Monday August 9, 2010
By DALJIT DHESI
PETALING JAYA: The fluctuation in gold prices is not expected to affect long-term gold-related investments because the metal is still viewed as the best alternative asset class and a safe haven in times of economic uncertainty. Although the price of the commodity had rebounded after hitting three months low recently, bankers and analysts view the situation as a short-term market volatility and were confident it would not affect those investing in gold-related investments for long-term gains.
Some of the investment products in the market which are linked to gold are multi-currency and dual-currency gold accounts, gold investments via exchange-traded funds (ETFs) and structured products, as well as gold savings passbook account (GSPA).
CIMB group private banking products head Alan Inn told StarBiz the company was bullish on gold in the long term, adding that the current weakness in gold price gave a good opportunity to gain entry for such investment. “We expect the price of gold will eventually rebound in the coming months. There will certainly be volatility in gold as prices rarely move in one straight line up.
“As for long term-oriented investors, we recommend them to buy, lock the investment up and sit tight,” he said. Inn said with the tremendous amount of money being printed by developed nations, investors were likely to increasingly doubt the wealth preservation value of paper money. In addition, he said, the supply-demand dynamics of gold were compelling as the global gold production had stagnated since the turn of the century, with new gold discovery on a downtrend.
Concurring with Inn, Malaysian Rating Corp Bhd vice-president and head of financial institution ratings Anandakumar Jegarasasingam said the downside for gold prices appeared to be limited. This was because the metal was not only regarded as a safe alternative investment but its demand was also driven by economic and cultural factors, he said. The demand from countries like India, which is also the largest consumer of gold, was still steady due to the metal’s symbolic importance, he noted.
Citibank recently launched the country’s first multi-currency gold account which allows investors to invest directly in gold with three currencies – US dollar, euros and Australian Dollar. This is unlike most other existing products which only allows investments via ringgit and US dollar. Citibank also launched dual-currency account for gold which allows investors to pair these currencies to gold to potentially earn higher interest compared with the traditional time deposits over a one month timeframe. Denominated and held in gold, these accounts can be converted to US dollars, Australian dollars and euros and allows customers to either invest directly in gold or choose to pair currencies with gold to earn interest.
Citibank head for retail banking Paul Hodes said he expected these two products to be key growth drivers for the bank’s investment business. He said Citibank would consider adding new currencies to its gold accounts in line with clients’ needs.
Meanwhile, Inn said CIMB Private Banking allowed clients to get exposure in gold investments via ETFs, structured products and unit trust funds. Inn said the advantage of investing via this ETF was the lower cost of investment as opposed to investing in physical gold, and the high daily liquidity of the instrument.
The Gold ETF (in US dollar) had delivered a total return of 34% since CIMB Private Banking recommended its clients to invest in gold in 2008. Gold-structured products, Inn said, had also performed well as clients had been able to receive 14% returns over the last two years, outperforming fixed-deposit rates which were averaging around 2.4% per annum during the period.
Malayan Banking Bhd (Maybank) deputy president and head of community financial services Lim Hong Tat said apart from offering gold bullion coins, popularly known as Kijang Emas, the bank also offered passbook-based gold investment product, GSPA. GSPA account holders could invest in gold without having to take possession of physical gold and be burdened with its safekeeping concerns, Lim noted.
Maybank offers the conversion of gold only in ringgit value via its GSPA product. Since June 2009, Lim said the bank had recorded an average of 1,250 new GSPA accounts every month with over 70,000 grams of gold traded monthly.