment-grade gold. All three companies began after 2008. 'I hear about this all the time from my friends,' the veteran said. 'I tell them, you go and do the calculations and see if it still makes sense.'

Financial planner Eddy Cheong, head of financial planning at Providend, said investors have to ask a few questions when faced with a product that seems incredibly lucrative. 'How are they going to pay you?' he asked. 'What are the terms and conditions? Are there any guarantees? If there's a complaint, is there a channel I can go through?'

Mr Cheong added that people should also not feel pressured to rush into such products without thinking it through. 'You don't have to rush into it,' he said. 'If it's a good product it will stand the test of time and it will still be there later.'
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Quote:New gold player emerges with 'buyback offer'

Ah... I remember this guy... Post #473 onwards

http://www.valuebuddies.com/thread-8-page-48.html
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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#3
Oh wow. ST interviewed him before on Me & My Money, and now he is involved in a dubious Gold company? Huh
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#4
Quote:Mr Lee took pains to stress that he was not selling an investment product. If he was, it would put him under the purview of the MAS.

HAHAHAHA. He is selling a one-way bet on gold. Gold goes up, customers win. Gold goes down, customers sell back to him at their cost (can't lose). So he is selling a sure-win, can't lose product. A sure-win product is not an investment because investment involves a chance of loss i.e. RISK.

A sure-win for the buyer means a sure-loss for the seller. Who knows more about the product - the buyer or the seller? Would the seller sell a sure-loss product?

Now, since his company is offering the guarantee, he must be super sure that the guarantee will never be invoked, otherwise his company would go bust.

Question: if he is so sure that gold will go up, why doesn't he just buy a bunch of gold futures and be done with it? Futures allow 10x or higher leverage. So gold only needs to go up 10% for him to double his money. Why bother running a business at all?

If he is NOT sure that gold will go up, then he believes that gold may go down. How is he going to meet the guarantees when gold goes down? He has sold 2 tonnes of gold, at $80 per gram that works out to $160m. If he does not have enough capital in the company to cover the cost of buying back $160m of gold, then his guarantee is fraudulent since he has no way of honoring the guarantee in full.

I cannot prove that it is a fraud. But hell will freeze over before I let any of my friends go near this thing.

Quote:He told BT that if the price of gold drops, he will buy more gold and that will drive down the average cost of his stocks.

Hello? If the price of gold drops, all the previous customers will rush to sell back their gold. Where will he find the money to pay them, let alone buy more gold to average down?
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#5
i submitted my name to them to see what's going on few months back and they promised me an annual return of 25%. I then hanged up on them immediately...
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#6
A lot of people somehow is mesmerised by the word "guarantee". We always dream how nice to be guaranteed something for "nothing". i too were no difference in the past. But never, never again after learning about CDO & MBS so called guaranteed products. i am sure all value-buddies know there is no such thing as guarantee to make money investment. If there is we all should call it a present or gift not an investment. So whenever i read something about guarantee, my alarm bell will be triggered. TongueBig Grin
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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#7
Just heard from my grapevine,

Customers are "taught" to bring the Gold they'd bought to a Pawn Shop to be used as collateral for a micro-loan. I checked Maxi-Cash IPO Prospectus (pg 69) that they can't charge more than 1.5% interest per mth.

With the "fresh" funds from Pawn Shop, the customer can them "invest" into more Gold.

The reason for this is, they are "guaranteed" a buy back price (by the Gold broker) that'll be enough to pay for the interest rate charged by the Pawn Shops ie. Additional Profits.

Me thinks something is not right. Me thinks if the customer is unable to redeem his Gold from the Pawn Shop, someone will benefit...

According to my grapevine, Maxi-Cash (Pawn Shop) is refusing to accept more of such Physical Gold from my source. Me thinks the above "scheme" may be very prevalent and that's the main reason why the Pawn Shops are rejecting such collaterals...

I'd also strong advised my "source" to quickly get out in case the whole scheme comes unravelled...Confused

PS. I was trying to check the Buy-Back guarantee but the link doesn't seem to be working
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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#8
Why am I not surprised that he's "uncontactable"? How many more will lose money on such schemes, thinking they are legitimate "investments"?

The Straits Times
www.straitstimes.com
Published on Jan 23, 2013
Gold trading firm's founder 'uncontactable'

Investors' concern grows as Gold Guarantee CEO's whereabouts unknown

By Magdalen Ng & Pearl Lee

INVESTORS who have poured large sums into a local gold trading company are growing increasingly concerned over the fate of their investments.

They say The Gold Guarantee's founder and chief executive, Mr Lee Song Teck, has been uncontactable since he sent out an e-letter on Jan8, which detailed the company's future.

The letter had announced a merger between The Gold Guarantee and Asia Pacific Bullion, a metals trading company, also owned by Mr Lee.

He said in the letter that as part of the process of restructuring and transition, all transactions would be put on hold from Jan9.

The Gold Guarantee, however, would honour its payments to clients after the merger.

The company offers an investment scheme whereby investors buy gold at a premium and receive monthly payouts, depending on how much clients invest.

Clients can elect for the company to keep possession of the gold, and get a higher payout. This, after they buy into the scheme through agents who earn a commission.

Both The Gold Guarantee and Asia Pacific Bullion are listed on the Monetary Authority of Singapore's (MAS') Investor Alert List of unlicensed entities wrongly perceived to be licensed by the regulator.

MAS had earlier clarified that it does not regulate schemes that involve investors acquiring direct ownership of physical assets, such as property, gold, art or wine.

One customer of The Gold Guarantee, who did not want to be named, visited the firm's shuttered office in Boat Quay after hearing on Monday that the firm had run into problems.

The 40-year-old, who works in the service industry, said she invested $189,000 in 2kg of gold last month, but does not have physical possession of the gold.

She said she opted for a "safekeeping receipt" instead, as her agent told her she would receive a higher monthly payout that way.

"I've been calling the agent who sold me the investment scheme but she hasn't been answering calls since Monday night," she said.

An agent who declined to be named said that he last saw Mr Lee at The Gold Guarantee's office on Jan8. He added that agents had met the firm's management team on Jan 9, but Mr Lee was absent. But he had apparently spoken to some agents on the phone from Kuala Lumpur.

The Straits Times understands that on Jan12, some agents tracked down Mr Lee in Malaysia. He asked them to "give him some time" to settle things.

Other agents met Mr Lee's mother at his corner terrace house in Hougang on Saturday, but she said she did not know of his whereabouts.

Meetings with customers were set up for Monday, but again, Mr Lee did not appear.

It is unclear how many customers The Gold Guarantee has, but it seems to be business as usual for Asia Pacific Bullion. When The Straits Times phoned Asia Pacific Bullion's office, a female staff member who answered the call said it was a different company from The Gold Guarantee, and that she was unsure whether Mr Lee was uncontactable.

About five worried and irate clients turned up at the shuttered office of The Gold Guarantee when The Straits Times visited yesterday. Some also turned up at Mr Lee's home in Hougang.

A client in his 50s, who only wanted to be identified as Mr Ng, was spotted outside the home yesterday afternoon. "This is the fourth time today that I have come by," he said in Mandarin. "I will continue to come every day until I get an answer."

No one answered the door and Mr Lee's phone was engaged when The Straits Times tried to reach him.

Police declined to comment when asked if they had received any reports about The Gold Guarantee.

This incident comes after another gold trading company, Genneva, left more than 10,000 investors stranded last year. Genneva is being investigated by the Commercial Affairs Department (CAD) for financial improprieties.

Last October, Mr Lee offered Genneva customers a rescue plan through The Gold Guarantee and Asia Pacific Bullion. Some investors are known to have taken up his offer.

The Consumers Association of Singapore (Case) says it received 37 complaints against the gold trading industry last year.

From Jan 1 last year up until yesterday, nine complaints had been made against The Gold Guarantee, mainly for misleading claims, or imposing penalties when clients want to cancel investments during the cooling-off period.

Case executive director Seah Seng Choon noted that most of the reports are not under the association's purview as they are related to gold investments which it cannot take up.

songyuan@sph.com.sg

leepearl@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#9
(23-01-2013, 07:21 AM)Musicwhiz Wrote: Why am I not surprised that he's "uncontactable"? How many more will lose money on such schemes, thinking they are legitimate "investments"?


What I really can't understand is why can't our govt introduce a new legislation (or whatever is required) to bring some schemes under the control of MAS or any other bodies....How many more Greedy + Ignorant people is going to get hurt before that will (ever?) happen??? Confused
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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#10
(23-01-2013, 08:42 AM)KopiKat Wrote:
(23-01-2013, 07:21 AM)Musicwhiz Wrote: Why am I not surprised that he's "uncontactable"? How many more will lose money on such schemes, thinking they are legitimate "investments"?
What I really can't understand is why can't our govt introduce a new legislation (or whatever is required) to bring some schemes under the control of MAS or any other bodies....How many more Greedy + Ignorant people is going to get hurt before that will (ever?) happen??? Confused

Actually, greedy + ignorant people will always get hurt.

MAS should be more diligent in putting these companies on alert list.
In fact, they should issue press releases on these companies.
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