2021 is finally coming to an end. By this time of the year, I would usually feel that the last 12 months have flown by and I struggle to see where the time has gone. The pandemic / endemic with the lockdown still feels like an eternity.
It feels much the same when it came to investing in Malaysia. The year started with huge expectations for gold. Gold ended 2020 around RM7,600 – a whopping annual increase of 23%. The perfect hedge against the Ringgit that had weakened against the US dollar and the KLCI which ended the year unchanged at RM1,602. Many expected gold to kick on in 2021 and have another storming year. But it disappointed many investors because, as of 13 December, gold has fallen slightly by 1% to RM7,518.
Should we be disappointed? On balance, I think gold has done exactly what it is expected to do for most Malaysians – act as a hedge against our Malaysian investments and our cash in the banks. Over the last 12 months, the Ringgit has weakened by nearly 5% and the KLCI has fallen by more than 6%. In this context, for Malaysians who do not have the ability to invest outside Malaysia, gold is playing its part – it is providing a natural insurance against a weak Malaysian economy.
Source: World Gold Council, investing.com and goldprice.org
Gold had a horrible first quarter with many analysts pointing their fingers at increasingly upbeat investor sentiment in expectation of the global economy recovering from the impact of COVID-19. But gold made a comeback in Q2 as it became clear that the economic recovery from the pandemic was going to be rocky. The second half of the year has been muted with the markets caught between optimism that all is well in the global economy and persistent signs of inflationary pressures. I personally believe that the inflationary pressures are not temporary but are going to be with us for the longer term. In spite of this view, it does not surprise me that gold has not done better. Because the market will continue to take advantage of policymakers’ strategy of quantitative easing for as long as it is able to do so.
Source: World Gold Council, investing.com and goldprice.org
So 2021 wasn’t as great for gold as we might have expected when the year started. Because many expected a repeat of 2020. But still, it performed better than the KLCI. And investors would have certainly minimised the loss in value in RM if they had held their spare cash in gold instead of their local fixed deposits. For me, 2021 proved the value of holding gold against putting too much in your savings account or the KLCI.
Perhaps 2022 will see gold deliver what some of us expected it to deliver in 2021. Time will tell. Of course, I have my own views which I hope to set out in my next post in January.