The Case for Holding Gold in a Market Correction & Strengthening Ringgit Environment

Making the Most of the Ringgit Strength

The Ringgit’s resurgence has dampened the risk appetite of investors when allocating into offshore assets.

As the Ringgit continues its steady climb upwards, rallying by over 3.66% YTD (as at 30 January) to close at 3.899 – many investors are rightfully anxious about unfavourable forex translation, when converting back their investments into the local currency.

However, chasing currency movements is often a superfluous exercise and investors are bound to get burnt.

Instead, investors should avoid such short-sightedness and take the opportunity to also capitalise on the Ringgit’s strength to diversify their portfolios and allocate a portion of their holdings into offshore assets including gold which is denominated in USD, and hence diversify their currency exposure.

Markets Enter Correction Phase

With the S&P and Nasdaq repeatedly pivoting to all-time highs, and the momentum in markets looks set to continue unabated, underpinned by positive earnings revision and rising corporate profits following the passage of US tax reforms and strengthening crude oil prices – some investors are also understandably cautious of how long until the rally starts to dissipate.

In fact, we already see markets puling back which is likely an overdue correction, as markets begin to reprice itself and settle to more healthy levels.

After a strong start to the year, global equities were broadly down as a bond rout deepened which lifted US Treasury Yields to a 4-year high of 2.84%.

The US Treasury yield will now test the 3% level, as bond markets come under pressure from rising optimism over the strength of the economy and expectations that inflationary pressures are mounting, as global central banks also embark on their balance sheet unwinding process and gradually withdraw monetary stimulus.

Market volatility as measured by the VIX index is picking up and credit spreads have widened, implying that market volatility is rising.

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