Usually, when people talk about investments, they think of stocks. If you don’t know, gold is also a popular investment in Malaysia.
Gold’s ability to maintain its value for thousands of years has made it a reliable sort of investment. Because it’s a physical commodity that's in scarcity, it cannot be treated as and be printed like money.
Plus, because it generates no interests or dividends (profit) when stored, it cannot be influenced by market interest rates and inflation.
Hence, it’s regarded as a safe haven investment during times of economic turmoil. And it’s also the reason why investors flock to buy gold whenever the stock market crashes, which drives gold prices up to the ceiling.
However, if you were to look at the current gold price, you will be surprised to find that it’s dropping.
This is somewhat strange, given that we are still in the midst of economic instability, with businesses shutting down, job losses rising, and consumer spending suppressed. So, what gives?
Reason 1: Change in Investors’ Risk Appetite
Today, more young people such as millennials and Gen Z, are starting to invest in stocks. This pool tends to have an appetite for riskier choices.
Because their main objective is capital growth rather than capital preservation, young investors find it more lucrative to invest in high-risk high-return equities. This would be the likes of electric vehicle stocks instead of assets such as gold.
Reason 2: Shares Are In, Gold is Out
There has been optimism about the economic outlook, caused by the news of COVID-19 vaccinations.
Furthermore, in many parts of the world, the economy has gradually re-opened and manufacturing levels have stabilized.
Because many are convinced that the worst is already over, the stock markets bounced back in mid-2020. In fact, one of the US's market index - the Dow Jones Industrial Average, reached an all-time high on April 16, 2021.
This has caused investors to abandon gold and flocked to the stock markets for company shares, seeking to be rewarded with attractive returns.
Reason 3: Unattractive Jewellery Market
Since the COVID-19 pandemic began, the demand for luxury goods such as jewellery has been weak.
Take China, for example. As one of the world’s largest markets for luxury goods, jewellery sales are declining, becoming somewhat disappointing.
It is due to the low demand for jewellery, which then causes lower demand for gold, thus pushing gold prices down.
So, should you invest in gold in 2021?
In the short term, investing in other asset classes such as bonds and equities may offer higher returns.
However, like any other investment types, the fundamentals for gold remain strong over the long term, owing to its reputation as an excellent store of value for many centuries to come.
In the end, it all comes down to you. You should hold onto your gold, and sell at a good price. Just do not sell when you’re desperate, for it can lead to a financial loss.
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