PETALING JAYA: Gold lost some of its glitter over the past few days, plunging to its lowest in two years as investors ditched the precious metal on fears of central banks like Cyprus, and other weak eurozone economies selling some of their reserves.
Gold prices, however, regained some ground yesterday. At press time, spot gold rebounded US$28.21 to US$1,376.43 per ounce. The price of gold reached an all-time high of US$1,920.30 an ounce in September 2011.
On Monday, it tumbled US$125 per ounce for its biggest daily loss.
“The freefall in gold and other commodity prices started last Friday and gained momentum after China’s first-quarter gross domestic product missed estimates by a wide margin,” Maybank Global Market Research said, adding that there was little good data to trade for the rest of the session.
MIDF Amanah Investment Bank Bhd chief economist Anthony Dass expects gold price to remain volatile in the near term.
“And if there are strong indications that the US will end the quantitative easing (QE) sooner than expected, we think there will be more downside than upside to gold.
“With gold price coming down (becoming cheaper), we can expect demand to pick up. If this holds true, then the downside of gold prices will be limited. We think much will depend on the demand-supply mechanism,” Dass said. He expects the holding of US dollars to gain momentum and that such switching can depress the gold price but may be contained to some degree through demand.
“The improvement in the US economy and the absence of severe inflation will reduce its appeal as a hedge against financial catastrophe. In line with our expectation, the Fed has given the signal that there is a possibility to reduce QE in 2013, to which we have placed 18% chance of it happening.
“If that happens, we can expect the appetite for gold will start to ease. We believe the recent Fed language took a lot of trust out of gold.”
In his commentary for StarBizWeek, economist Paul Krugman said gold had been a very good investment since the early 2000s, and it’s probably not all bubble.
“One way to think about this is that gold is like a very long-term bond that’s protected from inflation; and actual long-term inflation-protected bonds have also seen big price increases, reflecting a general perception that there aren’t enough alternative good investments.”
Historically, Krugman said, gold had been anything but a safe investment. Sometimes it yields big gains, as it did in the late-1970s and again between 2001 and 2011. But that 1970s run-up was followed by an epic plunge, with the real value of gold falling by more than two-thirds.
Economists said even when the value of gold generally appreciates over the years, it did not do so in a linear line. Given the extreme volatility across financial markets, experts are finding it difficult to predict when would be the right time to switch to gold. However, most agree that if you take a long-term view, now may just be the right time to do so.
“When the dust has settled, the fundamentals of gold will once again sparkle,” a dealer said.
Tomei Consolidated Bhd group managing director Datuk Ng Yih Pyng disclosed that a lot of customers are buying into gold for investments. “People are taking the opportunity of the low gold price to buy physical gold as gold price have been falling in the past few days. People are buying 1kg gold bars and wafers weighing 20gm, 50gm and 100gm.”
“We have not seen this price level for some time as gold prices have gone up so much over the past two years. It is a good time to invest,” Ng said.
Investors either bought jewellery or pure gold bars for their investments, he added.
Ng said gold jewellery continued to see brisk business. “People are still buying jewellery but we don’t see a gold rush as yet,” he said. He advised those buying gold ornaments for weddings to take advantage of the current low price.”