GEORGE TOWN: The value of gold jewellery exports from Malaysia is projected to decline by 15% to 20% this year as the first five months of export data showed signs of weakening overseas purchases.
According to Malaysia External Trade Development Corp, the country exported RM2.29bil worth of gold jewellery products from January to May, which was slightly more than the RM2.24bil registered for the same period a year ago.
The top buyers were Singapore, the United Arab Emirates (UAE), Japan, Hong Kong, and Australia.
In 2021, Malaysia exported RM4.8bil worth of gold jewellery products.
“The easing of restrictions and consumer confidence boosted the gold jewellery consumption in Australia, UAE, Singapore, and Japan in the first quarter of 2022.
“In the second quarter, we can see overseas purchases losing momentum due primarily to rising interest rates and a tighter credit situation that stemmed liquidity flow in the market.
“Although international borders have reopened, Japan and Australia had stringent visa requirements thus deterring gold jewellery exporters from visiting potential overseas customers. Many of our members focused on domestic sales, driven by pent-up demand and backlogged weddings,” Penang Goldsmith Association (PGA) adviser Joeson Khor told StarBiz.
In the first quarter of 2022, jewellery demand in Malaysia rose by 23% year-on-year to over three tonnes despite higher gold prices.
Khor said the recent plunge in the gold price to US$1,744 (RM7,759) per ounce should keep the local market interested in gold jewellery products.
“In January, we couldn’t foresee the Russian-Ukraine War breaking out, and so we forecast that the value of exports would increase due to the improvement in terms of the neighbouring economies
“However, the war has since dampened market sentiment and raised interest rates, which made the holding cost for gold expensive,” he added.
About 80% of Malaysian gold jewellery exports come from Penang-based manufacturers and exporters. More than 60% of the 650 PGA members are small and medium companies with an annual turnover of less than RM25mil.
Malaysian Institute of Economic Research head of research Shankaran Nambiar said there would be another round of interest rate hike in the second half to pummel gold price to below US$1,700 (RM7,563) per ounce, finding support at around US$1,670 (RM7,430) before the year ends.
“The data from the United States showed that inflation was at a fresh four-decade high. The consumer price index rose 9.1% from a year earlier, the largest gain since the end of 1981. The data will strengthen the Federal Reserve’s resolve to raise interest rates to curb inflation.
“Furthermore, the latest job data in the United States showed unemployment remained subdued. The US unemployment rate in June stood at 3.6%,” Nambiar said.
He added that Bank Negara would likely raise rates again in September after having increased rates by 26 basis points to 2.25% recently.
“High-interest rates will keep a tight rein on gold and gold jewellery prices, credit availability, liquidity flow and business expansion, predisposing consumers to exercise caution on spending.
“However, the price of gold jewellery products will be attractive to sustain interest in the precious metal market,” he said.
According to Nambiar, the recent plunge in gold prices was due to the greenback index hitting a new record high.
In June, the US federal reserve increased rates by 0.75% to 1.5% to 1.75%.
“In mid-June, the greenback index, which measures the currency against a basket of six peers, surged to above 104.70.
“It’s the dollar’s highest level relative to major peers since late 2002 when the index traded above 105 for much of the period in the two years prior.
“When the dollar is strong, the precious metal priced in dollars is more expensive for buyers using other currencies.
“High-interest rates also keep the holding cost of gold expensive.
“So it wasn’t a surprise to see investors selling gold, preferring to hold US bonds that yield attractive returns,” he added.