As governments the world over spend trillions of dollars in stimulus packages to fight recession, economists believe that though inflation may not be just around the corner, it is definitely not that far off.
Already there are worries that the US dollar would collapse and the idea of hyper-inflation taking hold is not that far-fetched. Against such a scenario, gold with its many pluses is back in vogue: it is seen as a safe haven, a hedge against inflation, highly liquid and not tied to any country’s economy.
As more investors take flight to gold to protect their wealth, the price of the commodity has rallied.
Gold spot price on the New York Mercantile Exchange has surged US$77.80 (RM283.97) or 8.8% this year — to US$959.85 an ounce on March 19 from US$882.05 on Dec 31. It hit a 52-week closing high of US$992.90 an ounce on Feb 20 while its 52-week low was US$712.30 on Nov 12, 2008.
While no one knows if the price of gold would continue rising without a break or how high it would go, that it is a hot commodity is indisputable. Thus, analysts say picking up gold on any price weakness now may not be a bad idea. Also, those who invest in gold usually take a long-term view.
Analysts at Citigroup Inc, UBS AG and Morgan Stanley recently raised their target prices for gold.
Gold bars displayed at a bullion merchant Baird & Co in London. With the current global financial crisis investors would rather convert the savings in banks or equities to gold.
UBS Investment Research, in a March 10 report, raised eyebrows among people seeking long term investments. It is one of the biggest bullion dealers in London and Zurich.
The Swiss research outfit forecasts gold to hit US$2,500 a troy ounce in the next five years as prospects of either deflation or inflation were “becoming more extreme”.
It said the downside was limited to about US$500 an ounce. Gold prices hit a high of US$1,030.80 in March 2008 and last month traded briefly above US$1,000.
Citigroup analysts Alan Heap and Alex Tonks on March 18 raised their gold forecast by 3.8% to an average of US$856 an ounce for this year, from January’s estimate of US$825 an ounce.
The analysts said prices would average US$925 an ounce in 2010, up 2.8% from a previous estimate of US$900 an ounce. While UBS’ prediction may sound too bullish to some, gold does present an investment opportunity for now — particularly over the longer term.
Demand for gold bullion rising
World Gold Council’s (WGS) Far East managing director Albert Cheng said demand for gold bullion in Asia had been on the ascent since last year, and particularly in the last two months.
“Going forward, gold market has very sound fundamental, particularly the increasing investment flow,” he told The Edge Financial Daily in an email reply.
Nonetheless, demand for gold in Asia is not as significant as that in US and Europe, according to Joseph Ng, country manager of MKS Precious Metals Sdn Bhd, which is linked to precious metals and financial services group MKS Finance SA.
MKS is directly involved in the precious metals physical market through its Swiss subsidiary, Produits Artistiques de Métaux Précieux (PAMP SA), which is a gold, silver and platinum group metals refinery based in Castel St Pietro, Switzerland.
It is also involved in all aspects of gold and the processing and trading of other precious metals.
Ng said demand for gold bullion coins had been on the rise in the last five months in the US and Europe.
“People, in general, have lost confidence in the banks, especially with the financial and economic meltdown in US and Europe.
“In these conditions, investors are not willing to park their savings with the banks and would rather convert the savings to gold,” he told The Edge Financial Daily in an interview.
As an indication of the growing demand for gold in the US, published reports showed that the US Mint sold four times as many American Gold Eagle coins in January as it did in the same month a year ago.
“There has been a shift in demand for gold coins from Asia to the Western nations. Demand has gone up so much that our supplies of ingots in Asia have to be channelled to US to meet their demand,” Ng said.
Return to gold standard?
Concern over the value of the US dollar has prompted some parties to call for a return to gold-based currency standard. With a gold standard, participating countries fix the prices of their currencies in terms of a specified amount of gold, and paper notes are freely convertible into gold at the pre-set amount.
On the feasibility of gold standard, WGC’s Cheng said: “I don’t think it is possible, simply because there is too little gold above ground to serve this purpose.”
“At the moment, there are only 165,200 tonnes of gold above ground and half of them are in jewellery form and 12% of them are in industrial usage; it cannot be mobilised. At today’s price, it is (worth) only about US$5 trillion.”
However, he said gold could play its role as a financial asset, and should form part of the future financial architecture.
“For example, if the future financial architecture calls for a more diversified basket of currencies that one country should hold as reserve assets, gold should be in that basket of currencies.
“The last few years of changes in the financial market reconfirm that gold should be considered as an asset class of its own, not as part of the commodity basket, which comprises oil, other base metals and precious metals, as gold behaves differently, for sure,” he noted.
Investment opportunity
For Malaysians who want to buy physical gold, there are a few options apart from buying gold jewellery from the jewellers.
One is the Kijang Emas, Malaysia’s very own gold bullion coins, which are distributed by Malayan Banking Bhd. The Kijang Emas comes in three sizes: one troy ounce, half troy ounce and a quarter troy ounce.
The price of Kijang Emas is quoted daily and pegged to the international gold price. Based on last Thursday’s rates on Maybank’s website, the one troy ounce coin is quoted at RM3,614, half troy ounce at RM1,841 and a quarter-troy ounce at RM938.
(Commodities such as gold, silver, platinum and gemstones are weighed in troy ounces. A troy ounce is exactly 31.1034768 grams.)
Investors could also opt for a gold investment account, offered by Maybank and Public Bank Bhd. Gold is the underlying asset for both banks’ gold investment accounts, but account holders invest in gold without having to hold the metal physically.
According to Public Bank’s website, the initial minimum investment is 20gm, while minimum subsequent purchase or sale is 5gm and must be in multiples of 1gm.
Based on last Thursday’s selling price of RM112.51 per gram, a 20gm initial investment would cost RM2,250.20. For a gold investment account at Maybank, the minimum investment is 5gm with subsequent investment not less than 5gm.
In addition, local unit trust funds that have exposure to gold include AmMutual’s AmPrecious Metals, which invests in a portfolio of global Syariah-observant equity and equity-related securities of companies engaged in activities related to gold, silver, platinum and other precious metals.
As at Dec 31, 2008, the fund invested 82% of its net asset value in gold-related stocks.
This article appeared in The Edge Financial Daily, March 19, 2009.
No comments:
Post a Comment