Gold loses out to recovery play

Despite the lack of dividends or returns, investors will continue to include gold in their portfolio, says Lim 


GOLD would remain in investors’ portfolio as a hedging instrument for diversification against the uncertainty of the Covid-19 pandemic and flow of funds into developed market assets, according to StashAway co-founder and CIO Freddy Lim. 

Lim is confident that investors will continue to include gold in their portfolio despite the lack of dividends or returns. 

“When the Covid-19 pandemic hit last year, investors flocked to gold as a safe haven asset class given the uncertainties of such a pandemic. 

“Subsequently, investors shifted out of gold into sectors battered by Covid-19 such as airlines on the back of optimism surrounding the reopening of economies and increased vaccinations. 

“More recently, the Delta variant has reversed this shift with investors looking for respite in gold. 

“The uncertainty of the pandemic recovery will continue to drive investor sentiment and subsequently their asset allocation across asset classes including gold,” he told The Malaysian Reserve (TMR). 

Gold price rose 0.08% to US$1,780 (RM7,545) a troy oz last Friday. The precious metal’s price hit a low of US$1,680 on Aug 9 after hitting a high of US1,916 on June 1. 

Malacca Securities Sdn Bhd head of research Loui Low is of the view that investors have been on board with the recovery play which caused the waning sentiment in gold. 

“I believe investors are looking at the recovery play and hence, the gold price sentiment has waned. 

“The vaccination rate is higher now and it is also providing a recovery narrative for the economic activities. Hence, investors may flee safe-haven assets and be pushed into equities,” he said. 

Federation of Goldsmiths and Jewellers Associations of Malaysia president Datuk Steven Siow said the international gold price is very dependent on the US monetary policy at the moment. 

He said if the US Federal Reserve prolongs with its quantitative easing action, it would be good for gold price and likewise. 

“Geographically, tension also plays an important role in determining the gold price. At the moment, we see gold ranging between US$1,750 and US$1,800 per oz. Local prices are based on international prices. 

“We will see good response if we will achieve herd immunity by October, currently the online sale for gold jewellery is encouraging,” he told TMR. 

By October, he expects wedding functions and other seasonal festivals will boost the sale of gold jewelleries while some investors invest in gold bars. 

“What we worry now is that the gold factory can’t fully operate at the moment, and if the demand pushes up, there might be a shortage of supply,” he added. 

Lim of StashAway said the commodity’s price functions as one risk management tool that protects portfolios against extreme events ahead of time. 

“Political and economic uncertainty, financial crises and a large decline in the US dollar don’t happen often. 

“But when these events do happen, they can cause a sizable short-term loss in a portfolio that isn’t properly prepared with the right risk management tools, such as gold. 

“Ultimately, a strategic allocation to gold will allow your portfolios to remain resilient even in the most extreme and unfavourable market conditions,” he said. 

StashAway continues viewing gold as a valuable asset that pro-vides portfolio insurance rather than as a trade.