January 22, 2006

Poh Kong: Ever-Rising Gold Price Can Hurt


GOLD'S fast-rising price since February last year is proving to be a double-edged sword to local jewellers like Poh Kong Holdings Bhd.

On the one hand, the higher gold price results in higher retail prices which increase profits. On the other hand, it dampens demand for their products.

No matter the retail prices, jewellers make a fixed profit margin of about 18 per cent - as recommended by the Malaysian Goldsmith Association - on the gold items they sell, said Poh Kong executive director Ermin Siow.

"So the higher gold price will actually help us, in value terms, to increase our profits. But if the price trend keeps increasing, it will be bad for customers," he told reporters after the company's annual general meeting yesterday.

Poh Kong is Malaysia's largest jeweller with 67 outlets nationwide. The company is expected to have 70 outlets by the financial year ending July 31 2006.

The price of gold, after being stagnant for many years, rose 18 per cent last year. It is currently trading at about US$550 (about RM2,063) an ounce, compared with last year's average of about US$500 to US$510 (about RM1,875 to RM1,913).

"We hope it will stay at this price, or even lower," Siow said.

Precious metals analysts, however, are predicting that it could easily go up to US$600 to US$650 (about RM2,250 to RM2,438) an ounce in the next six months.

This is because, in an increasingly uncertain global environment, more and more fund managers are diverting their interest to the metal.

"If fund managers apportion just a little of their funds into gold, the price goes up by quite a bit," Siow said.

The Japanese, for instance, are the world's biggest buyer of gold for investment purposes. In Malaysia, however, it is not common practice for fund managers to invest in gold.

"Investment in gold in Malaysia is still very much in the infancy stage. People here buy gold for aesthetic purposes and gifts," Siow said.

On Poh Kong's outlook, he said the company expects to achieve better sales this fiscal year as new outlets come on stream.

Siow said festive periods such as the Chinese New Year should see Poh Kong making 10-15 per cent increase in sales.

The recent Hari Raya celebration was particularly good for the company, with some outlets doubling sales.