Gold Demand ‘Remains High’

By Kyaw Hsu Mon 13 May 2015

Purchasing gold has long been a way for Myanmar people to accrue secure savings, particularly in the absence of an efficient banking system. Today the gold market remains steady in a country with still-limited access to financial services. U Kyaw Win is the secretary of the Myanmar Gold Entrepreneurs Association, senior vice president of the Myanmar Gold Development Public Company and the owner of the U Htone gold shop. In this interview, he offers his assessment of the local gold market.

When did you start your business and what were the main early challenges?

My father [U Htone] started working in the goldsmithing industry more than 80 years ago, when he was aged 17. Gold has been our family business ever since. In 1994, I opened the first U Htone gold shop, and I opened another in 2000.

As far as I recall, when I was a high school student, the price for one tical [16.33 grams] of gold was only 200 to 300 kyat [US$0.20 to $0.30]. At that time, selling gold ornaments was the only money-maker for us. But five to 10 years later, gold prices reached 3,000-4,000 kyat per tical.

Under the Burma Socialist Program Party (BSPP), there were continuous rumors about the demonetization of the kyat, and gold prices were extremely volatile. People purchased a lot of gold when they heard those rumors, especially around 1985 to 86. At one stage, the gold market was so strongly affected that I stopped all sales in Yangon.

The government demonetized the 100, 75, 35 and 25 kyat notes in that period. People then thought they should purchase gold. Even when the military government announced it would print new 1,000 and 5,000 kyat notes in 1995 and [2009], gold prices stayed high. Also when the government raised civil servant salaries, gold prices still increased.

When the civilian government took power, they fixed the exchange rate and gold prices stabilized. People now know how and when to invest in gold because of information in the media.

When did Myanmar people begin accruing gold for future investment?

Since the time of the royal dynasties, Myanmar people have saved gold. People have long loved to wear gold at events, as well as to save it for long-term benefit.

After the Second World War, people were even more interested in gold. Although the banking system has recently become more active, the custom of saving gold will not disappear as people still love it. It is a [savings] method that can always reap benefits.

When were gold prices at their peak?

The peak time was around the first Iraq war in the early 1990s; world oil prices increased as well as gold prices. The price of gold increased from around $33 to $1,900 per ounce in 2010. After 2010, gold prices declined again and are now at about $1,100 per ounce. I don’t think prices will fall soon. Gold on the Myanmar market increased to 800,000 kyat per tical when the world price was about $1,900 per ounce. It has declined to about 680,000 kyat per tical now. But the price in Myanmar hasn’t declined as significantly as the world price, due to inflation here.

How does inflation affect the gold price?

I think it’s because of the weak banking system here. In other countries, when they sell or buy property, they don’t need cash. But here, [physical] cash is essential for everything. With more economic growth, the cash requirements are greater and inflation is also rising. We need a lot of [physical] money while we’re buying or selling gold. We also have different installment practices for buying property, so we need more cash flow in the market. When the government prints more money to meet requirements, inflation increases.

How is the gold production rate in Myanmar at present?

It’s possible that gold production will decline soon as current production levels are massive. It’s amazing that gold can be found in all 14 states and regions, although the production rates are different. Myanmar gold production could be among the highest in Asean. However, natural resources will run out sooner or later. The production of rubies, jade and gems is decreasing in Mogok and Hpakant right now. But gold production is still quite good as there are new gold plots around the country and demand remains high.

How is the gold market performing in relation to people’s spending power?

The gold market is still stable. Businessmen usually obtain gold for their savings before they start their business. For example, some usually buy gold before export season begins, then later sell this gold and spend the money on their business. But [this alone] doesn’t increase demand significantly. Normally supply and demand balances. And we are surrounded by markets in countries like India, China and Bangladesh who like gold. So the market remains active, even when sales are not legal. This means that even when the domestic market is slow, the border trade can be energetic.

Do you think demand for gold will rise after the increase in government salaries in April?

Government salaries will be affected from the end of April so I can’t say right now what will happen. Some people say that the gold price will increase with increased salaries, but for me, yes, it will increase but only a very small amount. Because of the US exchange rate, the gold price has already increased even before the salary rise. If world gold prices increase, the local price will also go up, not so much because of higher demand in the local market.

Do you think the gold market might be impacted by the introduction of Myanmar’s first stock exchange later this year?

Recently people were strongly interested in investing in property, rather than buying gold, as the world gold price decreased over the last two years. But I don’t think people will be less interested in investing in gold due to the stock market. The gold market will also be an important part of the stock exchange, as the nature of the stock market is that it welcomes a variety of commodities. The items are different, so they will sell at different share prices. It will also take time for people to learn about the stock market, but they already know about the gold market and can even guess [future fluctuations]. That’s why the gold market won’t decline at that time.

This interview originally appeared in the May 2015 issue of The Irrawaddy magazine.