Sunday, August 29, 2010

Genneva Gold

Genneva Gold is a company that I've came to know recently, the rebates scheme that gives us up to 24% returns sounds too good to be true. After operating for years, the company is still able to retain its operations and I suspect that the main reason behind it is in the gold, itself. As gold prices kept increasing these years, if the increase in gold price is more than the rebate scheme that it gives to its customers, then with the type of markup price and the business or trading gold bullions, there's certainly no issue in continuing its current operations. But if gold price drops for a few years, then I'll be worried about what might happen.

Genneva Gold basically has 3 rebates scheme:
1. 2% per month with a lock-in period of 3 months.
2. 5% every 3 months.
3. 1.5% every month.

Generally, the gold price of the bullion quoted by Genneva Gold is about 10% higher than the price of gold you buy at the goldsmith, where they sell the gold jewelery. So if you didn't sell back the gold to them, your potential loss is about 20-30% depending on the gold price in the market. Hence, whichever scheme you pick, the downside is always 20-30%.

For the 1st scheme, (2% / month but locked in for 3 months) you buy the gold at the current quoted price, e.g. $70/g, but you only need to pay 98% of the price due to the 2% rebates that you "receive" upfront. At the end of the 1st and 2nd month, you will need to sell the gold back to them at the quoted price which you've bought the gold at, then buy it back from them at the new quoted price. The amount you need to pay is also 98% of the quoted price due to the 2% rebates that you've "received". At the end of 3 months, you will sell the gold back to them at the stated price, by now you have about 6% total returns from the gold purchase, and your 3 months contract terminates. Depending on the gold price, it may not be exactly 6%.

For the 2nd scheme, (5% every 3 month) you buy the gold at the current quoted price, e.g. $70/g, but you only need to pay 95% of the price due to the 5% rebates which you "receive" upfront. But with this scheme, you will save on the time required to renew the contract and rebalance the gold price every month, and relieves you from any issues that may arise from the fluctuation of gold price. At the end of the 3rd month, your will sell the gold back to them at the initial quoted price of $70/g. Hence, you've received the 5% returns.

For the 3rd scheme, (1.5% / month) you buy the gold at the current quoted price, e.g. $70/g, but you only need to pay 98.5% of the price due to the 1.5% upfront rebates. At the end of the month, you will sell the gold back to them at the initial quoted price of $70/g. Hence, you've received 1.5% returns.

For all the schemes, there's a always a window period of 7 days that you've got to sell / buy back the gold from them in order to get your return, otherwise, they have the right not to buy back the gold at the stated price. Do take note of this and you should only get the 999.9 gold bars which they bought from UOB and not accept if they only have their own in house manufactured gold bar to be on a safer side. And they have super long queue 'cos their system is super manual.

Some people likes this scheme and some people doesn't. My view on this is that it's just a scheme to lend the company money at 24% per annual interest with a 70% value in the form of gold collateral. Which means your downside is at least 20 - 30% because when you sell the gold to UOB or any other people, at any point in time, you'll lose at least 30% of your money should the company close down. Your upside is 24% per annual in the form of 2% per month. So you must believe that gold price will go up before you should even buy into this scheme, because you are betting that the company will continue to operate for the period that you have buy their gold. I feel that if there's anything that will cause the company to close down, it's usually when there's a major drop in the gold price plus over a long period of time and when this happens, the downside will be more than 30% confirmed.
But if you think that gold price will rise more than 24% a year, then you should buy gold from cheaper source, such as UOB.

It's entirely up to you whether or not you wish to trade gold with Genneva Gold. There's no right and no wrong in my personal opinion. But do take note that what you are doing is betting that the company will remain in operations while you are holding the gold, and you also need to make sure that you do renew your contract and sell back your gold within the stated 1 week period :)

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