Shariah gold ETF rises as safe havens in demand


AFFIN Hwang Investment Bank Bhd expects gold prices to average higher in 2020, helped by sustained accommodative monetary policies among major central banks especially the US Federal Reserve (Fed).

“Other risks include uncertainties due to the US-China trade tension talks continue, potential risk of the Covid-19 outbreak and other geopolitical concerns,” the investment broker noted in a report last week.

Using the TradePlus Shariah Gold Tracker exchange-traded fund (ETF) as an avenue to invest in the precious metal, Affin Hwang believes the ETF’s fair value is RM2.30 and maintained its ‘Buy’ call on the security.

The TradePlus Shariah Gold Tracker ETF is managed by Affin Hwang Asset Management and has invested 99.9% of its net asset value in gold bars with the remaining in Islamic money market instruments and/or deposits.

For the financial period ended Dec 31, 2019, the TradePlus Shariah Gold Tracker ETF registered a positive return of 17.4%.

With a tracking error of 0.11%, the fund has met its objective of providing investors with investment results which closely track the performance of gold price.

In 2019, the price of gold surged by 18.9% year-on-year (YoY) to US$1,523.1/oz compared to a decline of 2.1% in 2018 to US$1,309.3/oz.

This was the fastest rise in gold prices since 2016, when uncertainties stemming from US elections, as well as a vote for Brexit supported inflows for safe havens.

“In 2020, we anticipate haven demand for gold to be in view of economic uncertainties, due to a possible renewed trade talks between the US and China, and negotiations may not progress past the ‘Phase One’ trade deal towards a ‘Phase Two’ deal in the near term.

“In addition, the US has not rolled back the 25% tariffs on US$250 billion (RM1.05 trillion) worth of Chinese imports, which were previously imposed. Therefore, this may continue to weigh on business sentiment,” it added.

In the near term, Affin Hwang Capital believes concerns over the recent Covid-19 outbreak will likely continue to drive safe-haven flows into gold.

The spread of the virus especially if infections increased and continue outside of China, the heightened uncertainty may lead to higher gold prices in the near term.

In ringgit terms, gold prices may be supported by the softer ringgit against the greenback in 2020 as the investment bank expects the local unit to weaken to RM4.20/dollar by end-2020.

The ringgit will continue to be supported by the country’s current account surplus and a healthy level of foreign reserves.

“We believe uncertainties to be further mitigated especially if trade talks proceed further to a Phase Two deal possibly before the US elections in November 2020 and if the US decides to roll back tariffs which were previously imposed.

“If the Covid-19 outbreak slows down by the second quarter of 2020 (2Q20), this will lead to an improvement in business sentiment and a resumption of the global supply chain which will support global economic growth,” it said.

In addition, AffinHwang warned if the Fed and other central banks in major economies begin to tighten their respective monetary policies, this would also put some downward pressure on gold prices in 2020.

Due to geopolitical concerns and low-interest rates, the World Gold Council noted that holdings in gold-backed ETFs hit an all-time high of 2,885.5 tonnes in 4Q19 compared to 2,858.8 tonnes in 3Q19 mainly from North American and European-listed funds.