Demand in the Singapore Gold Bullion Market

Singapore has evolved into one of the world’s most dynamic gold trading and storage hubs. Following sustained growth over the last five years backed by government initiatives to develop the country’s investment precious metals (IPM) sector, Singapore now hosts a vibrant local and regionally focused gold market comprising a wide variety of precious metals participants. These participants range from retail bullion dealers to bullion wholesalers, from precious metals refineries to secure logistics providers, and from bullion banks to trading houses.

One of the early initiatives that transformed Singapore into a precious metals trading and storage hub came in February 2012, when during a budgetary speech to parliament, finance minister Tharman Shanmugaratnam announced that the importation and supply of investment-grade gold and other precious metals in Singapore would become exempt from Singapore’s Goods and Services Tax (GST). Previously the GST on precious metals in Singapore was 7%.

As reported by Reuters in February 2012, Shanmugaratnam in his budget speech envisaged that:

“We will facilitate the development of gold trading, which can draw on Singapore’s strengths as a financial and trading hub, to meet strong demand for investment-grade gold in Asia.”

The GST exemption on investment precious metals was first introduced on 01 October 2012, and applies to transactions in investment-grade gold, silver and platinum that are in the form of high purity bars, ingots and coins. This means that investment grade precious metals purchased in Singapore are free of GST.

International Enterprise (IE) Singapore, an office of the Singapore Government, has also been active in supporting Singapore’s precious metal sector, and in promoting the benefits of Singapore’s gold market internationally. Overall, the main aim of IE Singapore and the government in the bullion sphere is to ensure that Singapore becomes and remains the region’s primary bullion trading, storage and transport hub.

Jurisdictional Advantages of Singapore

Apart from the GST exemption on investment precious metals, there are a number of other jurisdictional advantages that have supported the growth of Singapore as a gold trading and storage hub, and that reinforce the logic for buying gold and storing gold in Singapore.

In Singapore, there are no other taxes when buying gold, silver or other precious metals. This means no capital gains tax, no other sales tax, no death tax, in short no taxes. There are no reporting requirements when buying or selling gold or silver or other precious metals in Singapore. This means no reporting requirements to any Singaporean authority and no reporting requirements to any international authority.

There is no GST when importing gold and other precious metals into Singapore, or exporting gold or other precious metals out of the country. Singapore is also famed for its strong rule of law, making the country one of the safest and most secure countries on earth to buy and store gold. If taking delivery or selling precious metals, it is quite safe, apart from the usual precautions, to walk in and out of bullion dealer shops in Singapore carrying your precious metals.

Furthermore, the Singapore legal system is very protective of private property rights, and the nation of Singapore has strong  military capabilities, both of which are reassuring when storing gold or silver in the city-state. Finally, because it’s a thriving gold trading hub, with a buoyant wholesale and retail bullion market, Singapore has a very well-developed gold storage and vaulting infrastructure, and is very well serviced by secure transport companies.

Precious Metals Sector Participants

IE Singapore sometimes describes Singapore’s bullion market participants as a precious metals ecosystem, not just because of the breath of entities present, but because of the way they interact as a sector. This ecosystem refers to the bullion wholesalers, precious metals refineries, retail bullion dealers and secure logistics providers mentioned above, as well as to the bullion banks and trading houses in the wholesale segment of the bullion market.

A large number of investment banks have a presence in Singapore, and many of these banks are active in Singapore’s gold market, either in a trading capacity or via their wealth management units, or both. Some of these banks include Standard Bank, ANZ, UBS, and JP Morgan. Colloquially, investment and merchant banks involved in the bullion market are referred to as bullion banks. United Overseas Bank (UOB), the Singaporean large-scale bank can also be added to this list.

Another group of players in Singapore’s wholesale gold market are referred to as the “trading houses”, and include names such as INTL Stone, Sumitomo Global Commodities, Mitsubishi, and MKS (the precious metals trading arm of the MKS PAMP group).

Since June 2014, Swiss based precious metals Metalor has also operated a precious metals refinery and production facility in Singapore. This move by Metalor to open a facility in Singapore was directly driven by the GST exemption on imports of precious metals that was introduced in 2012 at the same time as the GST exemption on transactions within Singapore. Apart from Metalor, the Dubai headquartered refinery group Kaloti metals also has a presence in Singapore with facilities for smelting gold.

In the secure logistics and transport providers segment, Brinks precious metals operates a regional base and secure storage facilities in Singapore serving Singapore, Malaysia, Brunei, Indonesia and the wider Asian region. Malca Amit also has a storage facility in Singapore, which is located in the Singapore Freeport, near Singapore’s Changi International Airport. This Singapore Freeport, or ‘Le Freeport‘ is a secure valuables warehouse complete with vaults which some of the bullion banks in Singapore also use to store precious metals.

A Vibrant Gold Trading Hub

According to the latest precious metals industry survey of Singapore’s IPM sector, approximately 656 tonnes of gold and 4253 tonnes of silver were traded in Singapore during 2015. See survey table in Metalor presentation here.  Much of these quantities would reflect trading activity between the large banks or involving the trading houses, and also gold flowing through the refineries operations of Metalor and Kaloti. For example, the trading house INTL could buy gold mining output from Indonesia and have it shipped to Metalor’s refinery in Singapore for processing. Metalor is said by industry sources to trade over 100 tonnes of gold per annum.

The survey also notes that the figures reflect sales that were mainly to Singapore, Indonesia, Thailand and Hong Kong but also to China and India, the Philippines and Malaysia. As such, a lot of the physical precious metals trading that goes through Singapore is in the form of supply flows for the wholesale markets in South East Asia and the wider Asian region.

According to IE Singapore data, 291 tonnes of gold was imported into Singapore in 2016, and 397 tonnes was exported. This gives a combined 2 way flow of 618 tonnes.

Most recently, according to a recent Thomson Reuters GFMS report, “Singapore Bullion Flows Surprise to the Upside with a Surge in Shipments in 2017”, for the year to the end of September 2017, gold bullion imports into Singapore reached 224 tonnes. Major import sources were Switzerland, Japan, Hong Kong and Australia. Some of this import activity was gold flowing through Singapore being converted into kilo bars destined for China, but some of it was also gold being smuggled out of China that made its way to Singapore.

GFMS says that apart from China, other export destinations for gold that leaves Singapore includes Cambodia, Thailand and Malaysia. As the figures reveal, there is therefore a huge amount of gold trading in Singapore and a huge amount of physical gold moving in and out of Singapore on an annual basis.

Singapore Retail Gold Demand: Consultancy Estimates

The world’s major physical gold wholesalers are also present and active in Singapore,. These wholesalers supply the retail sector in Singapore and the wider South-East Asian region with investment bars and coins and sometimes maintain local inventories of precious metals in Singapore to satisfy demand. These wholesalers include Dillon Gage, which has an office in Singapore, MKS, also with an office in Singapore, and A-Mark, which although it doesn’t have an office in Singapore, is an active supplier into the Singaporean bullion market.

Singapore’s retail bullion market is active and thriving, and has grown strongly since 2012. It is currently served by BullionStar and a number of other bullion dealers.

A number of precious metals consultancies make estimates on retail physical gold demand in the world’s key gold markets, including estimates for retail gold demand in Singapore. These consultancies include Thomson Reuters GFMS, Metals Focus, and the World Gold Council (WGC). Note that the World Gold Council does not gather its own data, and since 2016, the WGC has used Metals Focus to provide all gold supply and demand data for WGC publications, such as the WGC’s ‘Gold Demand Trends’ publications.

In its supply and demand data, GFMS defines physical gold demand as a combination of jewelry, industrial, central bank and retail demand. Retail demand is further divided into gold bar demand and gold coin demand. The World Gold Council / Metals Focus definitions are mostly similar to GFMS, and define a demand category called investment gold, or which “total bar and coin demand” is a sub-sector, and further breaks this down into physical gold bar demand and official gold coin demand, ‘official’ referring to legal tender coins issued by or on behalf of national mints.

Although each consultancy has its own methodology, and although none of the consultancies publicise the exact way in which their estimates are arrived at (since the data methodologies are commercially valuable), their overall approaches to estimating retail gold demand (gold bar demand and gold coin demand) in a given national market would be similar, and would involve extensive ‘field research’, i.e. talking to the commercial entities that make up the gold market.

As an example, GFMS’ first step is to identify which entities are present in that gold market, for example refineries, banks, wholesalers, and retailers. They then identify those entities that together could provide data giving a full picture of retail gold demand in that market, and then go out and actually interview and talk with representatives from the identified companies.

This also seems also to be the approach Metals Focus follows, since the World Gold Council confirms in its supply and demand data methodology note that Metals Focus uses extensive field research that consists of talking to a network of contacts in the physical gold supply chain. For estimating demand data, this would include talking to refiners, official mints, bullion banks bullion dealers, and secure transport companies. The WGC actually states in its methodology note that:

“Investment demand will be measured using information from mints, manufacturers, retailers, wholesale dealers, banks etc”

Surprisingly, for collecting data on retail gold demand in Singapore, the major consultancies such as GFMS and Metals Focus do not request this data from major retail bullion dealers in Singapore such as BullionStar. Who they actually collect their demand data from is unclear because this type of information is treated as a trade secret by the consultancies. But using a little guesswork, we assume that their logic is to talk to key players in the supply chain (such as refiners and wholesalers) who in their view will provide enough information and feedback with which to create their retail gold demand estimates.

So the consultancies probably talk to the main suppliers of gold into Singapore’s retail gold market, such as the Swiss refineries, and the national mints (e.g.Perth Mint and Royal Canadian Mint) and ask them how much gold was sent into Singapore during the year. In a similar fashion, they most likely ask the main gold wholesalers such as A-Mark and Dillon Gage the same questions.

At times, the consultancies probably also chat to the bullion banks and trading houses to glean information on what gold, if any, these entities would have supplied into the ‘retail’ market. As to how the consultancies draw the line between the retail gold market and the high net worth gold market is unclear. Because if a high net worth wealth management client of a bank (such as UBS or UOB) buys physical gold in a transaction facilitated by UBS or UOB, is this captured as ‘retail’ demand. The answer is probably not according to the logic of the consultancies, but at the same time this demand is  not institutional demand either.

Note that in preparing this article, we talked to GFMS and Metals Focus briefly about their retail gold demand estimates. GFMS and Metals Focus were both courteous and helpful and responded speedily.

The World Gold Council’s ‘market intelligence group’ was also approached with similar questions. After repeated attempts to approach the World Gold Council, they eventually acknowledged our request, but then refused to engage and ignored subsequent emails.

Gold Market Demand Figures

For 2016, GFMS estimates that Singapore retail gold bullion demand (comprising bar and coin demand) totaled 6.5 tonnes. For the current year up to the end of September (i.e. Q1 – Q3 2017), GFMS estimates retail demand was 5 tonnes.

For 2016, the WGC’s ‘Gold Demand Trends’ data estimates that  total gold bar and gold coin demand in Singapore totalled 5 tonnes,  while its demand estimate for the first three-quarters of 2017 *Q1 – Q3) totalled 3.5 tonnes.

At first glance, these consultancy numbers look to be on the low side. This is because, based on internal data, BullionStar sold approximately 2.3 tonnes of gold bullion (bars and coins) during 2016. Based on the GFMS and World Gold Council figures, This would mean that BullionStar accounted for 35% of the total 2016 estimate of GFMS, and 46% of the total estimate from WGC / Metals Focus. This would also mean that based on GFMS data, all other bullion dealers in Singapore between them only sold 4.2 tonnes of gold in 2016, and based on WGC figures, all other bullion dealers in Singapore only sold a combined 2.7 tonnes of gold in 2016.

When the consultancies calculate retail gold demand, they claim to take into account the buy-back rate on gold, so as to estimate net gold demand for a particular year. This makes sense. For example, if a bullion dealer sold 1 tonne of gold to customers in a year, and if that same dealer bought back 0.4 tonnes of gold back from customers during the same year, then the net sale quantity would be 0.6 tonnes for that year. However realistically, its hard to understand how the consultancies would know buyback rates since they don’t talk to all the major retail bullion dealers in Singapore.

For the record, BullionStar’s internal data shows that for 2016, approximately 3 grams on every 10 grams sold was purchased back, meaning that the net tonnage of gold sold by BullionStar in 2016 would have been approximately 1.6 tonnes of gold during 2016.

Each year BullionStar publishes its annual financial results in a transparent and informative way, and also publishes commentary and infographics about these results where can be seen here.

General estimates can also be made on how much gold other bullion dealers in the Singapore gold retail market sold during 2016. This can be done by looking at the sales revenue of each dealer (since most of these companies file financial accounts with the Singapore companies office), and then making assumptions on what percentage of these annual sales were in gold bars and coins, as opposed to silver bars and coins and other products. Then the revenue figures representing gold can be divided by the average gold price during the year to yield quantities sold.

However, when this type of calculation is preformed on the revenue figures of the retail bullion dealer of the Singapore gold market, it yields figures that are higher than those of the consultancies.

Conclusion

So are the gold demand estimates of the major precious metals dealers accurate or under-estimated? The short answer is that the consultancy estimates look to be on the low side. However, the consultancies are not transparent about how they collect data, so the validity of their data collection techniques can’t be appraised or tested. Only by giving a full disclosure would it be obvious that they are underestimating figures. However, they will never do this because they are in the business of selling data (i.e. monetising data). If it was proven that some of the consultancy data was inaccurate, it would lower the commercial value of all of their data offerings.

Another issue is how to define the retail segment and retail demand in Singapore and elsewhere. Again this comes back to the fact that the consultancies don’t divulge what their data is based on. If we said that the consultancies are under-estimating retail demand because of X and Y, they could theoretically respond by saying “Ahh, but we don’t define X and Y as retail demand". But because no one except the consultancies knows how they collect their data, and they will never divulge the sources of their data, such a debate would be virtually impossible to ever have.