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Rising Gold Prices Change Investor Habits in Asia

  • Ron Corben

Price of gold moves closer to $1,200 an ounce, bringing more income to mining companies and gold owners, but business is not so good for retailers and wholesalers

In Asia, gold has always been a popular investment - both jewelry and bullion. But soaring prices are changing the gold trade in the region.

For many in Asia gold has long held a special place as an investment, often as jewelry - glittering gold chains, bangles, and bracelets. Not only did the gold show off a family's wealth and status, it was portable and easily sold in a crisis.

The global financial crisis that began last year led even more investors to see gold as a haven in troubled times.

But as the price of gold moves closer to $1,200 an ounce, the market in Asia is starting to change.

"Now everybody only wants to sell, you know - a lot of people come to sell the old one [jewelry]. We have the ring, the old ring, and take out the diamond, take out the stone and sell the gold. It's like that now," said Chiraporn Sornpanya, a gold jewelry retailer and wholesaler in Bangkok.

Chiraporn says that while high prices are good for mining companies and gold owners, they do not translate into good business for retailers and wholesalers.

"Very small profit, we cannot sell because the market like this everybody the same, same they cannot sell," said Chiraporn. "The business is very bad. I want to sell the old stock. I don't know the future, maybe the market will come back, we can buy more."

Bangkok's busy Chinatown has long been the heart of the city's gold trade, the shops decorated with bright red, windows filled with gold chains to lure passersby

In his office above the busy streets, Jitti Tangsithpakdi, president of the Gold Traders Association in Thailand, says prices are rising because of the financial crisis.

"Due to the world economy, especially the U.S. and Europe having problems, and another thing about the U.S. dollar has been depreciating daily," said Jitti. "So these are the main factors that drive the price the move up higher due to the investor[s] hedging their position against the dollar."

Jitti says as long uncertainty remains over the global economy, gold will remain a popular investment.

International mining companies and industry analysts warn, however, that gold production will not meet demand in the next few years.

The World Gold Council recently forecast gold mine output to climb by four percent in 2009 to about 2,500 metric tons, but that will meet only two-thirds of demand.

Kesara Manchusree is managing director of the Thailand Futures Exchange. She says since many investors in Southeast Asia are buying gold, prices should remain high.

"What we see that because the supply of the gold is depleting, that's why the cost of digging the gold out of the earth is very high," said Kesara. "What we know is more than $600 per troy ounce. That is the cost already and also a lot of demand coming from central banks. That's why demand for gold has been increasing therefore the price should stay high. It might increase further."

The rising price has also led investors to look at other ways to enter the gold market. The Thai Futures Exchange introduced its first gold futures contract early this year, adding a new dimension for investors looking to reduce the risks of volatile commodity prices.

At seminars in Bangkok, investors learn how to buy gold futures contracts.

Warawoot Benjjaputtarog, the deputy managing director at GT Wealth Management, an investment firm that runs such seminars, says education is important for those who are shifting from gold bullion or jewelry to sophisticated futures contracts.

"Our mission is that to have to educate first to make them know how to invest in the market in the future," said Warawoot. "Right now we have a lack of information on this so that first we have a policy to make our customer know - [it's] not something like gambling - it's very dangerous for them so that we have to make a seminar for customers first."

For many investors in Asia, gold's role as a source of safety and value has been reinforced over the past year of economic uncertainty. Market experts such as Warawoot say the rising price of gold shows that role is not about to end any time soon.