SOS Wealth Destruction in Malaysia

MARKET CAPITALIZATION IN USD DOLLAR (1997 to 2011)

1997 KLSE index is around 1400 (RM1.05 trillion or USD420 billion @2.5)

March 2011 KLSE index is around 1526 (RM1.13 trillion or USD375 billion @3.0)

It means over the last 14 years, market capitalisation has dropped 11% in US dollar terms.

MARKET CAPITALIZATION IN GOLD (1997 to 2011)

Gold in 1997 (USD350 per oz)

Gold in March 2011 (USD1429 per oz)

In 1997, Malaysia can buy about 1.2 billion oz of gold

March 2011, Malaysia can buy only about 262 million oz of gold

That means, if I bought RM10,000 worth of gold in 1997, I will get about 11.42 oz of gold

If I kept the gold until today, I convert it back to RM, I will get RM49,284 (11.42 oz x 1429 x 3.02).

MyView

Should I kept some gold in 1997, my RM1.00 will become RM4.93 today (2011 March), in 2010 I will get around RM4.11 dollar.

Not a bad idea to accumulate gold over time as part of one's portfolio looking at current situation, most government is stimulating their economies. Of course, that does not mean that gold price won't drop back to USD350 per oz, then, your RM1 will get you back RM1 in 14 years time. So, you have to weigh the pro and con of owning gold.

What if you bought gold in 1980 at USD800 per oz. RM10,000 can buy about 5 oz of gold, today, after 31 years, you will get RM21,600. That means, worst case, after 31 years, your money only doubled or compounding of about 2.8% p.a. Assuming you are the dollar cost averaging type, I figure your if you buy from 1980 to 1997, it drop from USD800 per oz to about USD350 per oz, your average cost is say USD575 per oz.

So, if you average cost is about say USD575 per oz (buying from USD800 to 350 per oz from 1980 to 1997) , your RM10,000 can buy you about 6.95 oz of gold. Today it is about RM30,000.

The worst case if you bought gold in 1980 and sell it 0n 1997, your RM10,000 will become RM4,375, and then become RM21,600.

Let say you average from 1980 to 2011, gold drop from 800 (1980) to 250 (2001) t0 1430 (2011 march) your average price of gold is USD737 per oz.

The moral of the story is it depend at which stage you bought gold, worst case if you started since 1980 (historical high of gold), your average is USD737 per oz.