GEORGE TOWN: The value of gold jewellery export from Malaysia is projected to surpass the RM6bil mark in 2022 as the US Federal Reserve (Fed) plans to raise interest rates, a move that would soften gold prices and spur gold jewellery consumption.
Penang Goldsmith Association (PGA) adviser Joeson Khor told StarBiz the export value of Malaysian gold jewellery hit about RM5.1bil in the January-November 2021 period, a figure exceeding the RM4.1bil achieved for the entire 2020.
“The gold jewellery export value should hit around RM5.5bil to RM6bil in 2021. The gold jewellery export value in 2022 should improve by at least 20% over 2021 when gold price softens,” he said.
The Fed is signalling its plan to raise interest rates, a move that will make borrowing costs to hold on to gold investments expensive, lower gold prices and boost spending on gold jewellery.
It expects to hike about three times this year, faster-than-expected.
Khor said pent-up demand and weddings will also drive up the consumption in 2022.
He said that in 2021, the average price of gold was around US$1,800 (RM7,542) per ounce and yet the consumption of gold jewellery surged.
“In October 2021, the World Gold Council reported that demand for gold jewellery was 33% higher in the third quarter than it was at the same time in 2020.
“If the price of gold drops in 2022, we expect even more gold jewellery purchases,” he said.
According to Matrade statistics, the top buying countries of Malaysian gold jewellery products for the January-November period of 2021 were Singapore, the United Arab Emirates (UAE), Thailand, Japan and Hong Kong Kong.
During the same period, Malaysia imported RM4.5bil worth of gold jewellery products compared to RM3.5bil recorded for the entire 2020.
Khor said that since the second half of 2021, the domestic demand for gold jewellery has improved by about 20%.
In 2022, he said, neighbouring countries like Thailand, Singapore and Vietnam is expected to buy more from the country.
He said Malaysian gold jewellery exporters prefer travelling to countries in the region than to faraway places because of the pandemic and quarantine measures.
“We can expect Indonesia and Thailand to buy more gold jewellery products from us in 2022.
“Bank Indonesia projects national economic growth in 2022 in the 4.7%-5.5% range, up from 3.2%-4.0% in 2021, driven by ongoing global economic improvements that are driving solid export performance, coupled with growing domestic demand in terms of consumption and investment.”
He said Thailand’s economy is expected to expand by 3.9% in 2022.
“The resurgence of Thailand’s tourism sector, rising vaccination rates and the easing of travelling restrictions also stimulated the country’s domestic demand for gold jewellery,” he said.
About 80% of Malaysian gold jewellery exports come from Penang-based manufacturers and exporters.
More than 60% of the 650 PGA members are small and medium companies with an annual turnover of less than RM25mil.
Gold price per ounce is about US$1,820 (RM7,626) compared with US$1,708 (RM7,157) last March.
Malaysian Institute of Economic Research head of research Shankaran Nambiar said while it was true that a high interest rate would dampen the enthusiasm to hold gold, it was equally valid that gold’s performance was also linked to other components of demand such as jewellery, technology and central banks.
“While these do not typically result in the large price movements associated with investments, they help underpin gold price performance by either providing support or creating headwinds.
“We believe that gold can still receive positive – if not modest – support in 2022 from key jewellery markets such as India and the UAE,” he said.
Nambiar added that gold would face two key headwinds this year – higher nominal interest rates and a potentially stronger dollar.
He said both factors would divert investments from gold to US bonds and the greenback.
“However, the fear of persistent inflation, the need to hedge against it, the view of gold as a safe-haven asset during times of uncertainties, central bank’s interest in holding gold, and gold jewellery demand may offset the impact of the headwinds.
“Gold performance in 2022 depends on which factors will tip the scale,” he said.