External factors likely to improve returns on gold

Economy April 12, 2014 00:00

By Erich Parpart

The Nation

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Thailand's Gold Research Centre expects a better return on investment in gold this year as there are fewer negative and more positive external factors than in 2013.

The centre said speculation on an all-out war between the Ukraine and Russia would continue to create uncertainty in the world economy and increase the demand for a stable commodity such as gold in the long run. It believes that the return on investment for gold in the Thai market this year will turn around from last year’s 23-per-cent deficit.

The increasing investment risks in emerging economies are another factor raising the demand for a safe-haven asset.

However, the centre has warned that there are also risks such as the US Federal Reserve’s tapering of its quantitative-easing (QE) policy and the fluctuation of the baht, so it suggests a concentration on short-term investment.

The centre believes external factors have the most effect on the gold market. It said the current internal political conflict in Thailand did not create risk for the global or local gold market as Thailand is not a big consumer or producer of the precious metal. The baht would feel the effects of the squabble rather than gold.

Kamolthun Pornphaisarnvichit, director of the Gold Research Centre, said he expected a better rate of return on investment this year but believed that the price of gold in the world market would be along the same lines as last year, in the base range of US$1,200-$1,420 per ounce.

As for the price of gold bar in Thailand, he forecast that it would range between Bt18,500 and Bt21,500 per baht weight.

However, the world price could reach $1,500-$1,550 if the situation in the Ukraine escalates into war.

"We do not expect it to be an all-out war but as long as it creates uncertainty in the global economy and the market still uses it as an issue to speculate on, the demand for a safer commodity will increase," he said.

Kamolthun said the first quarter of this year was positive for investment in gold as the return on investment reached 13-14 per cent in the world market and 9-10 per cent in the local market. He said the reason the local market was making less profit was the strengthening of the baht, but the worst is over for this year, as he believed the world price had already passed the low point of $1,180 per ounce at the beginning of the year.

According to Bloomberg, as of yesterday, gold price in the world market was $1,318.30 per ounce.

Kamolthun said the gold price sentiment index based on his centre’s survey so far in April had posted a decline of 5.72 points from 53.73 points in March, dropping to 48.01, which represents a decline of 10.65 per cent and is lower than the 50-points base for the first time in three months.

He said this indicated a slightly negative attitude towards gold price by investors, who believe that the price will be weaker than last month. However, this attitude by investors is in contrast with that of traders, whose price sentiment index is at 56.39 points.

As for the gold price sentiment index for the next three months, the centre’s study puts it at 54.57 points, which is lower than 59.72 points in March but is still above the 50-points base, which means that the sample group still has a positive attitude towards the gold price in the medium term.

Kamolthun suggested that investors should beware of the US Fed’s QE policy and hints of an increase in the US key interest rate, which could create panic in the investment market and eventually affect the gold price. The strengthening of the US dollar due to that country’s economic recovery is also another factor to look at as the gold price would move in the opposite direction of the US currency.

Fluctuation of the baht is another factor to be wary of, and the Gold Research Centre believes that the Thai currency will continue to be volatile from external and internal factors such as the political situation in the country and changes in US financial policy.