By Tan Ooi Boon, Invest Editor
SINGAPORE – Investors looking for a hedge against inflation are turning to gold, although prices of the precious metal have fallen this year as overall demand declines.
Consumer demand here – comprising jewellery, bars and coins – surged 58 per cent year on year to 3.3 tonnes in the third quarter, up from 41 per cent growth in the second quarter and 18 per cent in the first, said the World Gold Council.
Jewellery chains and online platforms that allow consumers to buy physical gold told The Straits Times that demand has increased in recent months as customers seek an inflation hedge.
Cryptocurrencies, another alternative asset, have lost their shine amid a price rout and high-profile collapses.
Mr Ng Kean Seen, chief executive of Aspial Lifestyle, estimates demand at its jewellery chain Goldheart rose 50 to 60 per cent in the third quarter over the same period in 2021.
Consumers also buy gold to hedge against the weakening of their countries’ currencies, as the precious metal is denominated in United States dollars, he noted.
“Last year, we also came from a low base as pandemic restrictions were still in place. This year, we are seeing a bit of a catch-up. Going into next year, demand could stay at this level but without the same year-on-year growth,” said Mr Ng.
While individual consumers are getting the gold bug, other investors are shifting to higher-yielding assets as interest rates rise. Excluding over-the-counter trades, global investment demand for gold fell 47 per cent in the third quarter, said the World Gold Council.
Spot gold – the price at a particular time – dipped by 8 per cent from July to September and has fallen around 12 per cent since its peak in March. It regained strength on Friday on the likelihood that the US Federal Reserve will slow its pace of interest rate hikes after US inflation cooled.
Asian buying tends to pick up when prices drop. Bloomberg reported in October that prices in some regional markets have spiked as demand outpaces supply.
The return of celebratory occasions after Covid-19 restrictions were loosened has also contributed to the higher demand, said SK Jewellery Group general manager Angelina Lau, who added that consumers might buy gold items before 2023’s goods and services tax hike.
However, she noted that gold jewellery is not a commodity, and demand depends on the “design, craftsmanship and gifting purposes, not solely on prevailing market prices”.
Ms Charis Koh and her fiance selected $4,500 worth of si dian jin – betrothal jewellery comprising a bracelet, bangle, necklace and a pair of earrings – at Goldheart in October ahead of their upcoming wedding.
“Usually people have the impression that gold is old-fashioned, but I liked that the designs (of the items) were not just simple, but also elegant, with yellow and white gold intertwined. This makes it very versatile for everyday wear,” said Ms Koh, 30, who works in advertising.
More people are also buying physical gold through digital platforms.
Mr Ben Davies, chief operating officer and co-founder of Hugosave, said the wealth management app has seen a 25 per cent increase recently in users here adding to their gold investments.
Users can round up purchases made through the Hugosave Visa debit card to the nearest dollar and invest the excess funds in physical gold.
Hairstylist Chin Zi Wei, 24, who has bought and sold around $7,000 worth of gold through Hugosave, said: “I feel optimistic about gold as I have read that a lot of central banks are stocking up on it.”
Mr Davies said that many people had sought crypto as an inflation hedge, “but they now realise that cryptocurrency trades like risk assets such as stocks, and not as a store of value”.
Singapore Precious Metals Exchange founder and chief executive Victor Foo said there was a 20 per cent increase in demand for gold among its customers in 2022 compared with 2021.
Sales of kilo bars at UOB rose 60 per cent from the first quarter to the third, while coin sales jumped 80 per cent.
Ms Jacquelyn Tan, UOB’s head of group personal financial services, said: “Typically, gold prices march to a different beat, with low correlation to traditional investments, making it a good portfolio diversification tool.
“Gold supply is deemed to be limited globally, which supports its value and desirability to be owned as a long-term investment. Many central banks (also) hold gold as part of their national reserve, solidifying its status as a good instrument for store of value.”
Mr Aaron Chwee, head of wealth advisory at OCBC Bank, said gold prices may not have kept up entirely with the rate of inflation but gold has performed better relative to other asset classes, such as inflation-linked bonds.
Digital gold investments made through the bank’s app grew 50 per cent from the first quarter to the third.
Mr Chwee said: “As global economic conditions are expected to weaken, the aggressive rate hikes by the Fed could drive the economy into a recession next year, and the possibility of a US recession could have driven investments into gold.”
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