“All that glitters is not gold” goes the well-known adage, but the glitter of gold never fails to attract. Some like to adorn themselves with it and some hoard it in the form of bullions in their vaults, while there are yet others who like to trade in gold futures.
Indians from India are said to be the biggest hoarders of gold, as about 20,000 tonnes are in private hands. India remains the biggest importer of gold from Malaysia.
Last year, Malaysia exported RM7.1bil worth of finished jewellery, with Dubai as the biggest buyer. And up to July this year, RM4.6bil worth of finished jewellery has been exported. The figure could double for the full year.
Where gold bullions are concerned, RM9bil was exported in non-monetary form last year, and this year, it could scale up to RM12bil. Gold bullions are used to make jewellery and also function as an investment tool.
For an investor who wants to diversify his portfolio from fixed deposits, stocks and bonds, gold is an option. It is seen as a safe haven in volatile situations.
Hence, it comes as no surprise that there are many investment trading schemes involving gold in the country. However, some have fallen foul of the authorities, as they are seen to be illegal deposit-taking companies.
One such case involves gold trading company Genneva Malaysia Sdn Bhd, whose directors have been slapped with a record number of 926 charges for money-laundering and illegal deposit-taking charges, among others. A total of RM5.5bil in deposits had been received by Genneva from 35,000 depositors. This gives us a glimpse of the demand for gold in the country.
This is why come Monday, gold futures will, for the first time, be traded on Bursa Malaysia. It is a historic moment for Bursa, but Malaysia is really a latecomer in gold futures trading. It should have been introduced a long time ago.
Gold futures and options are trading across several markets, including the United States, Britain, Singapore, Thailand, Taiwan and Hong Kong. Gold for immediate delivery was being traded at about US$1,313.85 (RM4,198.41) an ounce as of yesterday.
To get retail investors interested in gold futures, Bursa is offering small-sized contracts of 100 grams. However, traders who want to hedge can trade in multiple lots. One just needs RM1,000 to be able to start trading in gold futures.
As the ringgit-denominated contracts are cash-settled, there would be no physical deliveries. So, if you are worried about stocking up gold bars in your vault, diffuse that fear, as this is all about paper-shuffling.
The gold futures contracts allow market participants exposure to international gold price movements at a lower entry cost, and you can go short and long when prices go up and down. To get started, open a gold futures account with any one of the 19 registered futures brokers with Bursa. Brokers would want some form of collateral as in all derivatives and stocks, and there is a transaction cost for every transaction. The minimum price fluctuation for a gold futures contract is five sen per gram or RM5 per tick.
While this may be one way of diversifying your investment portfolio, the key to futures trading is your investment objective and risk appetite – essentially money-management skills. What this means is that you have to set limits for your gains and losses, stick to it and not let greed overcome you.
A futures broker with 17 years of experience says that “futures trading is easy to play, but it requires a strong discipline in money management”. Rule No. 1, he says, is money-management skills, while Rule No. 2 is to remember Rule No 1. If you do this, you can make money.
Gold has remained the hottest topic since the 1900s and its glitter has not faded. Bursa’s launch of its gold futures is the first step towards trading in precious metals, as it continues to add depth to the market. Next on the list would be gold options and silver futures, but whatever it does, it has to move faster.
Business editor (news) B K Sidhu says gold may be hot, but her nasi kandar today will be hotter.
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