Business

Friday October 30, 2009

Gold prices may rise to US$38,500 per kg soon

By DAVID TAN


GEORGE TOWN: The gold and jewellery business in the country may further lose its shine as the price of gold is expected to continue its advance, further hitting a business reeling from the economic slowdown, industry players said.

Domestic sales of gold and jewellery products have dropped by 40% to 50% since the global economic recession started last October, although gold prices have yet to peak.

Penang Goldsmith Association (PGA) chairman Joeson Khor told StarBiz the price of gold was expected to hit about US$38,500 per kg soon, from US$33,900 per kg at present, due to continued depreciation of the greenback and the poor performance of the US economy.

In the same period a year ago, gold was selling for US$24,750 per kg. PGA has 680 members, which generate about 85% of Malaysia’s jewellery exports.

Joeson Khor ... ‘If prices peak in a couple of weeks, then the retail business will be affected.’

“How badly will the gold and jewellery business be affected depends on how fast gold prices go up. If prices peak in a couple of weeks, then the retail business will be affected.

“But let’s say if there is a 10% increase in gold prices and the rise is gradual, spread over a couple of months, then the business of retailers will still be maintained,” Khor said.

The rise in gold prices, which started early this year, has also affected export sales.

“Those involved in barter trading of gold and jewellery products with the Middle East are also affected. Because of the high price of gold, Middle-Eastern gold traders now have to pay more for the gold bars used in barter trading, which has slowed down trading,” Khor said.

Malaysia External Trade Development Corp figures show that from January to August, gold and jewellery products, with a value of RM3.5bil, comprised 88% of exports of precious metals.

“In the same period a year ago, gold and jewellery products valued at RM2.9bil comprised 95% of the export sales. The quantity exported has decreased, while the value has gone up, all due to rising gold prices,” Khor said.

But while the business of the retailers and exporters had been adversely affected, the value of their gold assets had increased by at least 30% since last year, he noted.

In this period of rising gold prices, the kind of gold products that are selling well are plain gold, gold bars and zirconia jewelry with gold setting (also known as Russian gemstones), according to Khor.

“The plain gold and gold bars find their market in investors, who believe that gold prices would rise even higher if they don’t invest in them now,” he said, adding that demand for zirconia stones came from consumers.

“The zirconia stones resemble diamond and are much less expensive. A set of zirconia jewellery with 18 carat gold setting is less than RM10,000, while a similar setting with diamonds is around RM300,000,” Khor said.

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