Singapore – Asia’s Growing Gold Hub

Singapore’s plans to become a gold and precious metals hub took a key step forward on Thursday.

Metalor Singapore – a newly created refinery in the Metalor Group – was added to the London Bullion Market Association’s (LBMA) good delivery list.

“Metalor Singapore has also passed the LBMA’s exhaustive testing procedures, under which its gold bars were examined and assayed by independent referees, and its own assaying capabilities were tested,” Metalor said.

The refiner is located in Singapore City. Its primary sources of gold are scrap materials sourced from the jewellery sectors and its refined gold output is in the form of large gold bars for industry and institutional buyers.

Last month Metalor Technologies opened its refining plant in Tuas, Singapore. The facility offers a complete range of refining services, from evaluation of scrap to bullion production and is estimated to have a production capacity of up to 150 tonnes a year.

Speaking at the official opening, Singapore’s Senior Minister of State for Trade and Industry Lee Yi Shyan said the gold industry will contribute significantly to Singapore’s economy. He said that it should create half a billion dollars (US$0.5 billion) extra value to the economy and generate 1,000 good professional, managerial, executive and technical jobs by 2020.

Hubert Angleys, CEO of Metalor Technologies, said: “We want to grow with the Asian market; that is the reason we wanted to be there. We are located in the middle of the two largest gold consumer markets, China and India”.

“We want to take advantage of this geographic location and certainly we are looking forward to getting metal from these two countries but also exporting, through our Singapore customers, metal to these two countries.”

Singapore already a banking, financial and wealth management hub in Asia is ramping up its bid to become a center for gold trading that will rival London.

Leading investment experts such as Jim Rogers, Jim Sinclair and Marc Faber have extolled the virtues of owning physical coins and bars in Singapore.

“Individuals are making a mistake if they’re holding all their assets in one country.…I still have the majority of my gold in Switzerland, but I am already moving gold to Asia,” Faber recently said (see Gold bullion stored in Singapore is safest – Marc Faber).

Just three weeks ago, the Southeast Asian city-state unveiled plans to launch a physically deliverable gold contract in September to meet strong demand from Asia – home to the world’s biggest gold buyers.

The Singapore Exchange is launching a new gold contract which will be the world’s first wholesale 25 kilo bar gold contract and will be made up of a series of six daily contracts.

“This gold contract is a plan two years in the making. The reason is that we have seen a trend of gold moving from West to East and there is actually no market place for market players to buy gold at a wholesale level,” Albert Cheng, managing director, Far East at the World Gold Council, told CNBC.

The launch of the gold contract on the Singapore Exchange is supported by the World Gold Council, Singapore Bullion Market Association and four banks that include JP Morgan and Asia-focused bank Standard Chartered.

The launch of a gold contract in Singapore will bring centralized trading and clearing of physically cleared gold and could provide a price benchmark for gold trading in Asia.

At a whopping 25 kilos, the gold bar in this contract is double the size of a typical London Good Delivery gold bar which is around 12 kilobars or 400 ounces. At today’s prices each gold bar would be worth over $1 million.

Singapore is clearly targeting HNW, UHNW and family office goldbuyers, not to mention institutional buyers with this contract.

At the moment the benchmark price for gold, known as the London “fix” is set daily in London at times that both fall after the close of Asian markets. Asia still mostly relies on this fixing for the buying and selling of bullion in volume. The London fix is currently under scrutiny for manipulation and is likely to taken over by the CME and Thomson Reuters as the silver fix was.

“This contract is meant for the Asian market,” said the World Gold Council’s Cheng, explaining why the contract will only be open for trade for three hours each day.

“There is a robust London market, and that comes in later in the day. But in Asian hours – there is no morning market for wholesale trade. Having a structure means the wholesaler can contribute to the market, which then becomes more transparent,” he said.

Asia is the largest buyer of gold and one of the largest producers, so price discovery in Singapore makes increasing sense. Also, given growing demand for gold comes from within Asia it makes sense to have benchmark pricing within the region.

In 2010, Singapore set up a high-security storage facility called the Singapore Freeport that subleases storage space to storage providers. Two years ago, the government scrapped a sales tax for investment-grade gold and in the past year banks have set up gold vaults.

The other trend Singapore is trying to take advantage of the growing wealth in the region . Research firm Wealth Insight expects the country to overtake Switzerland as the world’s biggest hub of offshore wealth by 2020.

Singapore is already a hub for financial services and wealth management, so it makes sense that it wants to make itself a benchmark for gold trading and storage in Asia.

Singapore is becoming an emerging precious metals hub and a key player in the global bullion market. Against the very uncertain global macroeconomic and geopolitical backdrop, prudent private individuals and institutions are moving their physical bullion to one of the safest jurisdictions in the world.

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