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'Genuinely worried' Asian investors flock to safe haven gold amid U.S. dollar woes
By Biman Mukherji
South China Morning Post, Hong Kong
Monday, May 15, 2023
Canadian investor Brian Foster (a pseudonym) started buying gold a year ago, picking up a little more of the precious metal every time he visited Hong Kong -- about once every three months -- Singapore or Switzerland, until he’d accumulated some US$120,000 worth.
“This is mostly to mitigate the risk of disruption of access in any one place due to catastrophic events,” he told This Week in Asia, obliquely referring to potential conflicts amid rising geopolitical tensions, most notably between the United States and China.
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He has also converted most of his cash savings that were in US dollars to British pounds, Swiss francs and Singapore dollars, but is most optimistic about precious metals, which now comprise 15 per cent of his portfolio.
Long considered an alternative currency and safe-haven asset, gold has soared in popularity over the past month as investors in Asia’s trading hubs of Hong Kong and Singapore have flocked to the yellow metal, which has an inverse relationship with the trouble-beset US dollar.
“Our gold turnover in April increased by 40 per cent since March and 110 per cent since January,” said Padraig Seif, founding partner of Hong Kong-based Precious Metals Asia, adding that the buying momentum had carried over to this month.
Many of his clients were “genuinely worried” that keeping their money in low-yield deposit accounts would erode the long-term value of their savings, he said, as the recent banking turmoil in the US has shaken investor confidence.
Over the course of five days in March, three small- to mid-size US banks failed, triggering a sharp decline in stock prices. Swift regulatory action was taken, but it failed to douse mounting fears of a prolonged economic slump as high interest rates raise the spectre of mortgage defaults.
Nearly half of Americans are anxious about the safety of the money they have in bank accounts or other financial institutions, according to a Gallup poll in May.
Those fears have been compounded by worries of a credit crunch as a possible US debt default looms, with the White House and Congress unable to reach an agreement over increasing the government’s US$31.4-trillion borrowing limit.
Gold prices have hit successive record highs of more than US$2,000 an ounce since cracks first started to appear in the US banking system in March. Prices have remained above that level – last seen in the wake of Russia’s invasion of Ukraine – this month amid signs of a US economic slowdown.
But the record-high prices have not dented demand in Hong Kong, where premiums – extra money paid for speedier deliveries – on gold “kilobars” have more than doubled from two-and-a-half years ago, traders say.
Singapore is seeing similar robust demand.
“Yes, investment demand for gold bars and gold coins has risen significantly,” said Luke Chua, chief executive officer of leading Singapore-based bullion firm BullionStar.
In April alone, it sold 378kg of gold bars and coins, 37.9 per cent higher than the same month a year ago. Trade volumes last month were about 40 per cent of the whole of the first quarter’s demand this year, according to company data.
Chua attributed the rise in demand to the US banking crisis, the debt ceiling stand-off, the Federal Reserve’s rate increases and the weakness of the US dollar.
Opinions on how much further gold will rise are widely divergent, but few are willing to bet on a pullback any time soon.
The combination of factors shows that the US economy is not in good shape and “a flight to safe-haven gold is inevitable”, said Spencer Campbell, director of Singapore-based SE Asia Consulting, adding that “the writing seems to be on the wall for the US dollar”.
Some Singapore-based traders believe gold has the potential to reach US$2,450 per ounce in the next few months, he said.
Most experts agree that prices will rise, but many forecast only modest increases.
Gold could rise by another 6 per cent by the year-end, said Ross Norman, London-based CEO at Metals Daily, adding that the weakness of the US dollar alone was not propelling the precious metal, which has rallied 13 per cent since early March while the US dollar has fallen by 4 per cent.
Besides the banking crisis, sticky inflation, declining treasury yields and geopolitical issues have all been powering the metal’s growth in value. ...
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