Gold fever rages on

The practice of investing in gold is slowly gaining momentum in Malaysia.

THE STAR Sunday April 24, 2011

By RASHVINJEET S.BEDI
rashvin@thestar.com.my

THERE'S a lot of talk about gold these days. More Malaysians are investing in the precious metal and even criminals seem to have caught on to the gold bug.

Last month, police nabbed five kidnappers in Klang who demanded 10 one-kilogram gold bars (worth RM1.44mil at that time) from the victim's family. It is believed to be the country's first-ever kidnapping case involving the use of gold bars as ransom.

More recently, the Malaysian Anti-Corruption Commission (MACC) reportedly discovered gold bars in the homes of several Customs officers during raids.

There is good reason why gold is sought after it recorded an all-time price hike this week, reaching US$1,500 (RM4,500) an ounce for the first time in history.

Over the last year, the price of gold has risen approximately 23%; and in the last three years it has risen 98%. While unrest in the Middle East and the situation in Japan are cited for record gold prices in recent months, shaky financial systems are the main reasons why the price of gold has been shooting up over the years.

Companies are now aggressively marketing gold in the form of bars and coins while banks are offering gold-related savings accounts.

In cyberworld, there are countless numbers of websites offering gold products and online forums are hotting up with discussions on investment in the glittering metal.

According to RH Investment Services Labuan director Richard Hull, the rise in the gold price is predominately linked to the amount of US currency in circulation.

He explains that it took 200 years for the US to print US$825bil (RM2.5 tril). But in Sept 2008, the US government printed US$900bil (RM2.7tril) and in March 2009, another US$1.2tril (RM3.6tril). This means that in less than a year, they added over US$2tril (RM6tril) to the money supply or a 370% increase in currency.

“People are investing in precious metals because of distrust in the financial system. They want to put money into something that is real,” says Hull, adding that all the currencies in the world are backed against the US dollar.

He believes there is sound economic reason to estimate that the gold price may reach US$15,000 (RM45,000) an ounce, a rise of 1,000% from its present level.

Ng Yih Pyng, the president of the Federation of Goldsmiths and Jewellers Associations Of Malaysia says jewellery shops in the country started to stock on gold wafer and bars a few years ago when there was demand for it.

“Before, people bought gold in the form of jewellery. Now investors buy gold bars and wafers. Most, if not all jewellery shops, now sell gold bars from 1g to 100g. The trend is becoming stronger every day,” he shares.

People buy based on what they can afford as gold bars are very expensive.

To put it into perspective a 100g gold bar (999.9 purity) that barely sits on the palm can fetch anything between RM15,000 and RM17,000 (depending on the brand) these days. Prices are based on daily updates.

“People are not so confident with currency and other investments, so they diversify a bit,” says Ng, adding that white gold and diamonds have also become popular in the last year.

Acupuncturist Oran Kavity, 52, purchased gold through an online website a few years ago. Kavity had then purchased some property in London, and was unsure of what to do with his remaining funds.

Wanting to diversify his assets, the Londoner put the rest of his money into buying gold. And his gold investments have tripled in value over the last three years.

He sold some of his gold and managed to raise almost RM250,000 for his business venture in Malaysia.

Marcus Chong of mysmartgold.com has observed an increasing interest in gold investment as people are becoming more knowledgeable about gold and are making enquiries.

He has also noticed a stark difference in the way people pose questions now compared to just a year ago.

“They used to ask questions like where to place the gold bars and what gold investment is about. Now they are asking direct questions like what's the rate,” he says.

Businesswoman Aldila Tahziz, 35, invested about RM50,000 in gold last September when she wanted to start up her bakery supplies business.

Whenever she needs to raise money for her business, she pawns her gold and gets 70% of the current gold price. She only has to pay the pawnshop RM0.75 per day for storing her gold. When her business is profitable, she reclaims the gold from the pawnshop.

“I keep on rolling the money in my business until I can get back the gold,” says Aldila who also invests in property and shares.

Aldila constantly checks on the price of gold three times a day at least.

She keeps the gold in a safe deposit box and has also purchased some gold coins (dinars), which she keeps at home for emergencies.

Aldila has started investing in silver as well, which has gone up 124% in the last year and 188% in the last three years.

In Malaysia, silver is not as popular as gold, although some gold-traders stock up on it.

Chan Sew Mei (not her real name), 35, has started investing in gold for her five-year-old daughter, purchasing 100g every year for the purpose. In addition, she invests in a gold savings account which will go towards her daughter's education fund.

“I think gold has a certain sentimental meaning and value,” says Chan who also invests in stocks and property.

“When inflation occurs, gold prevails,” quips Chan who was introduced to gold investment by a friend in 2007. She has also diversified to investing in silver.

Jamaluddin Khalid, managing director of Saudagar Emas says many are turning to gold because of the higher returns.

The former bank officer of 20 years got into gold trading in 2009 after some research on the Internet. He recalls his friend making fun of him for selling “one-cent” coins (one dinar) for RM440 back then. But last year, his friend bought a dinar from him for RM580. Today, that one dinar is worth RM690.

“During the time of the prophets, one dinar could buy you a goat. Now, it can still buy one goat. After 1,500 years, it has still retained its value. Even gold dust is sought after these days,” he quips.

Jamaluddin got into the business after researching articles on the Internet. He borrowed money from close friends to start the business and has no regrets.

As a gold trader who doesn't have his own shop, Jamaluddin is wary of meeting anyone and only does it at places with CCTV cameras such as banks. He recalls an occasion when someone wanted to buy 1kg gold bars.

Jamaluddin suggested conducting business at a police station, but the person declined.

Rajen Devadason, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd , notes that the practice of investing in gold is slowly gathering momentum.

Not long ago, he points out, it was theoretically appropriate to have precious metals comprise 5% of a diversified portfolio. Today, he feels 10% is more appropriate because of the “irresponsible action of developed nations, most notably the US, in circulating more currency around”.

He suggests that individuals gradually build up their gold position in stages over the next few years, with the aim of having gold by itself or with the other three precious metals, silver, platinum and palladium, reach between 8% and 10% of their total investment portfolio.

Devadason adds that it makes sense to have between one-tenth and one-fifth of investment in gold coins, wafers or bars. This relatively small portion of the total gold should be kept somewhere safe yet accessible in the event of a financial system meltdown.

“The likelihood of that happening is small, which is why the amount of physical gold that should be kept handy need not be very large,” he rationalises.

He points out that while gold is a safe investment during times of turmoil, human society doesn't just rely on gold for existence.

“Our economic health depends even more on the health of our businesses, on our supply of food and fuel, and in the real estate that houses us and our companies from which our crops spring forth,” he elaborates.

He adds that a well-diversified portfolio should include significant equity exposure in key geographic regions, including the economic powerhouse United States and well-run emerging economies such as China, India and Indonesia.

He also suggests investing in equities that are tied with food production, hard commodity exposure such as oil, equities that are tied to mineral mining and exploration, and either direct real estate or indirect property exposure via real estate investment trusts.

“It is unwise to just invest in gold and any investment should be done as part of a concerted plan to construct a sensibly diversified portfolio,” he advises.

Devadason believes those who are savvy investors will gradually increase their personal purchases of gold over the next one or two years before everyone else wakes up to the fact that gold prices are rising.

He urges caution, though.

“It's likely a bubble will then form. When it bursts, unsophisticated speculators will lose a great deal of money,” he warns