Bargain hunters go for gold

By LEANNE GOH

Customers at a gold shop in Bangkok’s Chinatown. The biggest plunge in the price of gold in 30 years two Mondays ago saw bargain hunters worldwide rushing to snap up gold. — EPA

IT was probably a combination of savvy Malaysian bargain hunters and the herd mentality that wiped out the supply of gold wafers at the jewellers recently.

The biggest plunge in the price of gold in 30 years two Mondays ago took everyone by surprise, even the local dealers who monitor gold prices daily.

“This round, we were caught by surprise. And the demand is quite unprecedented,” shares a shareholder of a public-listed chain.

He attributes the pent-up demand to high gold prices over the past five years and the “kiasu” mentality of Malaysians.

When I checked in with friendly store manager K last Monday, I was too late to pick up any gold stamped bar of any denomination.

“You’ll have to wait till next week when we’ve replenished,” he says.

The demand should come as no surprise as the price is a bargain – down by more than 20% from its high of US$1,920.30 (RM5,819.20) per ounce in September 2011.

It is about 13% lower than the US$1,564.60 (RM4,741.30) preceding the plunge, which has attributed to the aggressive selling of gold by speculative traders and potential selling by the central banks of Cyprus and other weak eurozone economies.

K’s investor clients have been snapping up the gold wafers. He has been receiving calls from them to buy and to book.

Another retailer registered a spike in its Facebook views and its retail gold price was “shared” threefold the normal rate.

Although gold dealers make more when the price of gold is higher – the mark-up from wholesale to retail is about 15% to 20% – the surge in demand causing a shortage of stock is a happy problem.

Factories are working round the clock to mint the bars or wafers that usually come in a grammage of 1, 2, 5, 10, 20, 50 or 100.

The fastest moving ones are those 20g and above. A 50g stamped bar (of 999 gold) that cost RM9,750 two Mondays ago dropped to RM8,750 the next day and RM8,250 on Thursday. In the past week, it has stabilised at around RM8,500 (or RM170 per gramme).

A manager of a chain describes the scenes at her stores as rather surreal.

“When we run out of the bigger grammage bars, the customers will just take whatever we have.

“One even swiped the whole lot of one gram bars left and started counting to buy them all. And when there’s none left to buy, customers happily turn to jewellery as second choice,” she says.

The scene in other parts of the world is similar – whether it’s the brisk sale of the Maple Leaf coins in Canada and the American Eagles coins in United States or tripled retail purchases across China.

Major local retailers report that only 10% to 20% of their customers during this period buy jewellery. They mainly go for the stamped bars, which usually make up 15% of the retailers stock at hand.

A jeweller shares that most of her outlets raked in sales equivalent to half month’s volume last weekend alone. A store in Kuantan sold one month’s worth of purchases in one weekend.

Although sales have slowed down the past week, there is still a buzz on Facebook and some customers are planning to shop this weekend once their salaries are in … and they are keeping their fingers crossed that the price stays down.

The stock is replenished every day as fresh orders are made on a daily basis; there is “no hoarding or hedging” on the part of retailers as they “cannot afford to speculate”. Besides, when they sell cheap, they buy back cheap too from dealers the next day.

If you’re thinking of buying gold jewellery, the cheapest place to shop is Kuantan, followed by Ipoh.

For a 30g necklace of 916 gold that would cost RM4,800 (excluding workmanship charges) in the Klang Valley, you could save RM600 if it was purchased in Kuantan.

Based on Thursday’s price, 916 gold costs RM160 per gramme in Kuala Lumpur, RM155 in Ipoh and RM140 in Kuantan. The reason for the discrepancy is too unwieldy to be explained here.

For gifts, many today prefer to opt for gold wafers as jewellery design is subjective in appeal and the former is a better form of investment.

“I have a client who buys a wafer for his son every birthday. He started off with 10g wafers, but over the years, with more disposable income, he now buys the 20g bars,” shares a manager.

When the price of gold is low, a good friend of mine stocks up 5g wafers for “cham cha” (tea ceremony) for her numerous nephews and nieces’ weddings.

Instead of giving thinner necklaces when the price goes up, everyone gets the same value in gold weight!

If you have deep pockets, you are better off buying “cast bars” as opposed to stamped bars for which a premium is charged for workmanship and packaging.

Cast bars (raw form) usually come in one or half kilo bars.

The purchase price is lower and you lose less when you trade them in for cash.

As a comparison based on current price, if you buy 10 pieces of 100g bars, the total cost is about RM170,000. When you trade the bars in, you stand to lose about 12% to 15%, depending on the jeweller.

But if you buy a 1kilo bar, it will cost RM145,000 and the trade-in loss is 4% to 10%.

So is gold a good investment? Many believe it is a good hedge against inflation but there are economists who disagree.

An old friend who has been professionally buying and selling gold for two decades says investment is a very personal thing. He himself has very limited gold investments but has been putting his money mainly in property.

His view is that gold is a good hedge against inflation but one should buy gold not to make money.

“Buy it so as not to lose money,” he says. Note: My best purchase of gold jewellery was more than 20 years ago when it cost only RM26 per gramme. But for the past 15 years, it has only seen the inside of a safe deposit box.

Feedback welcome at leanne@thestar.com.my