Gold continues to shine

Tomei Consolidated Bhd Lunar Calendar Series 2020 Rat Year at Tomei Blossoming Spring Premiere and New Look of P. NATHAN/The Star

GOLD is continuing its winning streak from last year.

After gaining 18.4% in US dollar terms through 2019, outperforming major global bond and emerging-market stock benchmarks, the precious metal continues to see its prices climb, rising by almost 6% from the start of 2020.

Gold prices breached US$1,600 an ounce over the week as widely expected by the market.

And with that target reached, analysts are optimistic that it has room to move higher through 2020, as lingering global uncertainties and geopolitical risks are expected to keep gold’s appeal as a safe haven, hedge and diversifier in focus.

Phillip Futures Sdn Bhd has forecast gold prices to jump to around US$1,700 to US$1,800 an ounce. Those are levels last seen in early 2013 and late 2011, respectively.

“Let us look at the recent global events and occurrence that is supporting gold prices. First, the epidemic outbreak of novel coronavirus (Covid-19) will affect the world economy by dragging down the manufacturing sector.

“With most factories (in China) closed, employment conditions will eventually be affected and global supply chain will be interrupted, ” the local futures broking company tells StarBizWeek.

“Second pertains to uncertainties surrounding the US-China phase two trade deal after the signing of the phase one deal last month. Any situation that goes out of control will further boost gold prices, ” it says.

In addition, Phillip Futures notes, the US Federal Reserve will likely cut interest rates this year, and this will cause the US dollar to weaken and demand for gold to strengthen.

Such optimism echoes the projection of other gold bulls.

For instance, Swiss Bank UBS has earlier predicted that gold prices in 2020 would hit US$1,730 an ounce, while Canadian investment bank TD Securities and Bank of America saw the possibility of the precious metal hitting as high as US$2,000 an ounce this year.

According to ALA Advisors Pte Ltd chief investment officer Dar Wong, there are obvious factors that could sustain the rally in gold prices this year.

“The obvious factors include continual pressure by US President Donald Trump for the Fed to cut rates, a potential slowdown in the global economy due to the spread of Covid-19 that might last for another six months or more, capital flight out of the UK due to post-Brexit instability and zero rates in the eurozone; and the potential weakness in the US dollar due to trade tensions, ” Wong says.

“Basically in times of multiple economic turbulences amid tanking US interest rates, gold prices carry much potential to climb in 2020. This serve as a hedge for safe haven since investors will look for safest place to park their monies, ” he explains.

Wong says in the event of a downside corrective retracement, gold spot prices would be well defended at US$1,450 an ounce.

At Bursa Malaysia, the TradePlus Syariah Gold Tracker has been rallying since mid-April 2019.

Tracking the performance of global gold prices, the country’s first syariah-compliant commodity exchange-traded fund (ETF), has grown about 28% over the last 10 months.

Year-to-date, the gold ETF had increased by almost 8%.

Meanwhile, jewellers Poh Kong Holdings Bhd and Tomei Consolidated Bhd have seen their share prices strengthened over the last two months.

Both counters rose sharply early this year in tandem with the spike in gold prices as tensions in the Middle East escalated following the killing of Iranian top general Qassem Soleimani by the United States.

While such tensions have since decreased, the outbreak of Covid-19 has started to keep investors jittery.

At the end of last year, Poh Kong executive chairman cum managing director Datuk Eddie Choon Yee Seiong had predicted that gold prices would trade between US$1,600 and US$1,700 per ounce in 2020 amid global uncertainties that would encourage investors change their investment portfolio from equities to gold.

High gold prices benefit companies like Poh Kong and Tomei, as they will help boost the companies’ profit margin, and hence, their earnings, even though high gold prices could result in lower revenue due to lower demand for their products.

For instance, Poh Kong saw its earnings jumped 2.6-fold to RM8.08mil for the first quarter ended Oct 31,2019, from RM3.16mil in the corresponding quarter of the preceding year. Consequently, its earnings per share rose to 1.97 sen from 0.77 sen previously.

This was despite a 20.7% decline in revenue to RM205mil for the three months to October 2019 from RM258.36mil in the previous corresponding period due to decrease in demand of gold jewellery products.

Tomei, on the other hand, swung to a net profit of RM2.1mil for the third quarter ended Sept 30,2019, from a net loss of RM2.4mil in the previous corresponding period due to the rise in gold prices.

During that period in review, however, it reported a drop of 19% in revenue to RM118.7mil from RM146.1mil as the sudden escalation of gold prices dampened demand.

With fears and uncertainties dominating sentiment, gold is set to continue shining this year.

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