Stock markets have been in turmoil since the start of 2022. With the rise of geopolitical tensions, popular indices such as the S&P500 and Nasdaq have lost over 10 percent of their value.
Cryptocurrencies aren’t fairing any better either. Bitcoin has fallen 11 per cent in the last month, and 17 per cent for Ethereum.
For those new to investing, it’s an ideal time to learn about safe havens — assets which remain unaffected, or even gain value, during times of market volatility. Precious metals such as gold and silver are a prime example.
Over the last month, both of these commodities have recorded gains of over 12 per cent, and have performed similarly well through other financial crises in recent history.
“Many investors view precious metals as a store of value, a hedge against inflation, or a diversification, particularly in uncertain times such as these,” explains Deepak Khanna, Head of Wealth & Trading at Revolut Singapore.
“While other assets may have a higher potential for returns, they are also much more volatile.”
How can you invest in precious metals?
There are a number of ways through which investors can gain exposure to gold and silver. The most direct option would be to buy the metals in their physical form — as bullions and coins.
However, this can be quite inconvenient, especially for those looking to make a small investment. There are dealer fees and storage fees involved, and you’re forced to buy and sell in fixed denominations.
Then, there’s the option to buy exchange traded funds (ETFs). These allow investors to speculate on the value of commodities such as gold without having to purchase the physical assets.
For example, one of the most traded gold ETFs is SPDR Gold Shares. Each share of the ETF represents around 0.09 ounces of gold, which is held in a vault by the issuing company. Although investors are charged an annual fee, this is generally lower than the storage costs incurred when holding the physical asset.
Commodity ETFs are useful as they reduce the barrier to entry and allow investors to buy smaller denominations. On the flip side, there’s a need to research them well before investing. Not all gold ETFs track the performance of the commodity. They may grant you exposure to a pool of gold mining companies instead.
In addition, most ETFs can’t be traded 24/7. Their trading hours are the same as those of the equity markets where they’re listed.
The easiest way for new and aspiring investors to buy gold might be via foreign exchange (FX) markets. In Singapore, this is made possible by Revolut Singapore’s newly launched commodities trading feature.
How does commodities trading work on Revolut?
Gold (XAU) and Silver (XAG) are both recognised as currencies in FX markets. XAU and XAG denote the value of one troy ounce of the respective commodities, at any given time.
Revolut has long offered the ability to convert between fiat currencies. With the introduction of commodities trading, users can convert their funds into XAU and XAG as well.
We wanted to simplify something that is typically quite daunting or overly complicated for investors, both new and experienced. Through our commodities exposure product, we aimed to create a solution that reduced the barriers for Singaporeans that were interested in investing in alternative asset classes.
Through Revolut, investors will be able to get exposure to in-demand commodities such as gold with as little as S$1.– Deepak Khanna, Head of Wealth and Trading at Revolut Singapore
Why should you invest in gold?
For those who get their investment advice from YouTube and TikTok, gold might not seem like the most appealing choice. After all, it doesn’t offer the sort of returns which would make a good clickbait title. What it does offer though, is a safety net — and it has done so for centuries.
“Ever since its first appearance in the sixth century BC as a coin, gold has managed to dominate the international monetary systems in one way or the other,” explains Khanna.
“Apart from being held by central banks as part of their reserves, it has evolved to offer different uses including risk management during market corrections, geopolitical stress and US dollar weakness.”
During times of uncertainty, investors often move their funds into gold. This causes a rise in its value, while stocks and other financial instruments are on a decline.
“Gold boasts some of the highest liquidity in the commodity markets and has generally increased in value over time. It has a very low correlation to equities which means that as equities come off, gold may still gain in value.”
Isn’t Bitcoin a safe haven asset too?
Due to its independence from monetary policy, Bitcoin — among other cryptocurrencies — has been proposed as a safe haven asset.
In theory, people would opt to move their money into crypto during times of rising inflation or geopolitical instability. Cryptocurrency, being largely decentralised, would never fall victim to sanctions or policy changes.
Although the argument makes sense, it hasn’t proven to be true — not yet, at least.
Cryptocurrencies remain far too volatile to be treated as safe haven assets. Through times of instability, including present day, their price movement has largely been in accordance with equity markets.
Given the short existence of cryptocurrencies, it is hard to classify them as having achieved the ‘safe haven’ status that precious metals currently possess. I feel both of these may have different roles to play in your portfolio and it is not about one versus the other.– Deepak Khanna, Head of Wealth and Trading at Revolut Singapore
Will Revolut Singapore introduce cryptocurrency trading?
Revolut is working its way towards being a one-stop shop for personal finance. With the introduction of commodities trading, it offers users a way to hedge against volatility.
With that, it’d only be right to balance the scales and cater to those who wish to speculate on volatility as well.
We’re delighted to offer our cryptocurrency trading services in other markets to help consumers participate in that space. It’s definitely something we’re scoping for our Singaporean customers in the future subject to getting the relevant licence.– Deepak Khanna, Head of Wealth and Trading at Revolut Singapore
The platform aims to empower users to take control of their finances.
“Rather than have five different apps that all do different things, Revolut is a hub for someone to manage their entire financial life,” explains Khanna. “Reducing barriers for investors is part of our wider mission to relentlessly make all things money easier and more rewarding for everyone.”
Featured Image Credit: Revolut Singapore