G

old prices have increased significantly in recent weeks as people have turned to the yellow metal as a safe haven asset amid plummeting share prices.

On Tuesday, the price of gold produced by Aneka Tambang reached Rp 924,000 (US$56.67) per gram, a 20 percent surge year-to-date (ytd). During the past week alone, the price of the yellow metal gained 7.55 percent.

Meanwhile, the global gold price rallied by 9.9 percent in the past two weeks to $1,643 per ounce on Monday, after it had fallen to $1,495 per ounce on March 16, according to data from monex.com. The bullion price has gained about 6 percent year-to-date.

Precious metal is deemed a safe haven amid volatile financial markets. The commodity will continue to strengthen until the COVID-19 pandemic subsides, analysts say, making it an attractive alternative investment instrument.

DBS chief investment officer Hou Wey Fook told reporters on Thursday through an online press conference that investors should be including gold in their portfolio to minimize investment risks during a difficult time like today when the coronavirus pandemic has crippled almost all economic activity.

In the report titled DBS CIO Insights 2Q20, Build to Last, published in March, Hou writes that “We also add gold as ‘risk diversifier’ to the portfolio,” emphasizing the importance of gold in one's portfolio.

“Gold returned 2 percent over the past three months and outperformed all asset classes and currencies, living up to its name as an effective portfolio hedge," Joanne Goh, a strategist at DBS, wrote in the report.

Global Kapital Investama analyst Alwi Assegaf told The Jakarta Post on Thursday that investors were already opting for gold to protect their assets, because they deemed it as a safe haven amid a faltering financial market, lower-than-projected economic growth caused by the COVID-19 pandemic.

“So long as COVID-19 is still not resolved [and] concerns about COVID-19 are still rising, gold is still supported by the sentiment, apart from the stimulus roll-out [by the United States Federal Reserve],” Alwi said.

The Fed, along with other central banks around the world, has been rolling out stimulus to cushion the economic effects of the pandemic. In a historic move, US President Donald Trump signed a $2 trillion package to boost the economy on Friday, which he said would “deliver much-needed financial assistance to hardworking families and small businesses”, as reported by Bloomberg.

The economic relief and the talks preceding its signing were seen correlated with the rally in the precious metal prices, as indicated by the gain recorded in the previous week.

“We predict that global gold prices will increase this week, given the weakening estimates for US purchasing power,” Andy Wibowo Gunawan, an analyst at Mirae Asset Sekuritas Indonesia, wrote in a report published on March 24.

Andy told the Post on Thursday that the consensus prediction was for US jobless claims – to be published later that day – to skyrocket to 1.5 million people. As it turned out, that forecast proved overly optimistic, as jobless claims exceeded 3 million.

The surge in unemployment would contribute to declining purchasing power and, hence, a depreciating value of the greenback, Andy explained: “Overall, there is a correlation between gold prices and the dollar index.”

Throughout history, the price of gold tends to be countercyclical to the strength of the economy—as the economy contracts, gold rises. That means that gold tends to react positively when interest rates are low, inflation and unemployment high, and currencies weak.

However, share prices of the country’s major gold producers remained under pressure despite the increase in gold prices.

“Regarding the current sentiment of rising gold prices, we hope it can have a positive impact on the share price of Antam,” PT Aneka Tambang (Antam) senior vice president corporate secretary Kunto Hendrapawoko told the Post on Thursday via a messaging service, adding that “generally, Antam’s share price was more affected by market sentiment than by fundamental factors.

Antam shares, traded on Indonesia Stock Exchange (IDX) under the code ANTM, were down 45 percent ytd on Tuesday. From March 23 to March 27, however, the price increased by 32.18 percent from Rp 348 per share to Rp 460 per share.

The share price of PT J Resources Asia Pacific Tbk, another gold mining company, listed as PSAB on IDX, were down about 25 percent ytd on Tuesday.

“People will tend to buy gold [in its physical form] rather than [mining company] shares,” Andy explained.

In an effort to boost sales, Antam noted that it would continue to maintain its product quality, adding that its factories were the only ones certified by London Bullion Market Association.

However, Antam’s gold bullion sales are not immune to the ongoing pandemic. The company recently decided to close all its Logam Mulia retail stores from March 30 to April 4 as people have been urged by the government to stay at home to curb the pandemic.

Currently, Antam’s gold production comes from its Pongkor mine in West Java and the Cibaliung mine in Banten.

When asked about its business strategy for 2020, Antam said it would “seek to reduce production costs through efficiency measures to maintain its competitiveness”. (ydp)