PETALING JAYA: Unless Covid-19 is contained very soon, the lockdowns and partial lockdowns are likely to damage the current as well as future demand for gold.
CGS-CIMB also noted that the impact of the pandemic was expected to be deflationary - and this has historically worked against the price of gold.
“Risk aversion is also likely to return if economic shutdowns continue or resume.
“The sudden halt to business means severe disruption to dollar cash flows, ” it said, noting that this would result in another round of dollar funding stress, driving the US Dollar Index higher.
Historically, it noted, this has tended to be negative for the price of gold.
The research house noted that among the factors cited by the World Gold Council for the early-March drop in the price of gold, was the decline in the demand from China.
The World Gold Council said consumer demand for gold in China fell by up to 15% during the SARS outbreak.
“We believe the demand decline (in China) amidst Covid-19 was likely much higher.
“China accounted for 30% of the global consumer demand for gold last year, and with Covid-19 spreading to India as well, another 25% of the global consumer demand for gold is now also weighed down by the pandemic, ” it noted.
In Malaysia, listed gold players like Tomei Consolidated Bhd and Poh Kong Holdings Bhd, like other non-essential businesses, have seen their stores forced to close through the movement control order period.
When contacted, Tomei group managing director Datuk Ng Yih Pyng said demand for gold in Malaysia was obviously badly impacted at the moment due to the MCO.
However, he said they were optimistic for a recovery in demand once the pandemic is contained.
“Many weddings and other events have been postponed, and some of these will take place later – once things are back to normal – hopefully by next year, ” he said.
He said demand for gold in Malaysia would also depend on the state of the overall economy and how long the impact of the pandemic prolongs.
Based on previous experience, Ng said they also foresee more people selling their gold back to the jewellers, as times get tougher.
“This will definitely stress our cashflow, but we view this positively as those who sell will later return to buy gold again, ” he said.
On prices, he said they remained bullish, although much depended on factors including the US dollar and government policies.
CGS-CIMB Research, in the report yesterday, said gold could rally a bit further from its current position, in line with the rebound in global equities.
“However, another round of risk aversion could bring the price of gold down again, together with equities, ” it said.
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