Gold price to remain high amid economic uncertainty - Experts

09 Nov 2023 07:30am
Illustrative purposes
Illustrative purposes

SHAH ALAM - Gold prices are poised to stay elevated as long as global economic uncertainty persists over time, say experts.

UCSI University Assistant Professor of Finance Dr Liew Chee Yoong outlined several key reasons for this trend to support this statement.

"First and foremost, gold is often viewed as a hedge against inflation. When inflation rates are high, the value of currency tends to decrease, but gold retains its value, making it relatively more expensive in terms of that currency.

"Furthermore, during times of economic crisis or instability, such as the current Middle East crisis, investors tend to turn to gold as a "safe haven" asset," he added.

This surge in demand contributes to the higher gold prices. Additionally, factors like constraints on gold production or increased demand from sectors like technology or emerging markets can also push gold prices up, he said.

Liew emphasised that the decision to buy or sell gold should be based on individual financial circumstances, investment goals, and market outlook.

"For those in urgent need of funds, selling gold while prices are high may be a viable option.

"On the other hand, if one believes that gold prices will continue to rise, holding onto their gold might be a better strategy. Conversely, if a drop in prices is anticipated, selling could be preferable," he added.

Liew also advised considering gold's importance in an individual's portfolio diversification.

"If it plays a crucial role, it's advisable to hold onto it; if not, selling might be a more prudent choice.

"Moreover, when contemplating a gold purchase in light of potential new taxes on jewellery, it's crucial to weigh whether these taxes would significantly impact the overall cost of the investment," he added.

Dr Liew Chee Yoong (left), Noorul Azila (right)
Dr Liew Chee Yoong (left), Noorul Azila (right)

Meanwhile, Wealth Vantage Advisory Sdn Bhd licenced financial planner Noorul Azila Kamaruzzaman said that, as with other investment assets, no one knows for sure whether the current gold price can sustain itself until the foreseeable future or if there is any possibility that it will go down anytime soon.

However, she said there are two major factors that we can use to assess and evaluate the gold price and its performance in the short run.

“First is the overall market volatility, and second is the major geopolitical event that is happening in the world right now," he added.

She said overall market volatility can be simplified as the price movement of the major stock indices over some time.

“If there are rapid price fluctuations (price moves up and down very fast) in a short period of time, this is considered high volatility.

“During these periods, gold prices tend to move up as the market is trying to find a footing following major news in the corporate world,” she said.

Azila added that this could be something related to restrictions in capital movement or even restrictions in global trading, as we see in certain sectors, for example, the semiconductor industry.

Besides, she said any major United States (US) and, to a certain extent, European economic data being released will also affect market volatility and then indirectly impact the gold price.

“Not only that, the statements being released by the US Federal Reserve on their projection of where the Fed fund rate is heading in the future will also have the same impact on the market as a whole.

“Understanding the correlation between all the major investment assets will help us further understand the situation, although sometimes the price movements can't be explained entirely based on any economic theory,” she said.

She added that as the world sees how the US and its allies are supporting the genocide by Israelis over the Palestinians, this has also affected the overall market volatility, where people on the street are boycotting certain products or companies that are directly contributing towards the Israeli occupation.

“As such, this has indirectly impacted the current stock market performance and, again, the gold price,” she said.

Commenting further, she said that for people who are currently investing in gold, if for some reason they need some cash urgently and have no other recourse, perhaps they can consider selling some of their holdings.

“However, if you're planning to have a long-term investment in gold, it is best to keep their holdings at a maximum of 10 per cent out of their total assets.

“The performance of the gold price has a certain correlation to the stock market performance (more likely to have an inverse relationship, as seen most of the time).

“Therefore, it is best to do an overall evaluation of your current portfolio not just in gold but in other investment assets as well, including stocks, bonds, and cash,” she said.

She said the negative correlation between all the different assets in your portfolio will serve as a diversification benefit that will protect your assets from experiencing large losses.

“Before adding more gold to your portfolio, take stock of your current holdings and do a proper analysis to determine whether you have overexposure to gold.

“If this is the case, then it is best to do asset relocation instead so that you can further optimise the potential return of your overall portfolio,” she said.