Gold losing lustre as investors shift to equities

Price has plunged by 17% since late last year despite massive cash inflows

Retiree Penny Wee had been eyeing a gold necklace to buy for her daughter-in-law since September last year.

But she held off as she felt the necklace was too expensive.

So last week, when she saw that the price had fallen by about 10 per cent to $1,200, the 66-year-old went straight to the shop to make the purchase.

"I told the shop to call me if someone else made an offer, but no one did. So when I saw the price drop, I bought it," she said.

Mrs Wee is a beneficiary of a recent sharp reversal in gold's value on commodity markets.

For the past decade, gold has been one of the best investments to hold, having shot up more than six times between 1999 and 2011.

But since late last year, the price of the yellow metal has slumped by 17 per cent, as investors pour money back into other asset classes, such as stocks.

Gold per troy ounce was trading at US$1,560 yesterday.

Even the US investment bank Goldman Sachs, a long-time bull on gold, is reversing its call, advising clients to sell instead of buy.

"We see risks to current prices as skewed to the downside as we move through 2013," Goldman analysts Damien Courvalin and Jeffrey Currie wrote in a note.

In mid-2011, it had predicted gold would hit US$1,830, but it now expects gold to fall to US$1,270 by next year.

"In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast," it said.

Gold is traditionally seen as a safe haven amid economic instability, and a hedge against inflation.

Despite massive inflows of cash into the global system from central banks in the United States, Europe and Japan - which would tend to raise inflation - gold has still performed weakly.

Ms Joyce Liu, an analyst at Philip Futures, noted that its safe haven status is closely tied to the health of the US economy.

"Despite last week's disappointing jobs data, the overwhelming sentiment is still that of optimism in US economic recovery.

"The implications are first, less need for safe haven investments among investors, and second, greater confidence among consumers for long-term spending and among corporations for long- term investments."

As a result, stock markets soared as gold fell. The US Dow Jones Industrial Average hit record highs on Tuesday, while the local Straits Times Index is up 22 per cent from June last year.

Still, not all analysts believe that the gold rush is over.

HSBC analyst James Steel says large liquidity flows from Japan, as well as political tensions in North Asia, could support prices.

As investors flee, consumers are moving in. The manager of the gold department at Mustafa Centre, Mr Mohammed Ishrep, said he has seen a 10 to 20 per cent increase in demand for jewellery and gold bars.

Ms Daphne Chin, who works at the Ang Mo Kio branch of Poh Heng jewellery, said the number of customers buying gold has risen by more than 20 per cent.

"Locals in their 50s and 60s make up the bulk of these customers and they often buy thick gold chains and gold bars," she said.

"These customers usually buy pure gold or 24K gold when the price drops, and hope to sell it at a better price in future," she said.

But Mrs Wee was not motivated by profit. "I think every woman should own a piece of gold. It's got good value, it's real and it looks nice with a dress."