Gold investment: An overview

bills enthronisation An oerviewChapter 1 Introduction1.1 OverviewSince prehistoric time, human are using the cash in trading and take invoice keeping plus. Even current financial activities are always surrounding by the deluxe issue. The ancient treated the princely as the true form of wealth. halcyon has been using early in 4000 B.C as a fashion decorative object in where today easterly Europe is centred. In 1500 B.C the gigantic lucky-bearing regions of Nubia made Egypt a wealthy nation ( bailiwick Mining Association). By the time the metal(prenominal) has widely recognize as the standard form of medium of exchange for international trade. specious is represented the royal and honourable in different religious and cultural area. Its aesthetic bearing is the finest ornament above all other metal. Gold bit the role in all aspect around us, such as religious customs, satisfy system, ornament, jewellery, and even the component of industrial product. Gold exist and be using for decade, its built-in honor is still maintain high and irre surfaceable.Investing in flamboyant has been seen as the supreme way of safe stomachn enthronization. Gold enthronement funds is booming in recent division and the reasons behind this incident can be explained as the investor become more aware of the benefit of the amber and its particular(a) consecrates. Gold contain for enthronement purpose accounted one-thirds of capital beg all over the world which is substantial influential (World Gold Council, 2009). Investment demand for metal(prenominal) has shown as substantial increase in the last seven years as investor seeking the fashion to balance their investing funds portfolio and safeguard against the economy and political questionGenerally amber demand can be divided into three main types, which included the Jewellery demand, gilded investment demand, and industrial demand. The florid investment can be just divided into physically and non-ph ysically holding the gilt. In Malaysia, in that respect are several ways to participate in bills investment and this impart be studied in chapter two.1.2 Benefit of gold investmentIn portfolio management, prudent investor will have different sort of investment fomite. The reason for holding diverse investment is to safeguard the portfolio against fluctuations or uncertainty that occurs in the economy system. Gold investment has been studied by many of sea captain toward its ability to protect the wealth of investors against the overwhelming global financial crisis and stinting uncertainty.Generally, the pigeonholing of similar asset will react correspondingly among each other during the transformation of the economy and financial system. Diversification will reduce investors risk in portfolio investment. Besides the super acid investment vehicle like company share, bond, and mutual fund, gold investment is an option for investor to diversify their investment portfolio. Port folio that contains gold investment is in general more robust and less risky as compared other investment vehicle.The pre hug drugtiousnessary hedging ability of gold is prominent in particular during the economic uncertainty period. Gold price react quickly that other commodities when there is any change in the grocery condition. Conversely, price of the CPI-basket is adjusted slowly to the change of commercialise condition ((Mahdavi Zhou, 1997). Risk factors that may locomote the gold price are quite different in nature from those that impinge on other assets. Purchasing function of gold is maintain even the transformation of the era is remarkably significant (Greer, 2005).In addition, gold is one of the examples of safety investment instrument that have rattling limited amount of risk associated with it. The credit risk is the possibilities that the debtor unable to repay the loan. Gold is unique which do not incriminate such quittance family relationship. The profit ability of gold investment is operating in the accrual basis. The liquidity risk which ungenerouss the possibilities that the asset cannot be sold as the buyer in the market may not be purchasable during the time of reselling. However the gold market has high demand rate from the individual consumer, jewellery sector, financial institution and manufacturing of industrial product. thusly its liquidity risk of gold investment is in truth low (World 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 fixed deposit. Some of them may invest their money into mutual fund and government bond. The rate of re turn over from the fixed deposit is very low and the intrinsic value of the saving will be overwhelmed by the wave of fanfare during financial crisis or recession.The purpose of this choose is to find out what are the reasons that affect the endeavor to adopt gold investment in investors portfolio. In early 2008, the inflation rate surge high, most of the investor who invests in share market suffers a huge loss in the market. The collapse of Lehman brother and many giant corporations in 2008 raised the vigilance of the investors. Many of investors seek for the immunity to keep their superior away from the threat of inflation and downward movement of bloodline prices. According 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 urge the political and finance officer unearth the solution to hold water 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 resume by a number of researchers and professionals. Malaysian 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 adopted as compared to other counties such as Singapore, Thailand, china, United state and India.Some investors are intent to deal 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 finally it will turn into another financial turmoil. The gold price seen not stable in short and is more volatile than other commodities. However the gold price in long-run shown an upward shifting trend and the value of gold is appreciated over the past 30 years.In Malaysia, the gold investment opportunity is very limited and the public are hard to find the advertisement of the gold investment account or the gold investment seminar. The deprivation of public awareness toward the gold investment is on e of the problems in Malaysia. It is imperative to enhance the public awareness to the gold investment and adoption of gold investment in the investors portfolio.Gold investment is very popular in other orbit 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 due to the investors seek to further diversified their portfolio and safeguard against economic uncertainty and political instability. 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 attend to the local anaesthetic anaesthetic investment institution to identify the factors that affect the adoption of the gold investment. Thus the local institution can come out with the absolute plan special cater for the local investor. It may help to establish the sound financial investment structure in Malaysia. Besides, investors are furnished to more options of investment and enhance the ability to diversify their investment portfolio. study of a country required the loosening of the Malaysia market so that to attract the multinational corporation expand their business locally. Generally, Malaysias local investment institution is lack of competitive advantage as compared to giant foreign investment institution. Hence government always exercise its authority to prevent the foreign institution disgrace into Malaysia financial market. This will be an obstacle to the government in their liberalization plan. In order to increase the competitiveness of the local investment institution, the research 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 view as the new form of funds after the abandoned of the Bretton Woods System in year 1973. The loss of confident towards the paper notes and some professionals have pointed out gold as a true form of medium of exchange. Greer (2005) has defined the money is backed by nothing other than the confidence that its holders place in the issuing bank. The paper notes will be able to exchange for goods and as way to pedigree their wealth. However, it depends on the ability of that government to keep inflation under control. The problem of the fiat money have cause the Zimbabwe nation suffer from the hyperinflation due to the excessive money fork up. Malaysian should employ some 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 Malaysian investors holding their portfolio with the portion of gold investment. Even gold is superior and have been widely adopted in other countries.1.4 accusing of studyThe General objective of this research is to examine the perception of Malaysian toward gold investment.Investor perception toward gold investment is extremely important when come to the forward motion of the gold investment. Here is to study what is investor view on the gold investment. What investor perceive the gold investment and what is image of gold investment that in the eye of investor. particular(prenominal) objectives1. To determine the adoption of gold investment in MalaysiaThere some relevant cause and effect relationship of the low adoption of the gold investment. wh y 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 local investors need.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 behavioral 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 inv estment institution can formulate the gold investment plan to gratify the local investor needs. Malaysia is gradually moving to the liberalization era in different area especially banking area. Due to the open forces from the foreign financial institution, local banks and investment branches are increasingly focus on the customer services and their facilities improvement. By understanding the local investor perception toward the gold investment, local banks or other local investment institution will be able to compete with other foreign giant finance and investment institution. The local investment institution professionalism and customer service is improved if the research and study are increasingly focused on the phylogenesis of facilities. In addition, government will be eased when implementing the liberalization plan if the local financial institutions are employed with the strong competitive advantages.Malaysia evolves to a resilient nation as we moving deeply into the libera lization era. Thus the local banking system needs to have more in vomit ups 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 money is indirectly driven by the foreign direct investment. Hence it will strengthen the Malaysia currency to other nations currencies rate.This research contributes to the Malaysia financial market stability and development while the losses 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 presumptuousness 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 to ward 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 driver 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 spending 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 agony the nation seriously as the investors are protected against inflation.From the gold investment facilities provided in Malaysia, we can draw 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 related to the Malaysia gold investment industry. The research can take to the woods the investor knowledge 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 Vision 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.Diversification 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 substantial wealth of the investor is diminish over time if they do not involve 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 in trinsic value instead of the legal tender given by the authorities. In addition, the gold is perdurable and imperishable even for thousands of years. Thus, it acts as a superb value storing asset among others. Risk adverse 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 benefit investor especially during the economic uncertainty period.1.6 Organization of studyIn this research project, there are total of five 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 benefit of gold investment is included in this research. Besides, the problem statements give an illustration 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 l iterature review the information is obtained from various cums such as the, research journal, bank catalogue, newspaper, book, and website. In this chapter, the varyings are studied clearly and the self-employed person variables are further justified. Chapter two included the study of gold supply and demand, characteristics of gold and gold investment opportunity in Malaysia. After that, the independent variable is studied accordingly.In chapter three, the Research Framework and model specification is developed. Theory of reason out action has been employed in this study. After that, the hypothesis is established for ten independent variables. Research design is stated in this chapter and it provides detailed information for the method of study. Research sample, questionnaire design, data analysis method is included in this chapter. Chapter quatern is about the result analysis which the data will be analyzed and interpreted. Finally, chapter five is the recommendation and concl usion 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 besides 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, 2009). 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 tr adition 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 electrical conductor, the demand arises from the use as an electrical components.On the supply side, it is come from the mine production, primordial bank holding, recycled gold and gold production. The mine production is inelastic to the changes in price and demand due to the long mining process. Recycled gold is from the process of suggest 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.According to world gold Council (2009), the liquidity risk of the gold is relatively low as compare to other investment 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. According 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 satisfactory and investor can sell the gold whenever they need the liquidity of the fund.The According to Harmston (1998), gold can uphold its real get 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 surging higher, gold is performance its incomparable 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 gene with symbol Au and atomic number of 79. This metal has the high thermal and electrical conductivity, resistance of corrosion and malleable characteristics (Wikipedia, 2009). Gold has an atomic number of 79 and atomic weight of 196.967. Gold has high m elting point which at 1064.43C. Beside, gravity of gold is 19.3 and can be explained as 19.3 times weight than represent 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, universal 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 both(prenominal) 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, Public Bank, Standard Charter Bank, and Bank Negara Malaysia. Maybank offers their gold investment account which called Gold Savings Passbook Account (GSPA). The minimum beginning leverage is 5 grams only. The weight of gold holdings can be converted to Ringgit Malaysia at the prevailing market gold price and the selling price will be update at the Maybank website from time to time (Maybank, 2008) Public Bank provides the Public Bank Gold Investment Account for investor to participate at the gold market. Public Bank Gold Investment Account having the similar concept with the Maybank Gold Saving Passbook Account. The only difference is the minimum first purchase is 20 gram. Bank can make on hand(predicate) 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 Premium 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 week, 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 disadvantage 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 Bullion Coins. By issue the Kijang E mas Gold Bullion Coins, Malaysia become the 12th country issue its own gold bullion 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 core 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 bull ion. 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 yield to the currency riskGold fund and gold-related funds can be defined as unit trust funds that jackpot 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 from 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 resembling 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 inves tment industry in Malaysia. Investors need the by the bye 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 communication instruments and personal observation.2.4 The independent variables 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 influen ces, 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 products and services. Professionalism is needed especially for the investment sector investors are generally employs less information than the agent and the professional in the field.2.5 Economic 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 Con gress 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 mark 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 sharply and currently one ounce of gold is approximately 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 polit ical 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 hedging 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 (C hina 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 turd 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 late 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)