Investors flock to gold as precious metal hits record high

Stock punters rush for gold related stocks with jewellery-related stocks as trading volumes remain high


RISING US-China tensions amid increasing Covid-19 cases and a weaker US dollar drove investors into the safety of gold which reached a new record high yesterday.

The metal rose to more than 2% to an all-time high of US$1,941 (RM8,346) per troy oz (at press time) with market experts not ruling out it could soon break the US$2,000 price mark.

Stock punters rushed for gold related stocks with jewellery-related stocks gaining alongside glovemakers as trading volumes remained high at 11.61 billion securities traded valued at RM6.23 billion.

Tomei Consolidated Bhd ended 38.38% or 19 sen higher at 68.5 sen, while Poh Kong Holdings Bhd jumped 27.88% or 14.5 sen to 66.5 sen.

Niche Capital Emas Holdings Bhd was up 23.08% or 1.5 sen to eight sen while ACE Market-listed Bahvest Resources Bhd rose 21.69% or nine sen to 50.5 sen.

Oanda Corp senior market analyst for Asia Pacific Jeffrey Halley expected to see the rally in gold to accelerate now that the US$1,920 an oz resistance level is out of the way.

“It will take a much shorter time for gold to reach US$2,000 than it did for gold to reach US$1,920 from US$1,800.

“A weakening US dollar will give gold new tailwinds at these levels, as investors globally back recovery and rotate out of safe-haven US dollars,” he told The Malaysian Reserve (TMR) yesterday.

Halley noted that gold’s meltdown, along with silver, in mid-March was the result of investors liquidating assets to cover losses in the stock market.

Since the capitulation sell-off, gold has been steadily retracing those losses. There are two main drivers for the rise in the price of gold, he added.

“Firstly, the huge amount of easing by the US Federal Reserve has driven real yields (nominal yields — inflation) into negative territory across the entire curve to 30-year. That markedly increases the appeal of gold which pays a 0% yield.

“Secondly, fears about both the debasement of fiat currencies by the actions of the world’s central banks and US-China geopolitical tensions have seen large flows into gold as a traditional safe haven,” he said.

Halley added that gold’s next price target is US$2,000 an oz but the precious metal has the potential to squeeze much further than that.

“As the global economy is expected to be weak this year, along with unlimited stimulus programmes/printing of money and the worry of physical/trade wars, gold is seen as a better hedge against all these uncertainties,” Areca Capital Sdn Bhd CEO Danny Wong said.

He added that it made sense for some portfolios to have a small exposure to gold for a better risk-return profile due to the theory of negative correlation between gold and some conventional assets such as stocks.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said the surge in gold follows the drop in the dollar index by roughly 0.5% and increased worries of a global economic slowdown if the Covid-19 pandemic does not recede.

“In the medium term, we do not discount any possibility for the gold price to hit US$2,000 per oz and hover around there if there are no further positive developments of a Covid-19 vaccine,” he told TMR.