The race for returns has seen investors rushing into Gold as global financial markets face a never-ending flood of news that suggests we will be in this unprecedented environment for much longer than expected.
Confidence in the market has been dragged down in recent months by the continued roll-out of weaker forecast for global growth. Little is expected to change in the interim as brick-and-mortar businesses remain under pressure on the back of the pandemic. To mitigate the economic impact, global central banks have also been pushing out stimulus measures in hopes of keeping their respective economies afloat. More money is being pumped into the system, while interest rates are kept low to encourage spending and economic activity. Additionally, geopolitical tensions are rising on the back of the deteriorating relationship between the US and China. Tit-for-tat actions between the 2 major economic powerhouses have kept global investors, as well as major economies on their toes as we await the next course of action by the erratic US President.
After weeks of an economic standstill from closure of businesses, global plans to reopen respective economies were met with a stumbling block after number of infection cases spiked, sparking fears of a resurgence amongst global markets. Absence of a vaccine for the pandemic has also been a major concern for global markets. We have seen global cases closing in on the 22 million mark, with more than 796,000 deaths at the time of writing.
In a cocktail of negative news, Gold price surged above USD2,000 per ounce in the beginning of the month. Though investors have rushed to lock-in gains after the price spike causing prices to dip, price support remains strong at USD1,900 per ounce, given that little has changed in our current economic predicament.
Golden Performance This Year
Financial markets were quick to recover from the panic sell-off across all asset classes in March, having dusted itself off and continued its climb. Notwithstanding the tumble, Gold price have been on a steady climb since the start of the year. On a year-to-date basis up till 14 August 2020, the Gold price (as gauged by the LBMA Index) has gained 30.95% in MYR terms – outpacing its peers and its closest rival, Nasdaq, which has been benefitting from the tech run.
Let’s look at its performance against major equity bourses this year.
Chart 1: % Returns of Major Indices for the period 31 December 2019 - 14 August 2020
Looking to Join The Race?
There are currently a wide range of shiny options to get exposure to Gold. But you’ll need to understand that not all options move in the same direction. So it really depends on what you’re looking for in your investment.
If you’re looking for a quick fix, prices of Gold stocks have seen a spike in recent weeks – but over the long run, it has not necessarily tracked the performance of Gold as stock price could be attributed to business performance of the company as well.
Another option would be buying physical Gold itself, and then keeping it safe under your mattress. Besides the discomfort during your sleep, there are also issues that many buyers are not aware of – the spreads (difference between buy and sell price) are usually wide. Meaning the piece of jewelry that you had just purchased 1 hour ago may not be bought back by the jeweler at the same price that you paid for it, leading to an almost instant lost in value on your investment.
Physically-backed Gold ETF is an option that many has said to be the most convenient, efficient and effective access to the performance of Gold price. ETFs are structured to track the performance of its benchmark i.e. the Gold price, and to do so, the ETF would buy into Gold itself. This can be through paper Gold (such as futures) or physical Gold bars. While paper Gold is known to be operationally more cost efficient, there are risks involved. Remember when the US Oil futures sunk into negative pricing? (read more about this here). Which is why investors have generally preferred physically-backed Gold ETFs instead. Gold ETFs have seen their assets rise to record levels as investors rushed to safeguard the value of their assets amidst the global uncertainties. Did you know that we have our very own physically-backed Gold ETF listed on Bursa?
TradePlus Shariah Gold Tracker
The TradePlus Shariah Gold Tracker was listed as Malaysia’s first, and only Shariah-compliant physically-backed commodity ETF in Malaysia – a status it holds till today. The ETF trades under the stock code 0828EA, and saw its NAV per unit close at RM2.78 as at 7 August 2020. This means that at a minimum trading block of 100 units, investors are able to gain access to Gold from as little as RM278 (excluding brokerage fees which vary depending on the broker you use).
Learn more about TradePlus ETFs
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Warning Statement: A copy of the Prospectus / Supplemental Prospectus for the TradePlus Shariah Gold Tracker can be obtained at Affin Hwang Asset Management's (“AHAM Capital”) website at www.tradeplus.com.my. Investors are advised to read and understand the contents of the Prospectus dated 28 November 2017 and Supplemental Prospectus dated 2 July 2019 for TradePlus Shariah Gold Tracker before investing. There are fees and charges involved when investing in the fund stated herein. Investors are advised to consider and compare the fees and charges as well of the risks carefully before investing. Investors should make their own assessment of the risks involved in investing and should seek professional advice, where necessary. The price of units and distribution payable, if any, may go down as well as up and past performance of the fund should not be taken as indicative of its future performance. The Securities Commission Malaysia has not reviewed this material and takes no responsibility for the contents of this material and expressly disclaims all liability, however arising from this material.