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Going for the elusive pot of gold

June 18, 2001

Stock prices are depressed. Deposits give you a meagre return. All other investments look risky in this economic downturn. So what else can you do with your money?

"Buy gold," suggests Albert Cheng, Singapore-based regional director of the World Gold Council, which represents a global association of gold miners. At the present gold price of US$272 (Bt12,300) per ounce, there is little downside risk of the gold price collapsing.

"The cost of producing gold now is about $190 to $200 per ounce. If other capital investment is taken into account, the total cost is about $240-$250 per ounce. With the present gold price of more than $270 per ounce, you can guess that there is not much room for gold prices to fall," said Cheng, who has been in the gold trade and marketing for most of his career. Moreover, since last year there has been a significant improvement in sentiment in the gold market after the signing of an agreement in Washington. Under the agreement, central banks around the world will cap the sale of their gold reserves to under 400 tonnes a year. Since the central banks are holding about one-third of the global gold reserves, their agreement to cap sales helps keep the price of gold stable and restore sentiment back to the gold market.

Although Thai people are familiar with gold, they normally don't consider buying it as part of their portfolio investment. But the upcountry Thais in particular, buy gold as ornaments for self pride. They wear gold ornaments on their hands, necks and their ears as a display of wealth. But when they're short of money, they sell or pawn their gold for cash.

Yet there has been relatively little buying of gold bars as a portfolio investment. In Bangkok, the World Gold Council is represented by Dan Sornmanee, who along with Cheng has been in talks with the local dealers over how to further develop Bangkok as another regional gold-trading centre. At present, Hong Kong and Singapore are vying to become the regional gold-trading centres for Asia.

Cheng says Thailand has an opportunity to develop as a regional gold-trading centre for Indochina and Burma following the scrapping of the 7-per-cent value-added tax in September last year. This has made the gold market in Thailand more competitive from the regional perspective.

At present, only a handful of gold dealers are involving in the trading. Banks have yet to invest in the gold trade, so it will take some time, but Bangkok really has the potential to move forward.

"Thailand can catch up with Hong Kong or Singapore to become the gold-trading centre for Indochina and Burma," Cheng said.

Gold is in fact a form of currency. In countries where financial systems are weak and trust in the local currency is low, people prefer to use gold as a medium for financial transactions. In Vietnam, for instance, people quote the price of their houses in gold bars.

Cheng suggests that for people who have surplus savings, the time now is right to buy some gold bars to add to their investment portfolio. In pricing gold against the value of the US dollar, he said, gold was an undervalued currency. Moreover, all the bad news in the gold market has been absorbed. "If the people know that they can invest in gold bars without having to pay the 7-per-cent VAT, they are likely to make some investments. We see an opportunity in educating Thai consumers of investing in gold bars," said Dan.

Thanong Khanthong



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