The Golden Opportunity: A Comprehensive Guide to Gold Investment in Malaysia

Gold has long captivated the imagination of investors as a symbol of wealth and a bastion of stability in turbulent financial times. In Malaysia, where economic diversity and growth present unique opportunities, gold investment remains a popular choice, particularly as the price of gold has surged by 88% over the past five years or 12.9% in annualised returns. Intrigued? Let’s explore the various methods of investing in gold, helping you discover the option that best suits your investment strategy.

7 Good Reasons to Own Gold

Gold investment stands as a beacon of stability in an ever-fluctuating financial landscape. As a precious metal that has maintained its value through centuries, gold offers unique benefits, making it a sought-after asset among Malaysian investors. Here are 7 good reasons to own gold.

1. Historical Value Preservation: Gold has consistently held its value over millennia. From ancient civilizations to modern times, it has been treasured not just for its aesthetics but also as a means to preserve and pass on wealth across generations. Its unique properties, such as non-corrosion and the ability to be easily melted and reshaped, make it a practical choice for investors.
2. Inflation Hedge: Traditionally, gold has been an excellent hedge against inflation. Over the last 50 years, gold prices have often increased in times of high inflation, as gold retains its value even when the purchasing power of fiat currencies diminishes.
3. Deflation Protection: During periods of deflation, where prices fall and economic activity slows, gold’s purchasing power historically increases. This was evident during the Great Depression when those hoarding cash turned to gold as a reliable store of value.
4. Geopolitical Stability: Known as the "crisis commodity," gold often sees its value increase during times of geopolitical uncertainty. Its ability to retain value in unstable times makes it a preferred choice for risk-averse investors.
5. Weakening of the U.S. Dollar: As the U.S. dollar weakens, gold typically rises in value. For example, from 1998 to 2008, as the dollar fell, gold prices nearly tripled. This inverse relationship with the U.S. dollar enhances gold's appeal as an investment during periods of dollar volatility.
6. Supply Constraints and Increasing Demand: The supply of gold has been limited, with significant reductions in new gold production since the early 2000s. Meanwhile, demand for gold has grown, especially in emerging markets like China and India, where gold plays a cultural and economic role. This rising demand amidst constrained supply helps drive gold prices upward.
7. Portfolio Diversification: Gold often moves inversely to stock markets and other financial instruments, providing a diversification benefit to investors. By including gold in a portfolio, investors can potentially reduce overall volatility and risk, offering a buffer against stock market fluctuations.

How Much Should I Invest in Gold?

Gold is highly valued for its ability to hedge against inflation and enhance portfolio diversification, whilst remaining liquid and relatively low cost to buy and sell. However, unlike stocks and bonds, gold does not generate regular income, which means it should be approached differently as an investment.

Financial experts generally advise that gold should constitute no more than 10% of your overall investment portfolio. The precise allocation—ranging from 1% to 10%—often depends on various factors including your age, investment goals, and risk tolerance.

For instance, the guideline for stock investment, often suggested as "100% minus your age," implies that a younger person would have a higher percentage of their portfolio in stocks compared to someone older. Applying a similar principle to gold, younger investors might lean towards the higher end of the suggested gold investment range to capitalize on long-term growth potential, while older investors might prefer a more conservative approach, focusing more on income-producing assets.

Ultimately, the appropriate percentage of gold in your portfolio should align with your overall financial strategy and life stage. If you're unsure about how much to invest in gold, consider starting with a small percentage and adjust as you become more familiar with how gold behaves within your broader investment strategy. This approach allows you to gradually understand and integrate gold's role in enhancing and protecting your wealth.

How to Invest in Gold in Malaysia Now

Investing in gold in Malaysia offers several viable options, each catering to different investor needs, from those who prefer tangible assets to those who favor more liquid or digital forms of investment. Here’s a comprehensive look at the various avenues for gold investment in Malaysia:

1. Buy gold bars & gold coins

Physical gold, encompassing both gold bars and coins, remains a strong preference for many in this digital age, attributed to gold's enduring appeal and tangible security. Here's what investors in Malaysia need to know about these two popular forms of gold investment:

• Gold Bars: Often the choice of seasoned investors, gold bars are available in sizes ranging from 25 grams to 1 kg. They offer high liquidity and are typically more cost-effective than gold coins, making them an effective option for substantial investments. However, the larger size means that liquidity can be an issue—you cannot sell part of a bar if you need cash; the entire bar must be sold.
• Gold Coins: Smaller and more convenient than gold bars, gold coins are easy to liquidate, making them ideal for new investors or those looking for flexibility in their investment. They typically weigh between 2.5 grams and 25 grams. While generally more expensive per unit than bars due to costs associated with minting, rare coins can fetch higher values.

Here’s where you can buy gold bars and gold coins:

• Public Gold: You can buy gold bars directly from Public Gold for they offer a wide range of sizes: 10 gram; 20 gram; 50 gram; 100 gram; 250 gram; and 1000 gram. 
• Maybank: Known for the Kijang Emas Gold Bullion Coins. These coins are available in three sizes with the following specifications: 1 Troy ounce (31.105g); ½ Troy ounce (15.550g); and ¼ Troy ounce (7.78g)
• Silverbullion: The online store offers a variety of gold bars from 1 gram to 1kg. With branches in KL, B and Penang, it makes acquiring the gold bars from them hassle free.
• Various jewelry stores: Besides gold jewelry, you can also buy gold bars and gold coins from some of the reputable jewelry stores like Habib, Wah Chan, Poh Kong, Tomei and more.

2. Invest in Gold-related counters

Gold stocks, including those of miners and jewelers, represent a dynamic segment of the gold investment landscape. These stocks can offer exposure to the gold market without the need to handle physical gold. Here’s an overview of how gold stocks have been performing, showcasing their potential as a safe haven investment.

Recent Performance of Gold Stocks in Malaysia:

The gold market has seen a notable uptick in investor interest, especially during times of economic uncertainty. Recently, stocks of listed gold jewelers and miners in Malaysia have experienced significant gains:

• Poh Kong Holdings Bhd saw its share price increase by 23% YTD, closing at RM1.07. This company is a key player in the retail and distribution of jewelry and gold ornaments.
• Tomei Consolidated Bhd also enjoyed a rise of 31.75% YTD, closing at RM1.66. Like Poh Kong, Tomei is heavily involved in the jewelry business, providing a wide range of gold and precious stone products.
• Bahvest Resources Bhd, a Sabah-based gold mining company, increased by 7.84% YTD, reaching 55 sen. This highlights the appeal of gold mining stocks as part of a diversified investment strategy in gold.

Considerations:

• Market Risks: While gold stocks can provide substantial returns, they are susceptible to market fluctuations and can be as volatile as other equity investments.
• Company Performance: The success of individual stocks is heavily dependent on company performance, which in turn can be influenced by management efficiency, production costs, and the overall economic environment.
• Diversification: Including gold stocks in your investment portfolio can help diversify risk, especially if combined with other types of gold investments like physical gold or gold ETFs.

3. Invest in Gold Exchange Traded Funds (ETFs)

Gold ETFs offer an innovative way to invest in gold without physically owning it. These funds track the price of gold and reflect its performance, providing investors with the liquidity of stocks and the security of gold investment. Here’s a closer look at the role of gold ETFs in modern investment portfolios.

Understanding Gold ETFs:

Gold ETFs are commodity funds that mirror the price movements of gold, allowing investors to gain exposure to the precious metal without the logistical concerns of storing physical gold. This type of investment is particularly appealing for those looking to hedge against risks in other parts of their portfolio, such as heavy exposure to dollar-denominated assets.

Popular Gold ETFs Available to Investors:

• TradePlus Shariah Gold Tracker (Malaysia): This ETF is tailored to meet the requirements of Malaysian investors looking for Shariah-compliant investment opportunities in gold.
• SPDR Gold MiniShares Trust (US): Known for its lower expense ratio, this ETF makes it more affordable for individuals to invest in gold.
• abrdn Standard Physical Gold Shares (US): This fund offers investors the opportunity to invest in gold through a physically backed ETF.
• VanEck Merk Gold Trust (US): This ETF provides investors with exposure to gold with the option for investors to take delivery of physical gold if they choose to do so.

Invest in Gold ETF with Stashaway

StashAway's Flexible Portfolios offer a cost-effective way to invest in gold through the SPDR Gold Trust ETF, with a minimal annual management fee of just 0.3%. While gold forms a crucial part of these portfolios, their real appeal lies in the adaptability they offer. Investors can tailor their portfolios beyond gold, choosing from ETFs that focus on different markets, such as those capitalizing on growth in India or broad-based indices like the S&P 500. This flexibility allows investors to shape their investment approach to best suit their comfort and strategic goals.

4. Invest with Gold Investment Accounts

Gold Investment Accounts (GIA) offer a digital means to invest in gold without the need to physically handle the precious metal. These accounts allow investors to buy gold in varying quantities, often measured in grams, with the gold purity certified at 99.9%. This method is increasingly popular among those who wish to hold gold as part of a diversified investment portfolio without dealing with the logistics of physical storage.

Overview of Gold Investment Accounts:

Gold investment accounts are offered by several banks in Malaysia, providing a convenient and secure platform to invest in gold:

• Maybank: Offers the Maybank Gold Investment Account where investors can check daily gold prices and make transactions online.
• Public Bank: Features the Gold/eGold Investment Account, allowing easy access to buy and sell gold digitally.
• Kuwait Finance House (KFH): Provides the KFH Gold Account-i, which adheres to Shariah principles, suitable for investors looking for compliant investment options.
• CIMB Bank: Offers the e-Gold Investment Account, facilitating online transactions and investments in gold.
• UOB: Has two types of accounts - the Premier Gold Account and the Gold Savings Account, catering to different levels of investment starting from as low as 5 grams.
• HSBC: The HSBC Gold Account also provides flexible options for gold investment, with minimal initial deposits and easy liquidity.

Key Features and Considerations:

• Accessibility: GIA can be managed online, providing a high degree of flexibility and immediate access to market changes.
• Minimum Investment: Some banks allow an initial deposit as low as 1 gram of gold, which could cost around RM250, making it accessible for small-scale investors.
• Withdrawal Options: Investors can typically withdraw their investments in cash, physical gold, or have it credited to a designated account, offering versatility in how returns are received.
• Fees: While GIAs do not incur the typical costs associated with physical gold storage, they may come with other charges such as conversion fees or service fees, especially if the balance falls below the bank’s required minimum.

Understanding Gold Prices and What Affects Them

Gold has a storied and sparkling history, not only as a cherished material for jewelry but also as a critical medium for commerce and monetary standards. Its enduring allure, rarity, and intrinsic beauty have cemented its high demand through centuries. Here’s an exploration into how gold prices are influenced and the dynamics that drive its market value.

Historical Context of Gold

From the 18th century, many nations pegged the value of their currencies to gold, adopting what is known as the gold standard. Under this system, coins and paper money were direct representations of gold stored in vaults. However, this system was largely abandoned by the United States in 1971, and subsequently by most other countries, shifting to fiat currencies that are not backed by physical commodities. Despite this shift, many countries continue to hold significant gold reserves as a hedge against inflation and to preserve national wealth. As paper currencies can depreciate due to inflation, gold often appreciates, serving as a protective shield against the erosion of purchasing power.

Factors Influencing Gold Prices

Gold's value is distinct from traditional investment assets like stocks and bonds, which are linked respectively to company performance and interest rates. Gold often moves independently of these assets and has historically shown a negative correlation with them—typically performing well when other assets do not.

Key factors affecting gold prices include

• Supply and Demand: The fundamental economic principle of supply and demand is a primary driver of gold prices. Increased demand for gold during economic downturns, or when central banks bolster their reserves, typically pushes prices higher. Conversely, during economic upturns when demand lessens, gold prices tend to decrease.
• Currency Fluctuations: Gold is primarily traded in U.S. dollars. As a result, there is an intrinsic link between the strength of the dollar and gold prices. A weaker dollar generally makes gold cheaper for holders of other currencies, thus increasing demand and pushing prices up. On the flip side, a strong dollar can suppress gold prices.
• Inflation and Deflation: Gold is renowned for being an inflation hedge. During periods of high inflation, investors tend to move their assets into gold, which drives up its price. In deflationary periods, where prices and economic activity decrease, gold can also see an increase in price as it becomes a preferred method for preserving value.
• Geopolitical Uncertainty: Gold is often considered a 'safe haven' investment. During times of geopolitical stress or financial instability, investors flock to gold as a safe asset, which can drive up prices.
• Central Bank Policies: Decisions by major central banks on interest rates and monetary easing can influence gold prices. Lower interest rates make bonds and savings accounts less attractive, which can increase investment in gold.

Essential Questions for First-Time Gold Investors

As you contemplate diving into gold investment, it’s crucial to perform a thorough self-assessment to align your financial goals and market opportunities. Here are refined questions to guide your decision-making process:

1. Analyze Market Dynamics:

• Current and Future Prices: What is the current price of gold, and what are the predictions for its future trajectory? Assessing this can help you gauge the market's temperature and potential for future growth or decline.
• Optimal Timing: Considering the current market price, is it a wise time to invest, or should you wait for a potential dip?

2. Define Your Investment Objectives:

• Motivation: Why are you interested in investing in gold? Is it for security during economic uncertainties, potential capital gain, or diversification of your portfolio?
• Role in Portfolio: How will gold fit into your broader investment strategy? Is its role to hedge against inflation, provide stability, or serve as an alternative asset?
• Entry Point: As a newcomer to investments, is gold a suitable starting point given your current financial knowledge and investment experience?

3. Explore Your Investment Options:

• Investment Vehicles: What are the available avenues for investing in gold—physical gold, ETFs, gold stocks, or digital gold options?
• Comprehensive Comparison: Have you compared all available gold investment options? Understand each option’s benefits and drawbacks, including liquidity, costs, and effort involved in management.
• Investment Scale and Duration: How much are you willing to invest, and for how long do you plan to hold your investment? Decide whether you are looking for short-term gains or long-term growth.
• Storage and Additional Costs: If investing in physical gold, have you considered safe storage options and the associated costs? For other gold investment types, are you aware of any fees, such as brokerage or management fees?

4. Consider Economic Indicators:

• Global Economic Context: Given the current global economic uncertainties, such as inflation trends and geopolitical conflicts, how might these factors affect gold prices?
• Investment Timing: If current gold prices are lower due to economic factors, could this be an opportune moment to invest, anticipating future price increases?

These questions will not only help clarify your own investment goals and risk tolerance but also prepare you to engage more effectively with financial advisors or investment platforms as you make your first gold investment.