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Gold investment: An overview

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Chapter 1: Introduction

1.1 Overview

Since prehistoric time, human are using the gold in trading and value keeping asset. Even current financial activities are always surrounding by the gold issue. The ancient treated the gold as the true form of wealth. Gold has been using early in 4000 B.C as a fashion decorative object in where today Eastern Europe is centred. In 1500 B.C the gigantic gold-bearing regions of Nubia made Egypt a wealthy nation (National Mining Association). By the time the gold has widely recognize as the standard form of medium of exchange for international trade. Gold is represented the royal and honourable in different religious and cultural area. Its aesthetic appearance is the finest ornament above all other metal. Gold play the role in all aspect around us, such as religious customs, reward system, ornament, jewellery, and even the component of industrial product. Gold exist and be using for decade, its intrinsic value is still maintain high and irreplaceable.

Investing in gold has been seen as the supreme way of safe haven investment. Gold investment is booming in recent year and the reasons behind this incident can be explained as the investor become more aware of the benefit of the gold and its special features. Gold demand for investment purpose accounted one-thirds of gold demand all over the world which is substantial influential (World Gold Council, 2009). Investment demand for gold has shown as significant increase in the last seven years as investor seeking the fashion to balance their investment portfolio and safeguard against the economy and political uncertainty

Generally gold demand can be divided into three main types, which included the Jewellery demand, gold investment demand, and industrial demand. The gold investment can be further divided into physically and non-physically holding the gold. In Malaysia, there are several ways to participate in gold investment and this will be studied in chapter two.

1.2 Benefit of gold investment

In portfolio management, prudent investor will have different sort of investment vehicle. 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 professional toward its ability to protect the wealth of investors against the overwhelming global financial crisis and economic uncertainty.

Generally, the group of similar asset will react correspondingly among each other during the transformation of the economy and financial system. Diversification will reduce investor's risk in portfolio investment. Besides the common investment vehicle like company share, bond, and mutual fund, gold investment is an option for investor to diversify their investment portfolio. Portfolio that contains gold investment is generally more robust and less risky as compared other investment vehicle.

The inflationary hedging ability of gold is prominent especially during the economic uncertainty period. Gold price react quickly that other commodities when there is any change in the market condition. Conversely, price of the CPI-basket is adjusted slowly to the change of market condition ((Mahdavi & Zhou, 1997). Risk factors that may affect the gold price are quite different in nature from those that affect other assets. Purchasing power 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 very 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 involve such repayment relationship. The profitability of gold investment is operating in the accrual basis. The liquidity risk which means the possibilities that the asset cannot be sold as the buyer in the market may not be available 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. Thus its liquidity risk of gold investment is very low (World Gold Council, 2009).

1.3 Problem statement

Gold 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 return from the fixed deposit is very low and the intrinsic value of the saving will be overwhelmed by the wave of inflation during financial crisis or recession.

The purpose of this study is to find out what are the reasons that affect the intention to adopt gold investment in investor's 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 capital away from the threat of inflation and downward movement of stock 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 withstand 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 study 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 eager to make 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 lack of public awareness toward the gold investment is one of the problems in Malaysia. It is imperative to enhance the public awareness to the gold investment and adoption of gold investment in the investor's portfolio.

Gold investment is very popular in other country such as china 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 thesis may help the local 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.

Development of a country required the liberalization of the Malaysia market so that to attract the multinational corporation expand their business locally. Generally, Malaysia's 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 enter 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 esteemed as the new form of currency 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 store 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 supply. 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 Objective of study

The 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 promotion 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.

Special objectives:

1. To determine the adoption of gold investment in Malaysia

There some relevant cause and effect relationship of the low adoption of the gold investment. Why 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 Malaysian

Gold 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 investor's need.

3. To determine the relationship between perception and adoption of gold investment

Is the Malaysian's perception toward gold investment having significant relationship with the adoption of gold investment? The perception is the behavioural 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 study

Based on the investor perception toward gold investment, bank and the investment 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 development are increasingly focused on the development 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 liberalization era. Thus the local banking system needs to have more inputs 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 currency is indirectly driven by the foreign direct investment. Hence it will strengthen the Malaysia currency to other nation's 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 given 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 toward 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 distress 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 extend 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 real 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 intrinsic value instead of the legal tender given by the authorities. In addition, the gold is durable 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 study

In 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 literature review; the information is obtained from various sources such as the, research journal, bank catalogue, newspaper, book, and website. In this chapter, the variables are studied clearly and the independent 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 reasoned 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 four is about the result analysis which the data will be analyzed and interpreted. Finally, chapter five is the recommendation and conclusion of the study.

Chapter 2: literature review

2.1 Gold supply and demand

Precious 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 tradition 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, central 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 extract and melt down of the jewellery and electrical components (World Gold Council, 2009).

2.2 The characteristic of gold

Gold 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 acceptable and investor can sell the gold whenever they need the liquidity of the fund.

The According to Harmston (1998), gold can uphold its real purchasing 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 remarkable 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 element 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 melting point which at 1064.43°C. Beside, gravity of gold is 19.3 and can be explained as 19.3 times weight than equal volume of water (National Mining Association, 2004).

2.3 Gold investment prospect in Malaysia

Gold 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 either 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 first purchase 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 available 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 Emas 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 bullion. 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 subject to the currency risk

Gold fund and gold-related funds can be defined as unit trust funds that pool 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 equivalent 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 investment industry in Malaysia. Investors need the timely 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 Malaysian

In 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 influences, 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 investment

Purchasing 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 Congress 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 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 political 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 investment

Under 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 (China research and intelligence, 2009). In consistent with the china research and intelligence's finding, world gold council researcher shown that the gold price remains high and stable at around US$ 989/oz in the first quarter 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) which claim that the commodities especially precious metals are effective hedge for the inflation.

According to Greer (2005), he links the gold standard and monetary policy implement by most of the leading country to illustrate the feature of inflationary hedge of gold investment. Under gold standard the currency is define as weight of gold that the countries have and the currency is convertible into the physical gold. Besides, Fekete (2009) said in such circumstances the money supply was equal to growth of the country's ownership of gold bullion stock. Hence the inflation problem will be controlled.

In between year 1982 and 1990 there are significant relationship between changes in the gold price and world inflation rate. As world inflation is surging higher, gold is performance its remarkable function as a value storing instrument. The demand of gold is increases when the inflation rate is increases (Sjaastad, Larry & Scacciavillani, 1996). Gold can be regarded as immutable standard of value. As compare to other investment vehicle, gold is incredible strongest of value storing investment vehicle regardless of the future uncertainty (Russell, 2009).

According to Lampinen (2007), the price of gold is expected moving together with the inflation in long term due to the cost of mining increase at the general rate of inflation. Besides that, Levin and Wright (2006) found that gold is an inflationary hedge instrument is United State. However, they point out the uncertainty of the inflationary hedging ability in other countries.

In my opinion, since the inflationary hedging ability of gold is widely study by the researchers and many of them have proved that true to declare that the gold investment does have the inflationary hedging feature. The intention to adopt gold investment in Malaysia is depend on the Malaysian investor reaction during the inflationary period. According to the Gold field mineral service limited (2001), the inflation rate at 1998 is 5.27% due to the 1997 Asian Financial Crisis, whereas the retail gold investment demand of the year is -0.9 tones. The retail investment demand for gold in Malaysia have shown a negative in year 1998 which means the investor sell off their gold in hand at that time. The investors purchase the gold before year 1998 and sell off the gold during the high inflationary period at 1998. This means that Malaysia investors aware to the gold's inflationary feature and they realize the profit after the inflation surge. Currency exchange rate and gold investment

When the gold price act as an inflationary hedge in United State, the investors that domiciled in those country currency is depreciate against US dollar will enjoy the high profitable return (Levin and Wright, 2006). With the anticipation of the investor's home country currency will depreciate against the US dollar, investor may participate in gold market to realize the lucrative profit in the gold market.

There are many countries facing the huge fiscal budget deficits and this cause most of the investor to purchase gold as hedge against the paper currency weakness (Market analysis, research & education, 2009). The depreciation and appreciation between the US currency relatives to others countries currencies will affect the gold investment demand (World Gold Council, 2009).

Sjaastad, Larry and Scacciallani (1996) found that the instability of the currency exchange rate will influence the gold price in year 1982 to year 1990. Besides, they also claim that the European currencies have more influencing to the price of gold. According to world gold council (2009), the price stability will affect the gold economic and indirectly affect the investment demand. The currency exchange rate may consider one of the determinants of the gold investment demand in Malaysia.

2.6 Investment factor and gold investment

Some investors consider the gold investment as a diversifier to their investment portfolio due to its uncorrelated relationship with other assets in the portfolio (Baur & Lucey, 2009). According to Levin & wright (2006), some investor believes that the feature such as the return, time frame and the safety of the capital invested provides insight to investors about the economy situation in the coming future. This may enhance the possibility of the intention of investor to participate in gold investment. Thus investment factor is significant to the gold investment decision making.

2.6.1 Diversifier and gold investment

According to Baur and Lucey (2009), they defined diversifier, safe haven and hedge differently. Diversifier is characterizing as an investment instrument which has positive correlation but not perfectly correlated with another asset. However safe haven is defined as investment vehicle that uncorrelated with the stock and bonds on the average basis during the stock market panic. For hedge, it is identify as an asset which having the negative correlation with other portfolio's asset on average.

In the research of World Gold Council (2009), the investor is keeping demand for gold as a safe haven and the demand is continue supported by the active investor who seeking the effective portfolio diversifiers in the financial crisis. It is due to the globalization and liberalization of the financial market which increase the correlation of the investment instrument. According to Baur and Lucey (2009), gold is said to be uncorrelated with other types of assets even when the globalization increase the correlation among the asset. This special feature contributes to the important of the gold investment. Thus gold poses the safe haven, diversifier and hedging characteristics to the investment portfolio. According to Boye (2005), investors concern to the safety of their investment over the capital growth provided by the investment. Gold investment diversifies the investment and reduces the risk of the investment.

Besides the safe haven, the diversification ability of the gold investment is significant in the portfolio investment. According to Vandeloise and Wael (1990), the diversification is effective for the portfolio that contains less correlated assets. Investors are advised to invest five to ten percent of the total portion of portfolio in gold for the diversification purpose. Hence it support the result provided by the Chua, Sick & Woodward, (1990) which claimed that the diversifier is the driver of gold investment demand. In addition, World Gold Council (2009) state the factor affect the investor demand on the gold investment, they conclude two extensively reasons for the overwhelm of investor demand in gold; the first reason is a rehabilitated search for effective portfolio diversifiers and the second were be the growing concerns over the outlook for price stability. Thus, these two reasons provide strong support to the diversification and safe haven as the determinant of the gold investment demand.

Gold has been the assets that authentically provide investors with diversification during the financial disaster (WGC, 2009). Trust base instrument is the investment such as company stock and bonds. These trust base instrument will normally crash down during the financial crisis and the investor will seek the safe haven to prevent the losses. The gold has great advantage during the hardship of the economy, due to the characteristic of safe haven (Lutter, 2008)

Investors are most educated and employed related knowledge will try to exploit more investment diversifier in their portfolio to avoid the unwanted event affect their return in the future (Gibson, 2004). Therefore the gold price movement is robust regardless of the health of the financial sector and economy factors, making gold an effective portfolio diversifier (WGC, 2009).

2.6.2 Return and gold investment

Investors are sensitive toward the return and the duration of holding the investment vehicle. Investors aim the higher return when they participate in another new form of investment vehicle (Duasa, Salina H. Kassim 2009). According to Lutter (2008), investor use trust base investment instrument for speculative and profit earning activities but gold is viewed as long term secure backbone of the portfolio. This point is supported by Vandeloise and De Wael (1990) which point out that the gold investment is for the safety buffer and not for profit making purpose. According to Lutter (2008), disclose that the most effective earning is not gold investment but the speculative instrument. The main motive for gold investment is to use the free cash to generate the return more than inflation rate during the inflation period.

However, there are some arguments toward the return on gold investment. According to Russell (2009), he claimed that the stock investment or trust base investment instrument is relatively weak as compare to gold investment. Ruseell points out that the long run return on the gold investment is lucrative and stable. Radomski (2009) support the Russell statements, the total market capital of gold stock is relatively small as compare to other investment vehicle, thus when investor rush into the gold market it will be profitable for those who investment in gold early.

According to Radomski (2009), the geopolitical situation has a significant influence toward the precious metal's price movement. Some countries are increasingly keeping the reserve of gold. However the effect will not take place in the near future. Hence, the return of the gold is significant in the long run.

According to Ronapat (2006), investors will gain the maximum return of gold investment is holding gold in long-term investment rather than short-term. Besides, he suggested that investor should purchase gold in June and sell it in December.

The return and time horizon are closely related and many research suggested that the long-run return of gold investment is lucrative. Hence the return of gold investment and the duration of the investment term are included as an investment factor that affects the adoption of gold investment.

2.6.3 Time horizon and gold investment

According to Boye (2005), investors concern to the speed of getting back their invested capital. The short-run and long-run return of the gold investment has been studied by many researchers such as Kritzman, (1994), Levin and Wright (2006), Baur and Lucey (2009), and Radomski (2009). They conclude that time horizon is an important factor that directly affects the investment decision.

According to Kritzman, (1994), the probability of loss has decreased when the investment horizon is increasing. In another word, the investment is less risky when the investment time horizon becomes longer. Base on the Levin and Wright research (2006), there are long-term direct relationship between the gold's price and the inflation level in USA. The relationship can be defined as a one percent increase in United State's inflation has the effect to lift one percent on the long-run price of gold. Levin and Wright research provide the stronger support to the Kritzman in the time frame aspect.

However, there is another controversy to the time horizon and return provided by Kritzman (1994) and Levin and Wright research (2006). According to Boye (2005), investors are conscious to the bond as a long term investment. However, investors not willing to invest in bond due to the time frame of the bond investment are too lengthy. Hence the longer time horizon with less preferred by investor due to the high level of uncertainty in the future. However, in my opinion gold is different from the bond and hence the theory cannot be applied in gold investment.

In addition, Levin and Wright (2006) found that the gold is efficiency inflationary hedge instrument in long-run, but short run gold price will subject to the volatility. Taylor (1998) suggests that all the precious metals are effectively function as a long-run inflation hedge. In short-run there are not any strong evidences showing that precious metal working similar as in the long-run. Thus he believe that during inflationary period investor rush into gold market will not get the real benefit from investing in gold. However the precious metals have slight protection to investment portfolio in short-run movement in the inflation rate. Aggarwal (1992) also claims that the inflationary hedging ability is not significant at short-run.

Levin and Wright (2006) pointed out there are short-run deviations that affect the long run relationship of the prices of gold. The short run deviation include short-run changes in the US inflation rate, inflation volatility, credit risk, the US dollar trade-weighted exchange rate and the gold lease rate.

According Baur and Lucey (2009) which link the time frame with the safe-haven characteristic claimed that the safe-haven characteristic of gold in short-run is limit for fifteen trading days after the economy shock. They find out investor will sell off their gold holding after the economy shock either for the stake of liquidity or speculative activities.

2.7 Social factor and gold investment

According to Williams (2007), investor's attitude is driven more by the social responsibility issue rather that the financial return. According to world gold council (2009), the economic, attitudinal, behavioural changes, and demographical factors are substantially contribute to the increase of the volume for gold investment market. According to Kuada (1994), cultural factors have significant influence to the managerial decision and investment decision.

In religious and ethnicity term, gold attribute to various religious significance in India, China, Middle East country, Islamic country and Japan. According to World gold council (2009), gold investment demand is high in India due to the strong religious and cultural belief. Hence, the social factor may contribute to the gold investment decision.

2.7.1 Third party influence and gold investment

Friends can provide some useful information for the investor decision making. Normally, they have the herd behaviour on the investment demand (Mussweiler & Schneller, 2003) Besides, Ivkovic & Weisbenner (2006), claim that the neighbourhood effect is influential to the financial trading decision. The neighbourhood effect can be defined as the word of mouth effect and it may consist of the friend, neighbour, local media and other third party. According to Ng & Wu (2006), they found that the peer influence is significant to the investor's investment decision in China.

According to Hong, Kubik, and Stein (2005) who study the mutual fund investment decision, stated that the word-of-mouth effect on the mutual fund manager in U.S is an important grape-vine to the information. In addition, Shiller (1995) found that the conversations in the daily life have played a crucial role in the investment decision.

According to Avery and Zemsky (1998), both market participants and financial economist believes that investors are not investing rationally. They tend to follow other people actions rather that think rationally. Hence, the third party influence is significant to investor investment decision.

2.7.2 Cultural influence and gold investment

According to Boye (2005), the decision making for the investment process is a logical thinking stage that begins with recognition, and then followed by seeking the investment instrument. Finally is the evaluation of the investment instrument and selection among the possible investment vehicle. Cultural influence is significant at the recognition stage in decision making. Risk averse is one of the dimensions in Hofstede's cultural framework (Hofstede, 1994).

Besides, Boye (2005) founds that the intuition affect the investment decision of investor and intuition is a cultural related dimension. Investor are prefer to follow their intuition rather that the systematic method such as quantitative or qualitative method.

2.7.3 Risk averse and gold investment

According to Kritzman (1994), we cannot get the exactly or universal definition for the risk because it is different in the eye of beholder. However, risk is generally regarded as a psychological variable which vary from individual to individual. According to Klos (2004), the previous experience and the cultural influence can be tapped into the risk of individual perception. In the Weber and Milliman's research (1997), risk averse may consider as risk behaviour that associate with the individual previous experience.

Risk averse can affect the individual perception and their investment decision. Boye (2005) found that Ghana investors have a high degree of risk aversion in term of investment decision making. Investors are generally not willing to expose their money to any new form of investment instrument.

In Vandeloise and De Wael's (1990) research, risk-averse investor will try to minimize risk for a given return. The contemporary portfolio theory has widely adopts by the risk-averse investor as they seek for risk reduction in their investment portfolio. According to Kritzman (1994), investment decision is rejected when the risk perceive is higher that the investor expectation when the compensation is not increase.

According to Boye (2005), institutional investor primarily consideration is the safety of their money and not the capital growth. Investors' investment decision is driven by the risk aversion. Hence growth of the capital invested may not be the primary concern of the investment due the risk averse of the investor. Holtgrave (1993) supports Boye's statements; he found that the capital growth or the return is less preferred as compared to the safety of the invested fund. Thus, the risk adverse investor may consider the safety of the investment prior to the return of the investment.

Beside, the investment decision and risk aversion can be clearly identified in term of the decision of choosing the investment institution. Investors are prefer to bigger and older investment institution rather than a new investment institution due to the uncertainty avoidance (Boye, 2005)

Generally price movement affects the return and the perception toward the stability of gold investment. The investor behaviour is sensitive toward the sudden movement of the price (WGC, 2009). Research has shown that the sudden price down will changes investor mindset and confidence even the investors was go through the research before adopt the investment instrument (Lutter, 2008).

2.8 Advertisement and gold investment

According to Karrh & James (2003), the investment in advertising is effective to create market awareness toward the particular product or services. Chua & Lim (2000) said that advertisement is positively increasing the awareness s of the investor. Advertisement is imperative to raise the initial interest of the investor. Besides, Frankenberger and Graham (2004) stated that advertising has the uses of gaining the market share by persuading the interest of consumer toward particular product or service. Due to the ability of the advertisement in enhancing the awareness of potential customers to the product or service, the enhancement is believe will bring additional sale to the company in the future.

Promotion is usually design for short-term effect, such as the stock clearance and sale increasing in particular promotion period. Advertisement is regard as a short term increase of sale and also the long run benefit for the company. The example adverting may have the effect in terms of brand awareness, loyalty, cost savings, and barriers to competition (Conchar, Crask, and Zinkahn, 2005).

Advertisements have the strong influences on consumer behaviour. Consumer behaviour is influence by the surrounding environment, social background, marketing messages, and consumer's personal and psychological characteristics. The combinations of the above factors contribute mostly to the consumer purchasing behaviour (Loef, Antonides & Raaij, 2001)

In addition, consumer is more rational if they comment to others people on the product and services, while come to making decision for themselves they will act less rational (Lutter, 2008). Beside, Boye (2005) stated that investor will invest in the investment instrument that they are familiar with. Advertisement plays a key role to establish the recognition and familiarity among investors. According to Lutter (2008), Potential investor listens to all source of information regardless of whether the information plays any important role to their final decision. However motivation is the driver that determines the adoption of certain product and services.

The size of the advertisement is crucial to determine the degree of attraction from the consumers, research has shown that the larger advertisements have the high probability to magnetize the consumers rather that the small one (e.g., Franke, Huhmann, & Mothersbaugh, 2003) Besides, the advertisement that prints up by using the visual or illustrations technique has more influential toward the proportion of consumers who read an advertisement (Holbrook and Lehmann, 1980). According to Rossiter and percy (1997), the advertisement design must correspond with the purchase motivation and attitude. Lutter (2008) said that the information convey through the advertisement must be simply and understandable. The main factor of potential investors not invest their fund is the information hardly obtain or difficult to understand.

Firm increase advertising and promotion spending will create a signal to investor that the firm is aim for the growth of the future profit and investor will adjust the investment portfolio according to the firm's advertising spending (Conchar, Crask, & Zinkahn, 2005). Besides, the increase of the advertising expenses during the recession will reduce the effect of recession to the company. In addition advertising has the positive relationship with the firm's future cash flow through its contribution to future sales. A justify projection on the expenditure on advertisement could significantly increase the sale level. (Frankenberger & Graham, 2004)

In addition, the increase in adverting serves as a flow cash flow for the company. The company current spending on advertising will significantly increase the additional future cash flow to the company, thus investors will invest their fund to the company stock (Conchar, Crask, & Zinkahn, 2005).

2.9 Professionalism and gold investment

According to Peck (2007), professionalism is refer as expert and specialised knowledge in specific field. The professionalism can be derived from the high standard of professional ethics, behaviour and work activities. Gopalan (n.d) stated that the professional obliged a higher duty to a client in which the client is totally relying on the professional in the client's unknown area. According to Kevin (2008), high professionalism officer often put his client's confidentiality at top, as well as a duty not to abandon the client. The professional is needed to prioritize the client's interest instead of its own one. According to Barondes (2002), the conflict of interest will harm the investor's welfare when the agent lack of the professionalism.

In the research of Lutter (2008), the most important factor that affect the investor in term of the choosing the investment company is the professionalism that the company demonstrates to the public instead of other factors such as the service fee, liquidity and customer service. This means that the professionalism is extremely important to investors.

According to Ota (1992) bank and investment agency play the pivotal role in the economy and the responsibility to prevent the fraudulent practices especially to those investor who do not employ with the relevant knowledge in the investment area. Those investors will depend fully on the advice that given by the professional or agent. Maatman (2005) stated that the investors are normally lack of specific knowledge toward the investment vehicle. Thus, they rely on the faithfulness of the professional of that particular investment vehicle. In addition, Lutter (2008) found that investors prefer strong local companies even there are no supportive reasons for that choice.

In my opinion, professionalism of the investment institution and agent will have significant influence to the adoption of gold investment. Generally, investor will holding less information as compared to investment agent. Hence, investors are totally vulnerable in front of the unreal professional which their main purpose is the higher commission fee that charge to customer. The professionalism is important to investor because agent will make the transaction on behalf of investor. According to Lutter (2008), stated that the information sources that investor prefer to access is the specialist opinion as compare to the family, friend, and local press. The investors giving more trust to investment agent rather than journalist in that field.

Chapter 3: Research methodology

3.1 Introduction

This research is to study the perception of Malaysian toward the gold investment. In chapter two the way to participate in gold investment has been discussed. However, the term “Gold investment” may be vague and has to be defined clearly in this chapter three.

Some people may argue that retail or wholesale in gold or jewellery is part of investment in gold. However the general purpose of buying the gold and jewellery is as the stage of decoration and some of the people make use of gold for their cultural and religious use. Thus, the buying and selling the gold and jewellery is excluded as the definition of gold investment. There are several reasons of why personal buying and selling gold's jewellery through the retailing arm are excluded from the classification of gold investment.

The first reason is that the gold investment which means that the purpose of buying gold is the main motive which may associate with the risk and return. The risk and return is the core element of all investments vehicle in the world. Thus without these two corresponding elements, the word of investment should not be used. Secondly, some people may insist they are truly buying the jewellery for investment purpose. However, there are just a very small portion of people that investment gold through buying the jewellery, because the jewellery is the final product been processed. Thus the price of purchase will be higher as compare to the current world gold price. Generally people will not treat buying jewellery as an investment method even though sometimes it will gives some return by the time of reselling. Finally, chapter two has clearly divided the gold demand into three board categories. Hence the any jewellery purchase or industrial purchase of gold is excluded in the gold investment definition.

Finally, it is imperative to justify the gold investment in this research which is specially represents the investment activities in gold through the legal investment institution and the license agency that provide gold investment opportunity.

3.2 Research Framework and model specification

In this research, Theory of Reasoned Action (TRA) is applied to the investment decision of the investors in the gold investment perspective. This theory is established by Fishbein and Icek Ajzen (1975 & 1980) which is evolved from the Information Integration Theory. 1 shows the Theory of Reasoned Action's diagram.

The Theory of Reasoned Action has two important modifications from the Information Integration theory. Firstly, behavioural intention is added to the process of persuasion which can be explained as the reason of the human action is influential by the behavioural intention. Secondly, Theory of Reasoned Action employed the two core element to explain or predict the behavioural intention. The two elements consist of attitudes and norms. According to Fishbein and Ajzen (1975 & 1980), attitudes and norms are the elements that predict human behavioural intention. For example, A person's attitude may encourage him to have an orange juice in a wedding ceremony, however his friend tell him that it is too feminine (norms). Hence he may discourage to him initial choice and follows his friend's advice. In this case, a norm is refers to expectation of other people.

As shown in 1, the attitude has two components which is the belief about the behaviour and evaluation of the behaviour. For the subjective norms, there are also two components which is opinion of the other and motivation to comply. Motivation to comply refers as the importance of the others people opinion or expectation to the individual to make some decision. In conclusion, if either one of the element has more supportive the other toward the persuasive goal then the behaviour of individual will follow the strongest one.

In Maheran, Nursuzila and Aspiyati (n.d) research, they apply the TRA to the research which examines the factors influence the acceptance of the gold dinar in Negeri Kelantan. In their research, there are four independents variable is examined. The variables include economic factor, investment factor, political factor, and social factor.

In this research the factors that affect the adoption of gold investment among Malaysian is examined. Thus, I would like to modify the model that used by Maheran, Nursuzila and Aspiyati (n.d) in this research. 2 is the research framework of this research.

In this research the economy factor consists of two variables. First variable in the economic factor is inflationary hedging, which means that the investor adopt the gold investment when they perceive the inflation is taking place in the near future. According to Zimmerman (2006), gold poses superior inflationary hedging ability which can be demonstrate in the arbitrage pricing model. Besides, Zimmerman, there are number of researcher have tested the hedging ability of the gold investment and conclude that gold investment is an effective inflationary hedging instrument. Researcher such as Baur and Lecey (2009), Worthington and Pahlavani (2006), Lutter (2008), Taylor (1998), and Greer (2005) stronger claim that inflationary hedging ability of gold during recession period. Thus inflationary hedge is includes the economy factor as a significant independent variables to the investor intention to adopt gold investment. The second variable in economic factor is currency exchange rate. This variable is can be applied to all currencies in the world. According to Levin and Wright (2006), the investors that domiciled in those country currency depreciates against US dollar will enjoy the high profitable return. For example, a continuously depreciation of the Malaysia currency toward US dollar may lead Malaysia's investors rush into gold investment market due to the loss of confidence in Malaysia currency.

The second factor in the research framework is the investment factor and it consists of three variables. In Maheran, Nursuzila and Aspiyati (n.d) research, they defined it as stability of the international gold price. However, the modification of the investment factors consists of safe haven and diversifier, return, and time horizon. Safe haven and diversifier are the special features of the gold investment which guarantee investors with certain level of return. According to World Gold Council (2009) the investor is keeping demand for gold as a safe haven and the demand is continue to support by the active investor who seeking the effective portfolio diversifiers after the other alternatives investment vehicle failed to meet the expectation during financial crisis. There are strong evidences proven for the increasing interest among investors to the diversification benefits and the stability of price in gold (World Gold Council, 2006). By apply the TRA; investor who believes diversifier and safe haven will secure sufficient return to their investment will then form the attitude which influences intention to adopt gold investment. In addition, investor will consider the time frame when adopt the investment instrument. According to Duasa, Salin & Kassim (2009), the longer the period to get the return the higher th

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