Business

Saturday July 11, 2009

Banks bent on offering better values in gold investments

By ELAINE ANG


WONG Sue Ling, a teacher, has never shown much interest in gold investments preferring to put her money into fixed deposits, stocks and unit trusts until last year.

A fall in fixed deposit interest rates and the local bourse have changed her mind as she watched her income dwindle and investment value reduce.

Choong Wai Hong ... Gold remains a good investment hedge.

“Some of my friends who had invested in gold were laughing all the way to the bank last year when they reaped the returns of their investments especially when gold price hit a high of US$1,000 per ounce in early 2008.

“I only started buying gold towards the end of the year when the price fell to US$700 to US$750 per ounce,” she says.

Based on feedback from gold merchants, Wong is not the only person who has set her sights on investing in gold to diversify her investment portfolio. Others are following suit as well.

Banks such as United Overseas Bank (M) Bhd which is one of the bigger players in gold investments in the country have seen interest in their gold products shoot up especially in the past year.

UOB Bank’s focus is on the sale of gold coins, pendants and gold bars with gold coins being a particular favourite of investors.

The bank’s global markets and investment management division managing director and head Michael Beh Soo Heng says gold coin purchases have increased by about 37.9% in the first half of the year versus the same period last year.

Ermin Siow ... Investors will not get rich from investing in gold but it is a hedge against inflation.

“Sales volume is still rising. We have had to replenish our gold stocks a few times this year,” Beh says.

Prices for UOB Bank’s gold coins and pendants range from RM250 to RM3,500 each while the price for a one kg gold bar is about RM100,000.

The bank sources its coins from Switzerland, Canada and Australia. The Australian Gold Kangaroo Nugget and Canadian Gold Maple Leaf coins are more popular among investors.

“Interest in gold has been pretty good especially for gold coins in the past two to three years. Investors buy coins and pendants as they are smaller in value and can be collected over time.

“Half of UOB customers who purchase our gold products consist of high net worth customers while the balance are retail customers,” Beh says.

According to Beh, investors would have experienced a 16% increase in their gold investments now versus six months ago and about 43% if they had invested in gold two years ago.

Banks such as Public Bank Bhd (PBB), Standard Chartered Bank Malaysia Bhd (StanChart) and Malayan Banking Bhd have gone a step further by enabling customers to invest in gold by using a passbook via a gold investment account.

Michael Beh ... Sales volume is still rising. We have had to replenish our gold stocks a few times this year.

PBB chief operating officer Wong Jee Seng says the bank’s Gold Investment Account which took off in April last year has become very popular among customers.

“The total value of gold traded from end April 2008 until now is about RM500mil. Based on the number of accounts still coming in, we believe gold investments will continue to be on the uptrend,” he says, adding that the bank’s customers for gold investments tend to be those in the middle income group and above.

The initial minimum purchase for PBB’s Gold Investment Account is 20g with each subsequent purchase of 5g. It also allows investors to withdraw physical gold if required.

Wong says trading gold via the account will enable costs such as air freight, insurance and delivery charges to be saved and passed on to customers.

StanChart, meanwhile, offers a gold investment product, Premium Currency Investment Gold, a dual currency investment pairing a currency (for example the US dollar) with gold targeting returns of up to 25% per annum.

When the investment is converted into gold holdings, the customer can maintain their gold holdings to profit from increasing prices and sell later.

StanChart head of wealth management Choong Wai Hong has seen gold investments by the bank’s customers more than double in volume in just the last three months.

He says the products are segmented towards high net worth individuals who wish to diversify their investment holdings.

“Although we have seen some positive data on the global equities in the same period, the uncertainty remains high due to lacklustre economic data. It is still premature to determine whether the recovery is sustainable.

“As always, in times of uncertainty, gold remains a good investment hedge. Gold prices have been fluctuating within a narrow range and keeping its value,” he says.

The jewellery industry, however, has not fared as well with investors looking for gold as investments instead of self-adornment and gifts due to the economic slowdown.

Federation Of Goldsmiths and Jewellers Associations of Malaysia secretary Ermin Siow points out that the jewellery industry has seen “a slight drop in sales so far.”

Siow who is also Poh Kong Holdings Bhd executive director says customers are now interested to invest in gold wafers sold by jewellers to diversify their investment portfolio.

Jewellers sell gold wafers from 1g to 100g (RM130 to RM13,000) to customers with many buying gold wafers at least 20g and above as investments.

“Investors will not get rich from investing in gold but it is a hedge against inflation and a means to diversify their investment portfolio,” Siow says.

Global gold demand surge

According to the World Gold Council Q109 Gold Demand Trends report, total global demand for gold in the first quarter rose 38% year-on-year to 1,016 tonnes, representing a 36% rise in value to US$29.7bil due to fears of future inflation and ongoing financial uncertainty.

Gold investments, which includes exchange traded funds (ETFs) and bars and coins, were the major source of growth in the quarter, reaching 596 tonnes, up 248% from the first quarter of 2008.

There was a record level of investment into ETFs with demand soaring 540% to 465 tonnes valued at US$13.6bil.

Net retail investment (total bar and coin demand) remained highly robust, rising 33% year-on-year to 131 tonnes, despite some bar and coin dishoarding in eastern markets as investors took profits.

Gold jewellery demand, however, was down 24% in the first quarter versus the same quarter of 2007, with most countries suffering a decline as consumers responded to the high and volatile gold price compounded by difficult economic conditions.

Uptrend to continue?

Experts believe that with more concerns about inflation, a volatile stock market and risk aversion among investors, interest in gold investments will continue to be on the uptrend.

UOB Bank plans to introduce more physical gold products to its customers this year.

“It is still a good time to invest in gold as downside in gold price is limited to a certain extent,” Beh opines.

Global gold spot price is about US$910 to US$920 per ounce currently.

StanChart’s outlook for gold investments is positive and expects such investments to continue to grow in popularity due to a few reasons.

Firstly, gold price forecasts remain strong over the mid-to-long term. Secondly, it is a good investment asset class to diversify and hedge an investors’ portfolio away from traditional equities and fixed income instruments.

Gold as an investment has intrinsic value and is constantly in demand globally.

Gold prices to hold

StanChart expects a sustained uptrend in gold price in the mid-to-long term and forecast it to rise to US$975 per ounce by the end of the third quarter and reach US$1,050 per ounce by year-end.

However, Choong sees short term volatility in gold price due to the choppy equities market while the global economy stabilises.

“Overall, our short-term view is that gold price will be range-bound and volatile while the mid-to-long term outlook remains bullish in view of the weaker US dollar and growing demand in commodities,” he says.

UOB Bank’s Beh sees limited downside in gold price.

“Gold price testing the US$1,000 per ounce level is pretty good in the next 12 months,” he says.

Siow also foresees gold price hitting the US$1,000 mark in the next 12 months.

OSK-UOB Unit Trust Management Bhd’s one-year outlook for gold price is US$1,100 per ounce with gold price well-supported at current levels due to strong demand and supply fundamentals and high marginal cost of producing gold (high cost gold producers now have overall production costs above US$900 per ounce).

Gold structured products

With the soaring interest in gold investments OSK-UOB has two gold-related funds in the pipeline for investors.

It launched the OSK-UOB Gold-Linked Capital Protected close-ended fund in May last year.

OSK Investment also recently launched a call warrant, whose underlying ETF is designed to track the price of gold bullion.

PBB’s Wong believes there is a place for gold structured investment products in the country if the product is good with reasonable risk and returns.

“It is an educational process. People are getting richer and with the right product and timing they will invest,” he says.

UOB Bank’s Beh feels such products are still feasible especially if they are plain vanilla products. “The Malaysian mentality is still such that they want to feel and see their gold,” he cautions.

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