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SINGAPORE’S RISE AS ASIA’S GOLD HUB
Mon Sep 02 2024
The centre of gravity in the global gold market is shifting eastward, and Singapore is at the forefront of this movement. Through a collaborative effort between the Singapore Bullion Market Association (SBMA), Enterprise Singapore and the Singapore government, the city-state has rapidly ascended to become Asia’s leading gold hub. This transformation is fueled by a potent combination of strategic tax and infrastructure developments over the past couple of decades, coupled with the recent launch of regional gold reference prices and favourable global geopolitical factors.
Tax advantages pave the way
Singapore’s business-friendly environment, already bolstered by low corporate tax rates, received a further boost in 2012 with the removal of Goods & Services Tax (GST) on investment-grade bullion. This move aligned Singapore with major gold hubs like Switzerland, significantly lowering storage costs and improving cost-efficiency for investors.
Additionally, the Approved Refinery and Consolidator Scheme (ARCS) exempts precious metals refiners and consolidators from GST on imported materials destined for refinement into investment-grade precious metals.
Building a robust infrastructure
Singapore’s commitment to infrastructure development has further solidified its position as a gold hub. A key example is the establishment of its first major LBMA-accredited gold refinery, a partnership with Metalor. This government-supported venture has significantly boosted the region’s gold processing capacity, allowing it to meet rising demand. Following the removal of GST and the establishment of the Metalor refinery, gold import volumes surged from US$1.98 billion to US$16.7 billion between 2012 and 2013.
Singapore’s allure as a gold hub is further bolstered by its ability to attract secure transport and vaulting operators. This is facilitated by the country’s stable business environment and extensive transport networks. Notably, in 2024, Silver Bullion completed The Reserve, a state-of-the-art vault boasting the largest secure storage capacity in Southeast Asia at 15,000 tonnes.
The establishment of Freeports, or Free Trade Zones (FTZ), plays another crucial role in Singapore’s attractiveness. These Freeports allow for the storage and handling of goods without incurring customs duties or sales tax, as long as the goods remain within the Freeport, further enhances Singapore’s appeal. Several vault operators, including Brinks, have capitalised on this advantage by setting up in the Freeport, further reducing their operating costs and increasing operational flexibility.
Transparency Through Gold Reference Prices
Additionally, with the SBMA’s support, Kallanish Index Service (KIS) began publishing daily gold kilobar premiums for loco Singapore, Hong Kong, and Bangkok at 12:30 PM Singapore time in October 2022. These reference prices, compiled from data by active gold market participants, enhance price transparency during Asian trading hours and represent another crucial step in Singapore’s journey towards becoming Asia’s gold hub.
Geopolitical Winds Shift the Tide
External factors have also played a role in Singapore’s rise. While the US dollar remains the world’s primary reserve currency, accounting for 58.9% of global reserves, recent events like the freezing of $300 billion of Russia’s gold and foreign reserves following the 2022 Ukraine invasion, have highlighted the potential dangers of relying solely on the dollar. This has prompted nations to diversify their holdings, reducing their dollar reserves and repatriating their gold. BRICS countries are even considering the possibility of a gold-backed currency to challenge the dollar’s dominance.
Bank of England Gold Holdings (In Thousand Troy Ounces)
Bank of England, Kallanish Index Services
Traditionally, London has served as the physical gold market’s epicentre. However, concerns about geopolitical instability and inflation are driving central banks to hold their physical gold reserves domestically. As a result, the Bank of England’s gold holdings have decreased by 19.3 million troy ounces (-10.4%) from their peak in 2021 to 167 million troy ounces in June 2024, while countries like China, India, and Singapore have increased their gold reserves significantly. By May 2024, Singapore’s gold reserves had reached 240.80 tonnes, the largest in Southeast Asia.
Singapore’s Foreign Reserves
Bank of England, Kallanish Index Services
The past decade has also witnessed a shift in gold consumption patterns, with demand moving from the West to the East, driven by the burgeoning demand in Asia’s emerging economies. This trend is expected to accelerate due to rising geopolitical tensions, prompting investors to seek secure locations like Singapore for storing their gold bullion. This shift is reflected in Singapore’s 25.2% year-over-year increase in gold imports, reaching a record 319 tonnes by the end of 2022.
Advantages of Storing Gold in Singapore
As the world’s top maritime city, Singapore serves as a key gateway between East and West. Its proximity to major gold consumers like India and China further enhances its significance. The city-state boasts a thriving financial ecosystem with numerous institutions specializing in precious metals. As a global financial hub, it attracts top talent and fosters continuous innovation within the gold industry.
Singapore’s appeal as a gold storage destination is further bolstered by its stable political and economic environment. Singapore enjoys a well-deserved reputation for its robust legal system, transparent regulatory framework, and strong protection of property rights. This translates into secure business operations and strong asset protection for investors. Singapore consistently ranks among the least corrupt nations globally. This commitment to good governance further strengthens its position as a reliable and trustworthy gold storage hub.
The Next Chapter
With a solid foundation now in place, Singapore’s gold industry is ready to begin its next phase of growth – expansion and regional integration. The SBMA’s recently launched “Forward SBMA 2030” initiative aims to propel Singapore to the forefront of Asia’s gold hub market.
Increasing liquidity within Singapore’s local bullion market is crucial. Encouraging foreign central banks to store their gold reserves in Singapore would boost liquidity, leading to greater market stability, improved price transparency and efficiency.
Fostering stronger collaborations with emerging ASEAN markets like Vietnam and Indonesia is another critical step. Vietnam is actively liberalising its gold market due to rising domestic demand, while Indonesia is working towards integrating gold into its financial system. Developments like these in neighbouring ASEAN markets where future regional demand growth is likely to be strongest, offer significant potential for Singapore.
Obtaining an additional clearing location status for Singapore, allowing it to provide custody, clearing, and settlement services for Asia, would be another boost. This would enable regional traders to deliver excess bars to a location within Asia, significantly reducing costs compared to sending them to London. Additionally, expanding bullion standards for LGD bars to include 9999 or 995 kilobars, commonly traded across Asia, would futher enhance Singapore’s regional appeal.
Through a combination of strategic planning, infrastructure development, and favorable global conditions, Singapore has emerged as a dominant force in the Asian gold market. With its commitment to continuous improvement and regional integration, Singapore is well-positioned to solidify its place as the premier gold hub in Asia for the foreseeable future.
Source: https://sbma.org.sg/