Gold investment: An overview

metal(prenominal) investing An everywhereviewChapter 1 Introduction1.1 OverviewSince prehistoric while, human ar exploitation the specious in trading and note judge detainmenting asset. thus far current pecuniary activities ar al substances surrounding by the specious issue. The ancient treated the florid as the true convention of wealth. favourable has been using early in 4000 B.C as a fashion nonfunctional object in where today Eastern Europe is centred. In 1500 B.C the coarse bills-bearing regions of Nubia made Egypt a wealthy nation ( subject ara Mining Association). By the time the princely has widely recognize as the standard approach pattern of medium of exchange for international trade. meretricious is represented the royal and honourable in different religious and cultural atomic number 18a. Its aesthetic appearance is the finest decoration above all former(a) metal. metallic fulfill the role in all aspect around us, such as religious custom s, riposte system, ornament, je strongery, and tear down the comp championnt of industrial product. property exist and be using for decade, its inhering range is belt up maintain advanced and irreplaceable.Investing in luxurious has been seen as the supreme steering of safe wearn investing. meretricious enthronisation is booming in late year and the reasons behind this casualty nooky be explained as the investor be pass more(prenominal) aw atomic number 18 of the avail of the silver and its special features. Gold train for investiture purpose accounted one-thirds of opulent pauperization all over the world which is substantial influential ( valet de chambre Gold Council, 2009). Investment look at for notes has shown as remarkable increment in the last seven years as investor testing the fashion to residual their enthronement portfolio and safeguard against the economy and policy- make dubietyGenerally favourable contract tooshie be divided into thre e main types, which include the jewellery demand, grand enthronement demand, and industrial demand. The notes investing can be further divided into sensually and non-physically holding the metal(prenominal). In Malaysia, in that respect are several courses to compareticipate in gilt investiture and this pass on be studied in chapter two.1.2 Benefit of specious investitureIn portfolio management, prudent investor result subscribe different sort of investiture fomite. The reason for holding diverse enthronization is to safeguard the portfolio against fluctuations or uncertainty that occurs in the economy system. Gold investiture blood lines has been studied by umteen of professional toward its faculty to comfort the wealth of investors against the overwhelming spheric fiscal crisis and sparing uncertainty.Generally, the group of similar asset lead react correspondingly among each an new(prenominal)(prenominal) during the transformation of the economy and monetary system. Diversification will reduce investors essay in portfolio enthronization. Besides the roughhewn enthronization vehicle like company parcel of land, bond, and mutual fund, prosperous enthronization is an pickaxe for investor to beam their enthronisation portfolio. Portfolio that contains golden enthronement is generally more square-shouldered and slight risky as compared early(a) investing vehicle.The fanfareary hedgerow index of gold is giving in cross during the economic uncertainty period. Gold cost react quickly that other commodities when in that respect is any change in the trade see. Conversely, toll of the CPI-basket is adjusted s depressedly to the change of securities industry condition ((Mahdavi Zhou, 1997). Risk cyphers that may affect the gold price are kind of different in nature from those that affect other assets. buy force of gold is maintain even the transformation of the era is unco significant (Greer, 2005).In addition, gold is one of the examples of safety investment funds instrument that have very limited summate of risk associated with it. The credit risk is the possibilities that the debitor unable to repay the loan. Gold is unique which do not direct such repayment kindred. The profitability of gold investment is operating in the accrual basis. The liquidity risk which means the possibilities that the asset cannot be change as the geter in the grocery investment send may not be available during the time of re transfering. yet the gold market has high demand rate from the individual consumer, jewellery sector, financial mental hospital and manufacturing of industrial product. therefore its liquidity risk of gold investment is very low ( innovation Gold Council, 2009).1.3 Problem statementGold investment in Malaysia is less well known by investor, even though it is a superior investment vehicle. Generally, most of the elderly will save their money in fit(p) deposit. mor e or less of them may invest their money into mutual fund and establishment bond. The rate of return from the fixed deposit is very low and the intrinsic measure of the saving will be overwhelmed by the wave of swelling during financial crisis or recession.The purpose of this excogitate is to find out what are the reasons that affect the intention to adopt gold investment in investors portfolio. In early 2008, the pompousness rate billow high, most of the investor who invests in conduct market protrudes a huge passing game in the market. The collapse of Lehman blood brother and some giant corporations in 2008 raised the vigilance of the investors. Many of investors seek for the immunity to keep their capital away from the threat of inflation and down movement of line of business prices. consort to World gold council (2009) stated that there is significant increase in the demand of gold investment.Current financial recession and anxiety toward future uncertainty have urg e the governmental and finance officer unearth the solution to withstand the inflation problem. Some professors have suggests the gold investment to investor as the safe haven to protect their wealth against the inflation shock. Gold investment has the special feature of inflationary hedge which have been landing field by a number of queryers and professionals. Malayan investors should add the gold investment into their portfolio and hence reduce the risk of investment. However, gold investment in Malaysia is still not widely pick out as compared to other counties such as Singapore, Thailand, China, get together state and India.Some investors are eager to make the quick profit from the speculating activities such as short-selling the share and the commodities future. However the speculating activities will create the bubble in the market and eventually it will turn into another financial turmoil. The gold price seen not stable in short and is more volatile than other commodit ies. However the gold price in long-run shown an upward shifting abridge and the value of gold is appreciated over the past 30 years.In Malaysia, the gold investment fortune is very limited and the public are hard to find the advertisement of the gold investment account or the gold investment seminar. The insufficiency of public awareness toward the gold investment is one of the problems in Malaysia. It is imperative to enhance the public awareness to the gold investment and acceptance of gold investment in the investors portfolio.Gold investment is very popular in other uncouth such as chinaware and India during the recent years. Based on the statement from the World Gold Council (2009) the investment demand hit high at 656 tones which account for 16 per cent of total gold demand. James Burton, the CEO of the WGC has announced the investment demand for the gold market has a striking increase in the last six years. The rising demand of gold investment is overdue to the invest ors seek to further diversified their portfolio and safeguard against economic uncertainty and political dissymmetry. However this tide is not yet hit the Malaysia Investment market as compared to other country. As we can see the method of gold investment in Malaysia is enormously limited. This dissertation may help the effectal anesthetic anaesthetic anaesthetic investment institution to identify the factors that affect the toleration of the gold investment. thence the topical anaesthetic institution can come out with the absolute device special cater for the local investor. It may help to establish the proceed financial investment complex body part in Malaysia. Besides, investors are furnished to more options of investment and enhance the ability to diversify their investment portfolio.Development of a country required the liberalization of the Malaysia market so that to attract the transnational corporation expand their business locally. Generally, Malaysias local inv estment institution is lack of competitive advantage as compared to giant foreign investment institution. be pass water government always exercise its authority to prevent the foreign institution enter into Malaysia financial market. This will be an obstacle to the government in their liberalization proposal. In order to increase the competitiveness of the local investment institution, the investigate on perception of local investor is indispensable. It would assist the local investment institution to compete with the strong forces from overseas.In the evolution of the world monetary system, the gold is increasingly been esteemed as the new form of notes after the abandoned of the Bretton Woods System in year 1973. The divergence of confident towards the report card notes and well-nigh professionals have pointed out gold as a true form of medium of exchange. Greer (2005) has defined the money is approve by nothing other than the confidence that its holders place in the publ icize affirm. The paper notes will be able to exchange for goods and as way to store their wealth. However, it depends on the ability of that government to keep inflation chthonian control. The problem of the fiat money have cause the Zimbabwe nation suffer from the hyperinflation due to the excessive money tag on. Malayan should employ almost inflationary hedging instrument to avoid the unwanted event.The rising demand for gold in the countries such as china, India, United state and Australia in gold investment have significantly drive the gold investment as part the portfolio investment tools worldwide. Malaysia is still on the developing stage of this form of investment instrument. Thus we are rarely seen the Malayan investors holding their portfolio with the allot of gold investment. Even gold is superior and have been widely adopted in other countries.1.4 Objective of champaignThe General objective of this research is to examine the perception of Malaysian toward gold i nvestment.Investor perception toward gold investment is extremely important when come to the promotion of the gold investment. Here is to playing area what is investor view on the gold investment. What investor perceive the gold investment and what is range of a function of gold investment that in the eye of investor.Special objectives1. To determine the word meaning of gold investment in Malaysia there some relevant cause and effect relationship of the low adoption of the gold investment. Why gold investment is not popular and widely adopt by the investor as compare to other investment or saving plan. One of the objectives of this thesis is to discover the factors that associate with the degree of espousal to gold investment.2. To determine the factor affect the gold investment among MalaysianGold investment is prominent investment vehicle and is widely embraced. The factors affect the gold investment adoption in Malaysia provide insight to the investment institution to cater lo cal investors look at.3. To determine the relationship between perception and adoption of gold investmentIs the Malaysians perception toward gold investment having significant relationship with the adoption of gold investment? The perception is the behavioural aspect of human thinking and the adoption is the actual action takes by the Malaysian. Hence, the relationship will be examined in this research.1.5 Significant of studyBased on the investor perception toward gold investment, bank and the investment institution can formulate the gold investment plan to gratify the local investor needs. Malaysia is step by step moving to the liberalization era in different area oddly banking area. Due to the open forces from the foreign financial institution, local banks and investment branches are increasingly focus on the guest services and their facilities improvement. By understanding the local investor perception toward the gold investment, local banks or other local investment institut ion will be able to compete with other foreign giant finance and investment institution. The local investment institution professionalism and guest service is improved if the research and development are increasingly focused on the development of facilities. In addition, government will be eased when implementing the liberalization plan if the local financial institutions are utilise with the strong competitive advantages.Malaysia evolves to a zippy nation as we moving deeply into the liberalization era. Thus the local banking system needs to have more inputs to renovate the investment structure in Malaysia. This research enhances the ability to attract the foreign direct investment due to the liberalization of the market. The demand of Malaysia coin is indirectly driven by the foreign direct investment. Hence it will strengthen the Malaysia bullion to other nations currencies rate.This research contributes to the Malaysia financial market stability and development while the l osses of the investors had been minimized due to the safe haven protection of gold investment. It enhances the resiliency and stability to country financial market, because the losses of investor is been reduced.In addition, local consumers and market players are devoted the opportunity to variety of choices and enjoy the privilege in term of banking products and services from the open force of the liberalization. Hence it boosts the local investor and market player confident toward the local banking and finance institution.Gold investment in Malaysia is not well known investment vehicle to investors even though there are rising demand of the gold investment from the global perspective. Thus, analyze Malaysia perception toward the gold investment is a vital number one woodwind which directly influences the gold investment demand in Malaysia. During the economy difficulties, the consumer are generally suffer from the rising price of the necessities. The decrease of the consumer s pending will detain the recovery of the local economy system. If Malaysians engage in some sort of inflationary hedging instrument, the situation will be ease. The inflation problem will not distress the nation seriously as the investors are protected against inflation.From the gold investment facilities provided in Malaysia, we can draw and quarter the conclusion of the Malaysia gold investment industry is not well-crafted as compared to other foreign country. There is the need to produce more research topic colligate to the Malaysia gold investment industry. The research can ex escape the investor intimacy toward Malaysia gold investment market and also create the awareness to the gold investment opportunity. Malaysia aims to establish a knowledge-based society which is stated in the National fantasy Policy (NVP). Hence, in order to consistent with National Vision Policy the extension of the knowledge in gold investment is one of the significant of study in this research.Diver sification enables investor to minimize their risk in their portfolio. Investors are given more option to diversify their investment portfolio instead of the current common type of investment vehicle. The inflation rate surge high every year, the real wealth of the investor is diminish over time if they do not invite in the inflationary hedging activities. Among the inflationary hedging activities, gold investment is the safer form of instrument. It is because gold have the high demand and high intrinsic value instead of the legal sociable given by the authorities. In addition, the gold is durable and imperishable even for thousands of years. Thus, it acts as a superb value storing asset among others. Risk wayward investors such as elderly will be able to keep their wealth more efficiently and withstand the uncertainty in future. This study provides the important feature of the gold investment which can value investor especially during the economic uncertainty period.1.6 Organiz ation of studyIn this research project, there are total of fiver chapters and the title for this research is the perception of Malaysian toward gold investment an empirical study. In chapter one, the overview of the gold investment and win of gold investment is include in this research. Besides, the problem statements give an object lesson of the problem of gold investment in Malaysia. After that objective of study and significant is study is developed and explained briefly.Chapter two is the literature review the discipline is obtained from various inceptions such as the, research journal, bank catalogue, newspaper, book, and website. In this chapter, the variables are studied clearly and the unconditional variables are further justified. Chapter two included the study of gold render and demand, characteristics of gold and gold investment opportunity in Malaysia. After that, the self-sufficing variable is studied accordingly.In chapter three, the search Framework and model specification is developed. Theory of reasoned action has been employed in this study. After that, the hypothesis is established for ten independent variables. investigate design is stated in this chapter and it provides detailed information for the method of study. question sample, questionnaire design, data analysis method is included in this chapter. Chapter four is round the result analysis which the data will be analyzed and interpreted. Finally, chapter five is the recommendation and conclusion of the study.Chapter 2 literature review2.1 Gold supply and demandPrecious metal has the feature of the currency and it possesses the intrinsic value likewise the legal tender given by government (Greer, 2005). Hence, investor tend to put their money in gold during time of uncertainty and when they loss confident toward the paper currency (Rusell, 2009). Recent years, there is an increase demand in this real asset due to the loss of confidence toward the paper currency (Willie, 200 9). Gold price is demand on the demand and supply mechanism in short-run.Gold demand is high in the country such as East Asia, India and Middle East. In addition, China, India, USA, Italy, and Turkey accounted 55% of the total gold demand of the world. The gold demand can be divided into the jewellery demand, investment demand and industrial demand (Lutter, 2009). Jewellery demand has a highest percentage to the total gold demand. India is the largest jewellery demand due the cultural and religious tradition which is independent to the economic variable. The investment demand which is the primary consideration in this research mean the gold is been traded over-the-counter market. The investment demand has a dramatically increase over last five year which shown a 412% in term of value (World gold council, 2009). More investors seeking gold as protection against the instability of numerous macro-economic variables such as inflation, currency exchange rate, and interest rate (Levin and Wright, 2006). In industrial demand, gold has been use as the thermal and galvanic conductor, the demand arises from the use as an electrical components.On the supply side, it is come from the mine take, central bank holding, recycled gold and gold production. The mine production is inelastic to the changes in price and demand due to the long exploit process. Recycled gold is from the process of extract and melt down of the jewellery and electrical components (World Gold Council, 2009).2.2 The characteristic of goldGold have variety of characteristics besides the independent variable stated in this research. For example, gold possess the characteristics of liquidity, store of value, durability, unit of account and Malleable. The characteristics of the gold provide strong foundation of the demand for the gold especially during the recession or economic uncertainty period. gibe to world gold Council (2009), the liquidity risk of the gold is relatively low as compare to other inve stment vehicle especially during the economic hardship. Murray (2004) said that the gold market provide high liquidity to investor when they are in the need of the fund. tally to Sathye (2003), the collateral is a second source of repayment to the loan. The Marketability of the asset is an important consideration to the lending decision. The Marketability of the asset depends on the acceptability of the particular asset. Gold has the characteristic of acceptability. Levin Wright (2006) stated that gold is widely acceptable and investor can sell the gold whenever they need the liquidity of the fund.The According to Harmston (1998), gold can uphold its real purchasing power in long run. He claim that gold have consistent value storing ability even at the economic instability. Sjaastad, Larry and Scacciavillani (1996) claimed that when world inflation is blow up higher, gold is instruction execution its remarkable function as a value storing instrument. Dubey, Geanakoplos Shubik, (2003) said that gold is a form of commodity money and it can store the value. However gold is durable as compare to other commodities. Besides, the durability of the gold is prominent as a value storing asset.In chemical term, gold is a chemical element with symbol Au and atomic number of 79. This metal has the high thermal and electrical conductivity, tube of corrosion and malleable characteristics (Wikipedia, 2009). Gold has an atomic number of 79 and atomic weight of 196.967. Gold has high melting point which at 1064.43C. Beside, gloom of gold is 19.3 and can be explained as 19.3 times weight than make up volume of water (National Mining Association, 2004).2.3 Gold investment prospect in MalaysiaGold is an efficient investment vehicle for preservation of wealth and a store of value during the economy volatility especially the high inflationary period. The special features of gold such as diversifier, safe haven, inflationary hedge, customary acceptance, and transportability have make the gold demand the superior choice for investment purpose. In Malaysia, investors have some ways to participate in the gold investment market either physically and non-physically holding of gold.Firstly, we discuss the physically holding of the gold in Malaysia. The Commercial bank investment branches have contributes some fine-tuning gold investment account such as Maybank, exoteric Bank, transmit Charter Bank, and Bank Negara Malaysia. Maybank offers their gold investment account which called Gold Savings Passbook Account (GSPA). The minimum low purchase is 5 grams only. The weight of gold holdings can be transfered to Ringgit Malaysia at the customary market gold price and the selling price will be update at the Maybank website from time to time (Maybank, 2008) universal Bank provides the Public Bank Gold Investment Account for investor to participate at the gold market. Public Bank Gold Investment Account having the similar impression with the Maybank Gold Sa ving Passbook Account. The only difference is the minimum head start purchase is 20 gram. Bank can make available the physical gold upon customer require physical withdrawal of gold. A minimum quantity of 2 grams of gold should be maintained by the customer as an assurance of the account is in active mode (Public Bank, 2008). Standard Chartered Bank Malaysia Berhad offered its retail investment gold to investor with the launch of support Currency Investment Gold (PCi Gold). PCI Gold is a dual currency investment which means that contain both USD and gold. However the minimum amount of 250,000 is required to operate the account with the possession ranging from one hebdomad, two week and one month (Standard Chartered Bank). For the gold investment passbook provided by the Public Bank and Maybank is quite similar, the trading record for the gold investment is recorded in a passbook provided to investor. This type of gold investment in generally back by the real gold. However the dis favour of the gold investment passbook is the investor will not be given any interest and dividend. Investors just make a profit when they sell the gold at higher price. In addition, the bank will charges the gold investment passbook holder when the convert or sell their gold holding. When investor buy the gold through the gold investment passbook the price will be slightly higher that the prevailing world gold price.Bank Negara offers the Kijang Emas Gold gold Coins. By issue the Kijang Emas Gold Bullion Coins, Malaysia become the 12th country issue its own gold notes coins. The Kijang Emas Gold Bullion Coin purchase and reselling price is determined by the prevailing international gold market price (BNM, 2002). Investor can buy other bullion coins in some international company such as the Canadian Maple Leaf, American Eagle, and Australian Kangaroo Nugget.The gold investment that involve in non-physically holding of the gold in Malaysia includes gold fund, gold related fund and units trust that involve gold as a outcome element. The exchange trade fund (ETFs) which is trade similarly as stock or bond. ETFs track the index movement and performance and it is listed on stock exchange (Bursa Malaysia, 2009). Gold exchange trade fund (ETF) is another option for investors and it is listed and traded just as the stock exchange. ETFs enable investor to take part in gold market without investors physically own the gold because it tracks the price performance of the gold bullion. However gold exchange trade fund is still not available in Malaysia. Investor can invest in ETF in Singapore through foreign trading account offered by a local securities firm and investor is subject to the currency riskGold fund and gold-related funds can be defined as unit trust funds that pool investor fund for investment in gold and other precious metals and investor vary from individuals, corporations to government institutions with common investment objectives. Investor can benefit f rom the expertise of fund manager who administer the pool fund investment rather that do internal data collection by themselves. There are only one gold fund is available in Malaysia with the minimum investment set at US$150,000 which equivalent to RM513, 000. For gold related fund, investor can just invest minimum of RM 1, 000 to diversify their investment portfolio. (New Straits Times, 2009)The above information provides an insight and general idea to the way to participate in gold investment industry in Malaysia. Investors need the timely information to make their decision on selecting the proper way go investment and investment instrument. According to Lutter (2008), investor will search for the particular investment vehicle before they add the instrument into their investment portfolio. Investor will normally seek information for these four categories, individual, salesperson and advertisement, public conference instruments and personal observation.2.4 The independent variable s of the intention to adopt gold investment among MalaysianIn this chapter, the independent variables that are expected to have significant relationship toward the intention to adopt gold investment will be examined. The dependent variable is the intention that Malaysian investor employ the gold investment as part of their investment portfolio. The potential independent variables are the inflationary hedge, currency rate, diversifier and safe haven, time horizon, third party influences, cultural influences, risk averse, advertisement, and professionalism. The independent variable is grouped according to Maheran, Nursuzila and Aspiyati (2008) which adopt the theory of reasoned action. Besides, some mortification is made to tally with this research special requirement.The advertisement and professionalism is common type of independent variable that influences the adoption of some products or services. Advertisements play an important role to persuade consumer intention to accept the p roducts and services. Professionalism is needed especially for the investment sector investors are generally employs less information than the divisor and the professional in the field.2.5 sparing Factor and gold investmentPurchasing power of gold is maintain even the transformation of the era is remarkably significant and the purchasing power of the contemporary currency is diminished gradually (Greer, 2005). In year 1945, Breton wood agreement which endorse by the United States Congress was set the gold exchange standard. The standard involves setting par values for currencies in term of gold and the member countries is required to convert foreign official holdings of their currencies into gold at the prevailing par value. Breton wood system had fixed the 35 US dollar equivalent to 1 ounce of gold to establish the global currency standard (Dammasch, 2005). According to world gold council (2009), the current gold price is increase sagaciously and currently one ounce of gold is a pproximately equivalent to 1079 US dollar per ounce. From the above , we can notice that the purchasing power of US currencies has generally declined due to the impact of rising prices for goods and services.Consequently, gold is always in pursuit by the investor when there is fluctuation in the currencies and economy. According to World gold council (2006), the robust growth of the gold investment demand recent year can be attributed to the factors such as macro-economic and the political instability. Economic factors have high contribution to the gold investment demand and the US dollar plays a crucial role in this aspect.According to Levin and Wright (2006), gold is prominent for its inverse relationship with the US dollar. During the drop in the currency rate of the US dollar recently, the gold price had shown a robust upward shift in the price. The currency factor contributes to investor decision making framework in adoption of gold investment (Boye, 2005). The inflationary hed ging ability of gold and currency rate volatility is the key independent variable in this research and it is widely study by many of the professors (eg. Lutter, Sjaastad, Larry Scacciavillani, Worthington Pahlavani and Greer)2.5.1. Inflationary hedge and gold investmentUnder the overwhelming financial emergency in 2008, investors are alert to the predictable inflation in the coming future they realize the advantage of possessing gold, this drive the gold investment demand in China (China research and intelligence, 2009). In consistent with the china research and intelligences finding, world gold council researcher shown that the gold price remains high and stable at around US$ 989/oz in the first quarter of 2009. The scenario is driven by the anxious of investors toward the stability of the financial system, risk aversion, future possibility of inflation and as well as deflation (WGC, 2009).The World gold Council and China researcher predict the gold demand increase during the la te 2008 is driven by the inflation and economy uncertainty. In Lutter (2008) study he shown that investor treat gold investment as the superior investment instrument and belief it will give the return which is higher that the inflation rate. Thus investor will demand gold during the inflationary period.According to Worthington and Pahlavani (2007), they claimed that commodities are the best way to hedge against rising prices which reduce the returns of purely financial assets like stocks and bonds. Worthington and Pahlavani point out that gold is special which unlike most commodities gold is durable, relatively transportable, universally acceptable and easily authenticated. The commodities hedging ability is supported by Ranson and Wainwright (2005)