KUALA LUMPUR: Investment will continue to be a key driver for the gold market in the second half of 2022 (H2’22), amid financial market uncertainty such the volatility between the US dollar and the local currency and geopolitical crises.
According to Singapore Bullion Market Association CEO Albert Cheng, investment has been the key driver in the gold market for the past few years. Determining factors amid financial market uncertainty, such as the volatility between the US dollar and the local currency, as well as the interest free environment, are aspects that investors factor in before choosing to invest in the gold market.
On outlook, he opined that there would be mixed prospects for investors and consumers, higher supply and softer central bank demand.
He anticipated little change in gold investment, but pointed out that upward surprises are possible. Opportunity for safe-haven demand remains and aggressive policy tightening as well as dollar strength could cause headwinds.
In terms of jewellery and technology, Cheng predicted a weaker year, with downside risks, although ongoing recovery provides some support. He noted that headwinds such as tighter financial conditions and economic deceleration are to be expected.
“Jewellery and tech market demand will be weak because it is anticipated that the (global) economy will not recover well in Q3 and Q4. So, in the next half year, jewellery and tech demand will continue to be weak,” he said in his Global Gold Demand and Supply Update and Its Implication to Asean countries’ presentation during the Bursa Malaysia Derivatives’ Enhanced Gold Futures (FGLD) launch ceremony today.
In H1’22, gold buying by central banks continued to be strong. Based on Cheng’s observation, more than 10 or 15 years ago, there were a lot of central banks that were unloading their gold. However, in the past 10 years, central banks have returned to continuous buying on different scales, particularly those in developing countries.
Additionally, he believes that the gold market will experience buying support by central banks amid economic and geo-political crises, which should outweigh modest selling.
On gold supply, Cheng expects it to increase. Higher prices and weaker economic activity provide support for recycling, provided that near-market supplies are sufficient.
“Brownfield ramp-ups, high grading and China’s return should support growth in mine supply,” he said.
Separately, acting director Mohd Saleem Kader Bakas said Bursa Malaysia Derivatives anticipates 9,000 lots of FGLD to be traded from October to December this year, with 125 average daily contracts.
“In the first year which is probably only three months, a volume of about 9,000 lots which would make an average daily contract of about 125. Towards the first year, with a lot more education with market makers in for the products, we expect to double that to about 250 lots average daily contracts in 2023,” he said.
Meanwhile, Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar said the launching 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 dollars with settlement in ringgit based on a fixed multiplier.
He added that 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.
