Business

Thursday September 20, 2012

Gold rally still has legs

By JOHN LOH
johnloh@thestar.com.my


PETALING JAYA: Industry executives say the stimulus measures brought on by the US Federal Reserve and European Central Bank (ECB) have yet to be fully priced into gold, despite the profit-taking that immediately followed the commodity's rally on Friday when it rose to its highest in seven months.

“Gold is not overbought at all. We think it still has room to appreciate,” said Oversea-Chinese Banking Corp Ltd analyst Barnabas Gan, who has an end-2012 target of US$1,800 to US$1,850 for bullion.

“The US dollar was prior to this our safe haven pick but with the rollout of QE3 (quantitative easing) last week we have shifted our focus to gold as the preferred store of value,” he told StarBiz.

Bullion peaked at US$1,777.51 on Friday, a day after the Federal Reserve announced its third round of quantitative easing.

Both the US central bank and ECB had since early September introduced plans for open-ended pump priming activities to rouse their economies, with the former committing to buy some US$40bil worth of mortgage-backed securities each month until its labour market improved, and the ECB saying it would purchase, without quantitative limits, sovereign bonds on the open market.

Although gold investors cashed in their gains over the past two days, spot gold yesterday briefly overtook its Friday high, climbing to US$1,779.39 per ounce. As at press time, it was up US$3 to US$1,774.25.

“Everytime there is a surge, it is followed by profit-taking. This is called a correction. But the trend we see is that prices are on an uptrend,” Poh Kong Holdings Bhd executive director Ermin Seow said at a briefing.

“Overall, the environment for gold is still quite bullish. Now that QE3 is out, many analysts believe gold can reach US$1,900, if not US$2000, by the end of the year,” Seow said, adding that Poh Kong's own forecast was a more conservative US$1,800 for this year and US$2,000 next year.

OSK Research technical analyst Mohammad Ashraf Abu Bakar also believes the underlying price trend for gold pointed upwards, though some selling was to be expected.

“The current resistance is pegged at US$1,800, the next level being US$1,900. The rally could continue for the next one month.

“The selling pressure, if you look at it, has actually not been able to keep prices down,” he said.

Factors such as ultra-low interest rates in the developed countries and sustained money printing by central banks have resulted in negative real returns for savers, spurring investors to turn to gold as a hedge against inflation.

However, OCBC's Gan noted that a caveat to this was more bad news from the eurozone, which would prompt a flight to safety to the dollar.

Meanwhile, Poh Kong's Seow said the combined sales of the country's three listed gold retailers, namely Poh Kong, Tomei Consolidated Bhd and DeGem Bhd, would likely moderate this year to the mid-teens from last year's 32% growth on the back of a high base.

An estimated 20 tonnes of gold were sold in Malaysia in 2011 worth some RM4bil, with the three players seizing RM1.5bil of the market.

Poh Kong had the largest share at 52% versus Tomei's 33% and DeGem's 15%, Seow explained.

On the outlook for Poh Kong's sales, Seow said its turnover for the first three quarters this year alone have surpassed last year's total sales.

“On an annualised basis, our full year revenue should be 20% to 25% higher than last year, Seow said, attributing this to its new outlets, growth in same store sales as well as higher gold prices.

Poh Kong is due to report its financial results for the fourth quarter ended July 31 next week.

The company may also set up shop in neighbouring countries when the Asean Economic Community comes into fruition in 2015, which would enable the duty-free flow of products within Asean, Seow added.

“At the moment we are almost 100% domestic and export very little of our gold. We are more retail-based and do not cater for export markets.

“We could tag along with our retail partners into Indonesia and Vietnam when they venture there.”

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