Balance of risks still favours gold going higher

Given the level of monetary easing around the world, gold’s fundamentals suggest much higher levels in the future


EACH year during Ramadhan, lots of people will flock to the shopping centres to buy new “baju raya”, biscuits and even new gold jewellery.

This year as the shopping budgets is hit by the Covid-19 pandemic as people tend to spend more on facemasks, hand sanitisers or save money for a rainy day.

However, Faris Ahmad took a slightly different approach as he has been buying gold as an investment for the past five years.

The 29-year-old who used to work as a safety officer, left his job and now a cafe owner said he believes gold is the best way to secure and preserve his wealth in the long term.

“I regularly set aside a certain sum to buy the gold bar when the price is right.

“My biggest achievement with gold investment is I managed to use the saving for my wedding in 2018,” he told The Malaysian Reserve (TMR).

Recently, the Internet was flooded with pictures of people making beelines at pawnshops nationwide on Monday, triggering worries that ordinary Malaysians had to pawn their valuables in order to survive during the pandemic.

Malaysia Pawnbrokers Association president Tan Ho Keng said there was nothing unusual about the long queues at pawn shops.

“With the outlets reopening under the Conditional Movement Control Order after 47 days, the patrons were back to redeem their pawned jewellery, make interest payments, extend the period of the mortgage and a few to pawn some items,” he said.

AxiCorp Financial Services Pte Ltd global chief market strategist Stephen Innes said gold continues to hover near year highs as prices consolidate around US$1,700 (RM7,344) an oz as the market is sitting tight, waiting for the primary catalyst.

“Big gold buyers are sidelined while looking at how the gradual reopening activities play out with fast money ready to pounce on the first sign of secondary cluster break out.

“Gold is getting weighed down by higher equities and a stronger US dollar. However, talk of fresh stimulus reversed the losses initially while the easing of lockdown measures continues to limit the upside over the near-term,” he told TMR.

He said the balance of risks still favours gold going higher and at this stage, it is hard to see what has changed for gold to shift appreciably lower.

“European assets, including the Euro, are on the defensive as markets try to digest the German Court ruling.

“There is building concern that a premature end to the lockdown will increase fatalities which sees retail demand flooding into the gold exchange-traded fund,” he said.

Although the infection curve is flattening, Innes said Covid-19 remains the hot ticket for gold even if the White House contention the lab in Wuhan, China, is the epicentre for the virus outbreak is not viewed as credible.

“Just the mere thought that the US-China trade risk relations could take a turn for the worse should support gold on dips,” he explained.

At the press time, gold was priced at RM1,700 an oz.

Oanda Corp senior market analyst for Asia Pacific Jeffrey Halley said gold remains anchored within a wider price range of between US$1,650 and US$1,750 in the last couple of months and looks set to continue to trade in this price range.

Given the level of monetary easing around the world, he said gold’s fundamentals suggest much higher levels in the future.

“Inflation has yet to rear its head and will not do so until the world properly returns to work post-Covid-19 treatment.

“While patience is required and I’m not committing heavily either way until one of those two price levels break,” he told TMR recently.

He said the oil inflation hedge has no merit. Even after the price rise in the energy market this and last week, oil is still about 60% lower than a year ago.

“That is deflationary, not inflationary. Similarly, a one day rally in stocks does not signal a V-shaped global recovery and return to normal life. It is important to not get tied up in the daily noise of markets. A three dollar move gold is an inconsequential one and could just as easily have been caused by a one corporate buy order. It certainly does not signal a massive macroeconomic turn,” he added.