For Asia’s Rich, All That Glitters Is Still Gold

Gold continues to be a lucrative investment for Asian millionaires and despite the prices swings over the last few months, gold has continued to perform. Many wealth managers are suggesting that gold make up 5-10 percent of one's investment portfolio.

Published: Thursday, 3 Nov 2011
By: Shivali Nayak

For Asia’s millionaires, growing at a whopping pace, gold continues to be a lucrative investment—and never mind the volatility.

Over the past two months there have been huge swings in gold prices. In September, gold[XAU=1755.6899] prices peaked above $1,900 an ounce, dropped briefly below $1,600 by month-end and are now hovering around the $1,700 mark.

Despite these price fluctuations, gold has been an outperformer within the precious metals complex, say wealth managers.

“The spot price has almost tripled in the last five years. Also, the performance of gold since the end of June and the beginning of September this year marked the strongest quarterly gain in spot prices since the early 1980s,” says Poh Huay Imm of Deutsche Bank Private Wealth Management.

Therefore, it is no surprise that gold has been occupying more weight in the investment portfolios of Asia’s millionaires.

Many wealth management experts told CNBC they would recommend gold make up at least 5 -10 percent of an investment portfolio.

“Gold is a good insurance against a “time bomb” in Europe and further debasing of currencies by central banks globally,” says Mark Matthews, Head of Research Asia at Bank Julius Baer.

There is no “central bank for gold” so there can be no price intervention, making it more appealing to investors, says Erik Wytenus, Head of Foreign Exchange and Commodities at J.P. Morgan Private Bank in Asia.

High Net Worth Individuals (HNWIs) look toward gold in times of economic uncertainty when they are not adequately rewarded in fixed-income, says Dominic Schnider, Head Commodity Research at UBS Wealth Management.

Many HNWIs in Asia have been playing the volatility in gold prices seen over the past few months, say wealth managers.

“Between early July to late September this year, when gold prices were more volatile, clients have taken advantage of this through selling put options and staying bullish on one-year structured notes,” says Wytenus of J.P. Morgan Private Bank.

“On the other hand,” he adds, “some other clients have continued to buy outright into weakness on gold.”

Asian investors are naturally disposed to holding gold in their portfolio, says Shrikant Bhat, Head of Wealth Management at Citibank, Singapore. And holding physical gold has been the tradition. But now, say wealth managers, Asia’s savvy high net worth investors are looking increasingly at gold exchange-traded funds (ETFs).

“Physical buying has been lighter than financial buying, as we see less fear about the stability of the overall financial system,” says Wytenus of J.P. Morgan Private Bank.

For example in India, the world’s largest consumer of bullion and still a predominant market for physical gold, volumes in gold ETFs have reportedly grown 164 percent over the past four years.

Going forward, wealth managers see gold continuing to add value to investor portfolios. Schnider of UBS Wealth Management recommends investors hold gold for the long term, as “gold is more than a commodity; it is a currency.”

While Lim Say Boon, Chief Investment Officer at DBS, says gold could push higher toward the $2,000 level as “there are no signs that negative real interest rates and volatility in the currency markets, which are some of the main drivers of gold prices, are about dissipate.”

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