BY NOOR SYAHHIRA HADY & SARAH HAFIZAH CHANDRA
KUCHING: As a form of defensive asset, most people are choosing to buy gold due to its lower prices per gramme currently instead of investing with the banks.
Dr Rayenda Khresna Brahmana, an economist, said gold was an asset that reacted inversely with the optimism in the economy.
He pointed out the declining trend in the prices of gold was related to optimism towards the economy.
“Psychologically, they may plummet further. The support level of the gold price is 1,690 to 1,700 USD per ounce.
“If they break that support level, they may decline further to 1,500 USD,” he explained.
Rayenda added that the 2009 to 2013 period was a good lesson for declining gold prices.
Asked about the factors that contributed to the decline in the gold prices, he said optimism for economic recovery was one of the main factors.
“If we look at the US government’s USD1.9 trillion stimulus, it brings back not only a strong dollar but also a confidence level for economic growth. The vaccination programme across the globe gives higher confidence that the pandemic will be over and this is bad news for gold prices.
“Another contributing factor is the opportunity given by other products and the increasing yield for bonds all over the world, especially in the US. Given that gold and bond have similar risk levels, the higher yield of bonds makes investors shift their defensive investment from gold to bond,” he added.
Rayenda also said that some investors found it more profitable to opt for other investments like equities and even cryptocurrencies than gold.
“Historically, the gold prices will continue their uptrend line as they have been since 2001. Gold will continue its uptrend line when it reaches its psychological pricing.
“This will be the case unless another extraordinary event occurs in the future. Gold is a non-renewable asset but if the demand increases with limited supply, the gold prices can increase slowly,” he explained.
Rayenda also touched on the advantages and disadvantages of purchasing gold instead of bank savings.
“I worry that the public does not understand gold is not as liquid as money in the bank. For instance, when you have gold and you need money, you need someone to buy it first.
“This illustrates how it is not as liquid as money. There is also a transaction cost incurred in gold purchasing with some dealers charging premium commission and fee,” he explained.
Rayenda disclosed that gold purchasing was a wise move in a declining economy and if the goal was to hedge against inflation instead of motivated by the fear of missing out (FOMO).
He added that the Covid-19 pandemic might have played a role in influencing and encouraging the public to invest in gold.
“With its restriction of movement, the pandemic has caused the public to consume less. This means they have more cash to spend. The decision to spend is a crucial part. Some decide to spend it on hobbies such as cycling or gardening while some decide to invest.
“However, the group that decides to invest varies. There are people who emphasise on stocks, others focus more on bonds or even cryptocurrency.
“On the other hand, there are groups that emphasise more on gold. The FOMO attitude is another factor which influences the public to invest in gold. When you are scrolling on social media and look at peers who are investing in gold, you feel fearful of missing out on the opportunity. Then, it is like a confirmation signal for them to invest in gold as well,” he added.
Rayenda shared that in order to help the nation’s gross domestic product (GPD) rate, the public must spend. When wealth had increased, the public must spend it for the sake of the nation’s GDP.
“Of course, the public has to spend wisely and there are many ways to spend money.
What is his advice to the public who are looking into purchasing gold in large amounts?
“Firstly, they need to check the emergency fund in their bank account before investing. They have to make sure they have six to nine times their monthly expenditure in their bank account. They should have the emergency funds first before investing in gold.
“Next, the public must remember that gold is a low-risk asset which means it will give them a low return. If their investment goal is more towards defence and against inflation, gold can be a good option. Note that the holding period for gold is a long one,” he explained.
“It is up to the investors themselves to decide. Personally, the first intention when an individual invests in gold is supposedly not for a short-term or even middle-run period.”