Gold prices poised to trend at current levels

PETALING JAYA: Gold prices are not likely to dip to below US$1,500 (RM6,825) an ounce in the near-term, despite turmoil in financial markets as investors await more policy tightening measures by major central banks, according to Singapore Bullion Market Association chief executive officer Albert Cheng.

“The current prices, which are trending down, are a knee-jerk reaction to the strong possibility of another jumbo rate hike by the US Federal Reserve (Fed).

“My six-month outlook, and even until 2023, it (gold prices) will not go to US$2,000 (RM9,100).

“It will be trending at the current range. I don’t think it will drop to US$1,500 (RM6,825) or even lower.

“By year-end, it should be around the US$1,700 (RM7,735) or even US$1,800 (RM8,190) levels,” said Cheng at a panel session after the launch of the Bursa Malaysia Derivatives’ Enhanced Gold Futures contract yesterday.

On the second half outlook for gold prices, Cheng said there are mixed prospects for investors and consumers due to anticipated higher supply and softer demand from central banks.

“Aggressive policy tightening and dollar strength are headwinds.

“There is also downside risk, with weaker demand from the jewellery and tech sectors (gold being used in industrial applications),” he noted.

He pointed out that gold prices were also impacted by the rising interest rate environment.

“We are still talking about interest rates going up by another 1%, 2% or 3%.

“With this interest rate environment, gold cannot win because it’s not interest bearing,” Cheng noted.

Meanwhile, Bursa Malaysia Derivatives chairman and Bursa Malaysia Bhd CEO Datuk Muhamad Umar Swift said the objective of the gold futures contract is to provide investors with exposure to the international gold market without the need to hold physical gold.

“This is the only regulated gold futures contract that has been approved by both the Securities Commission and Bank Negara,” he said.

The gold futures contract was previously launched in October 2013 as Malaysia’s first precious metal futures contract.

However, it was suspended in March 2021 to allow for a review of the contract specifications.

Muhamad Umar noted the launch of the enhanced gold futures contract is an essential move for the Malaysian gold market, as the cash-settled contract is now quoted in US dollar with settlement in ringgit based on a fixed multiplier.

“As a result, the domestic investors’ exposure to the currency risk between the US dollar and ringgit will be reduced. This significant enhancement is achieved by changing the contract size from 100 grammes to one contract unit,” he added.

Each contract unit is equivalent to the reference price per ounce multiplied by the contract multiplier of 40.

The final gold futures contract settlement value will be based on the fixed multiplier, which will be used to calculate the ringgit contract value.

As a result, no foreign exchange rate adjustments are required.

The final settlement price of the gold futures contract is determined by the London AM Fix Price, which is the internationally recognised gold benchmark price.

“Given the recent surge of global interest in gold, the introduction of the enhanced gold futures contract is timely.

“It will provide domestic investors with an alternative trading avenue, potentially increasing the attractiveness of Malaysia’s derivatives market,” said Muhamad Umar.

He added that the trading volume in Bursa’s derivatives market continues to grow at an impressive rate, despite the economic uncertainties.

Last year, a total of 18.4 million contracts were traded, setting an all-time high for the full-year trading volume.

“International participants contributed 52% of our trading volume, inferring that our products are widely used by clients worldwide,” noted Muhamad Umar.

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