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Gold shines bright, and likely to shine brighter, amid Brexit blues

SINGAPORE — If there is one bright spark amid the market uncertainty following the Brexit referendum, it is gold.

Minted Degussa gold bars. Photo: Degussa.

Minted Degussa gold bars. Photo: Degussa.

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SINGAPORE — If there is one bright spark amid the market uncertainty following the Brexit referendum, it is gold. 

Gold prices have soared after the vote last week as investors seek a safe haven from Brexit-induced financial turmoil. 

Some, such as Evolution Mining’s Jake Klein, a 20-year industry veteran and executive chairman of Australia’s second-biggest producer, believe this could be the start of a major bull market. 

“Are we seeing the first fault lines of a major correction and change in the financial and political systems? If that’s the case, then we could very well be at the early stages of a major bull market,” he told Bloomberg Television. 

Events seem to support that statement. In Singapore, for example, the number of transactions at Degussa Singapore increased by about 20 per cent, the gold investment retailer said. 

“(It) is steadily increasing since some investors feel that the price of gold is only going to move upwards in the coming months,” said Mr Michael Kempinski, managing director of Degussa Precious Metals Asia. 

Where there are buyers, there are also sellers. For instance, Madam Kim Tien Chua, 70, said that she had sold the gold bars she bought a few years ago after her son informed her of the price spike. 

“These are not family heirlooms or jewellery that has been handed down, so they don’t have that kind of sentimental value. I also can use the money in case I need to pay for doctor’s bills,” said Mdm Kim, although she refused to say how much she sold.  

Several goldsmiths who TODAY contacted declined comment.

Mr Kempinski added: “It depends greatly on the customer’s expectation and risk appetite, since the market has been very volatile recently (as well as) your buying entry point.” Still, he confirmed that most of Degussa’s regular customers seem to want to hold on to their gold or buy more. 

Holdings in gold-backed exchange-traded funds (ETF) rose 5.6 metric tonnes to 1,940.3 tonnes as of Tuesday, the highest level since Sept 2013, according to Bloomberg. 

Investors have added 35.7 tonnes to ETFs in the past three days, the biggest such increase in four months.

In China, the world’s biggest gold buyer, the turnover in Huaan Yifu Gold ETF, the country’s top ETF backed by bullion, jumped to a record 1.27 billion yuan (S$258.7 million) last Friday, reported Bloomberg. 

Mr Bernard Aw, a market strategist with IG, said there was room “for gold to head higher”, noting how the appeal of gold has been boosted by a low or negative interest rate environment brought about by recent central banks’ policies such as the European Central Bank and the Bank of Japan. 

Mr Kempinski added the company expects gold prices to “reach US$1,400 per ounce and beyond” in the coming months.

While Mr Kempinski suggested buying physical gold, Mr Aw disagreed. “I think that has too many disadvantages compared to gold ETFs, such as storage and insurance costs as well as security risks. Moreover, you cannot purchase physical gold on margin, unlike with gold ETFs.”

Mr Robin Tsui, vice-president and ETF Gold Specialist, Asia-Pacific, State Street Global Advisors, said expectations are for money flows into gold ETFs “to remain strong in the second half of 2016”, citing how gold is considered “a safe haven investment” and should be held as a long-term core asset in an investment portfolio. WITH AGENCIES

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