Gold price in fiery rally
Since the start of 2019, gold price went on a rampage to reach an euphoric high of USD1440 per ounce on 19 July 2019. This was a remarkable high of 11% increase since the beginning of the year. Of course this was still way off the peak of USD1900 per ounce seen in 2011, but current form of gold price reflected the resilience of the yellow metal.
What actually fuelled the surge in gold price? Many analysts could not really pinpoint the real cause but two factors could have caused gold price to become bullish in recent months.
Drivers for gold price rally
Firstly, the global trade war and the risk of a no-deal Brexit had increased the level of uncertainties in the financial market. Although most people would agree that the current situation does not reflect a recession, the global growth outlook remains pretty challenging.
Long seen as a safe haven, gold is often regarded as the asset to hold in times of uncertainties. In fact, gold price went on a rampage bull form in the period of The Great Financial Crisis to reach a peak of USD1,900 per ounce in 2011. The euphoria in gold was driven by the chaos in the financial markets and this fuelled the charge in the gold price.
Will gold price smash to another new high? Probably yes, because the world has not seen another alternative safe haven for financial assets. In 2016, the crash of China stock market, Brexit and the US Presidential Election saw gold price surging from USD1100 to USD1300 per ounce within a year. So it appears to me that gold price is absolutely capable of staging another magnificent run. It is only a matter of time.
In 2018, US stock market suffered a couple of bloodbaths in February and October, in which Dow Jones fell by more than 1000 points. There are telling signs that the bull run in the global stock markets could be coming to an extra-ordinary end after an incredible ten years. Logically, such jittery moods in the stock market should favour gold price but any potential increase in gold price would be offset by the interest rate hikes, which would strengthen the strength of US dollar.
Speaking about interest rate, this may be the second factor that could impact the performance of gold price in the coming months. The market is speculating that the US Federal Reserve might be cutting the interest rate to pre-empt a market downturn in the coming months. This is despite a slew of data showing US economy in pretty resilient shape.
Big boys in love with gold
Although governments had decoupled gold from the monetary system, the precious metal still hold a great influence on central banks, which had been buying gold lately. According to World Gold Council, global gold demand increased to 1053.3 tonnes in 1QFY2019, up by 7% year-on-year. Central banks led the growth, with Q1FY2019 net purchases hitting six-year high.
The data from World Gold Council is certainly encouraging and provides confidence in gold. At the same time, it was also revealed that more central banks are joining the bandwagon of adding gold to their reserves. The reasons for the buying interest from central banks in gold are diversification purposes and the desire to hold a safe and liquid asset.
When it comes to owning gold and silver bullion, one must have the right mentality. The purposes of buying bullion should be primarily for wealth preservation. Thus, one should hold allocate about 10% to 20% of his wealth in bullion. The prospects of gold bullion in the long-term is still fundamentally sound because gold remains a significant part of many central banks’ reserves.
Where to buy gold?
Apart from BullionStar, UOB is a popular choice among bullion buyers because it is the only Singapore bank that sells physical gold and silver. However, the selling prices for the popular gold bars, like PAMP, are higher in UOB. So those who bought gold bars and coins from UOB are effectively paying more in terms of the price premium.
In Singapore, some investors may prefer to buy gold bullion from UOB because of the bank’s reputation. However, it should be noted that the bank does not carry as many variety of bullion products as BullionStar due to the fact that the latter is a boutique bullion dealer.
Previously, I have written an article sharing that I have made some money from UOB Gold Saving Account (GSA). Like UOB, BullionStar also offers gold and silver saving accounts in the form of Bullion Savings Program (Gold). The difference is that the latter is fully backed by physical metals.
Conclusion
Nobody knows what the future holds and certainly, nobody can predict how the stock market will fare in the future. What we can do is to mitigate the risks and let the upside take care of itself.
When it comes to owning gold and silver bullion, one must have the right mentality. The purposes of buying bullion should be primarily for wealth preservation. Thus, one should hold allocate about 10% to 20% of his wealth in bullion. The prospects of gold bullion in the long-term is still fundamentally sound because gold remains a significant part of many central banks’ reserves.
In Singapore, the gold market ecosystem grew substantially with the removal of GST on investment grade precious metals in 2012. Being a country with low crime rate and strong jurisdiction system, Singapore is viewed by many international wealth builders to be the best place to buy and store gold bullion.
If you are an international investor, now may be the best time to start transferring your wealth out of the financial system by buying gold and silver bullion.