Gordon Cheung: Singapore Can Be a Focal Point in the Precious Metals Supply ChainBy The Assay magazine
The Singapore Bullion Market Association (SBMA) was in operation in 1994 as a non-profit association with 16 founding members. In the early 90s, Singapore lacked the necessary expertise for the bullion market. For ten years since year 2000, the SBMA remained dormant until the government decided to enhance the ecosystem to boost trading activities and volume, and aimed to make Singapore one of the major gold hubs in Asia.
To accomplish this goal, government agency, SBMA and the precious metals community engaged the GST committee from IRAS in discussion to the exclusion of GST on investment graded precious metals. In 2012, Singapore finally lifted GST on Investment Precious Metals (IPMs). After the removal of the GST, the World Gold Council reported that gold transactions rose 94% within a year.
The government also provides incentives to attract foreign refiners and international market players to establish their operations in Singapore. One major incentive is the Approved Refinery and Consolidator Scheme (ARCS) that exempts precious metal refiners from the GST on the importation of materials that are processed into IPM.
SBMA, with the support of Enterprise Singapore and its members, is commissioned to raise the status of Singapore as a gold trading hub. Albert Cheng, previously Managing Director, Far East, World Gold Council, was appointed to head the SBMA in 2015 to carry out the commission. Since then, SBMA has grown to 48 members, mostly based in Singapore. Our members include banks, refineries, logistics companies, and international PM trading houses.
SBMA organised the inaugural Asia Pacific Precious Metals Conference (APPMC) in 2017, which was attended by over 330 delegates coming from 23 countries. We also successfully concluded the second APPMC in June 2018 where we welcomed 358 delegates representing 173 companies from 29 countries. The third APPMC will be held on 9–11 June 2019.
SBMA aims to have Singapore representing the entire ASEAN precious metals market and aspires to become the go-to hub for the region. This includes sourcing, trading, hedging, clearing and storing of bullion in Singapore.
We hope that Singapore can act as a focal point for the entire precious metals supply chain. That includes suppliers of recycled gold* and LBMA-accredited large bars, traders, refineries, consumers, as well as end-users. The amount of recycled gold reached 304 tonnes in 2017 in East Asia, according to Metals Focus (Table 1).
Table 1: Recycled gold (tonnes)*Recycled gold = Scrap + Disinvestment + Individual residual
An emerging trend is the use of AI in bullion trading. AI is helping to upgrade services to increase trading efficiency and minimise operational risks. However, gold is still irreplaceable as is the need for a place to store it. With ongoing changes in socio-economic factors, changes in attitudes and a larger middle-class population in Asia, there is still a need for wealth to be stored safely.
In this regard, Singapore is a great place to store wealth, with reputable international logistics service providers like G4S, Loomis and Brinks, which are trusted for their ability to transport and store bullion, and the state-of-the-art Le Freeport situated in Changi Airport, which is regarded as Singapore’s Fort Knox for the storage of collectables and precious metals.
Another new digital innovation is the use of blockchain and the emergence of fintech platforms where consumers can purchase gold bars using online functions or purchase the digital value of the gold. Users can expect to benefit from digital financial services where they can purchase gold online and use China, Hong Kong, or Singapore as a delivery point.
In addition to the points referenced above, factors that contribute to Singapore’s strength as a leading precious metals hub include:
- No GST on investment-grade precious metals
- World-class financial infrastructure
- Role as a financial and wealth management hub
- Politically stable with strong rule of law
- Strong governmental support to the industry
- SBMA support for market participants
- AAA credit rating with stable outlook
The proximity and centrality of the ASEAN market complement the above-mentioned points. This includes a well-developed supply chain. Also, Southeast Asia still has scrap gold floating through its markets. Increasingly, locals will want to use a trusted site to recycle that gold and send it to refineries to upgrade to Kilo bars. In Southeast Asia, this makes a big difference, as previously you might have had to go to Northeast Asia, Europe, or North America to do this.
I spoke earlier about the AI applications in finance and the role of fintech. While they bring benefits to the industry, there are also risks associated with them. A concern with fintech is that their platforms may have more risk and liability of defaults or bankruptcies. For instance, if gold is purchased digitally and is connected to an at-risk fintech platform, the gold asset could be at risk if there is a default.
There are two risks that SBMA is seeing regarding the trade disputes: with the US putting sanctions on Turkey, whose economy has been struggling this year, there’s now further pressure on Turkey to deal with a slowing economy and sanctions. This has had an impact on Turkish currency, as you’ve probably seen with the lira. Turkey is a major gold hub for the Middle East, as a location for buyers and sellers in the region. It also functions as a gateway that connects Europe and the Middle East. If the lira continues to lose value, people will lose trust in the currency and then start putting their money into safe havens like gold. This will have inflationary impacts and will impact the connection that Turkey has to the Middle East and the rest of the Islamic world.
The other major concern is the US and China trade conflict. Inflationary pressures are already being caused by the increasing restrictions on trade between both countries. The US dollar is currently keeping its value, but eventually, these trade wars will drive up global inflation. In these countries, people will lose confidence in their currencies and the demand to store wealth in gold will increase. This will be especially acute in China since the yuan is already depreciating, which will make it difficult for people in China to invest abroad. As a result, they will likely be encouraged to invest in gold to protect their wealth.
This interview was previously published in The Assay (www.theassay.com)
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