With the financial world in chaos and regional equity markets continuing to tumble, investors were cautious about where they put their money, World Gold Council (WGC) Far East managing director Albert Cheng said.
“There is a lot of hesitation on the investor’s part where to put their money as the financial crisis has made people more risk-averse,” he told The Edge Financial Daily.
Gold was trading at US$939.82 (RM3,477) an ounce on the Comex division of the New York Mercantile Exchange as at 5.55pm last Friday. The price of gold has climbed by 35% after dipping to a low at US$707.90 in November last year.
As risk appetite wanes, prudent investors seek a less risky asset class. “That is why we are seeing a lot of interest in gold. In fact, there is an increase in volume in gold exchange-traded funds (ETFs) in Singapore and Tokyo, among others,” said Cheng.
Investors tend to turn to safer asset classes in tough times, viewing gold as a hedge against inflation and weak economic conditions.
“Preservation of assets is a greater priority. As investors understand risks better, it is better to be risk averse than sticking your head out and getting burned,” Cheng said.
Recently, Bank of America Merrill Lynch upgraded its gold and silver forecasts, lifting the spot forecast for 2009 to US$1,000 an ounce from US$875. For 2010, it raised its forecast to between US$900 and US$1,050 an ounce on a more promising outlook for the metal.
“Increasing inflation expectations, a shift toward liquid assets, a rapid increase in credit risk, falling stock markets, and a wave of monetary and fiscal policies are contributing to fuel a rally in gold prices,” the bank said.
As shares across the globe lost an estimated US$14 trillion in value in 2008, WGC saw an increase in the gold investment. Identifiable investment demand for gold, which incorporates ETF, gold bars and coins, was 64% higher last year than in 2007. “This is equivalent to an additional inflow of US$15 billion,” it said.
According to WGC, investment demand for gold was the biggest source of growth in the industry in the fourth quarter last year where identifiable investment demand reached 399 tonnes, up 182% from 4Q07.
“The main source of this increase was net retail investment, which rose 396% from 61 tonnes in 4Q07 to 304 tonnes in 4Q last year. The most dramatic surge was in Europe, where bar and coin demand increased from just nine tonnes in 4Q07 to 114 tonnes in 4Q08, representing an increase of 1,170%,” WGC said.
In its Gold Demand Trends, identifiable gold demand in tonnage terms rose 4% on previous year levels to 3,569 tonnes. Demand for gold is in three classifications — jewellery, investment and industrial demand.
“The jewellery segment accounted for 65% of gold demand while investment was 30% followed by a 5% demand from the industrial segment in 2008,” Cheng said.
Going forward, Cheng reckoned that prospects for gold would be good on strong fundamentals.
This article appeared in The Edge Financial Daily, March 10, 2009.
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