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Golden Horizons: Indonesia’s Thriving Market and Regulatory Revamp

By SBMA

Indonesia’s Thriving Market and Regulatory Revamp

Indonesia stands as a pillar in the global gold industry, not only for its substantial gold reserves but also for its integrated market system. Home to the world-renowned Grasberg mine in the eastern Papua province, Indonesia proudly ranks third in the Top 30 Gold Producing Mines globally, according to Metals Focus. This is a testament to its vibrant ecosystem, which encompasses a world-class gold refinery, a thriving gold jewellery sector, and a diverse array of retail investment gold products.

Gold’s role extends beyond mere ornamentation in Indonesia; it is a crucial investment tool, especially for those without banking access. This has been further emphasized as the Rupiah’s depreciation continues to fuel a robust, long-term demand for gold within the nation.

Gold Mining

Indonesia stands as Southeast Asia’s largest gold producer. While much of its gold is a by-product of copper mining, the nation saw substantial output in 2022, totalling 124 tonnes, marking an increase of 7% from the previous year. The Grasberg mine, a prominent source operated by FreeportMcMoRan (FCX) through its subsidiary PT Freeport Indonesia (PT-FI), is a significant contributor to this output. Currently, Freeport-McMoran retains a 29% stake in PT-FI, while the Indonesian government, through MIND ID Mining SOE Holding, is the majority shareholder with a 71% ownership stake. Additionally, the Batu Hijau mine in Sumbawa is managed by PT Amman Mineral Nusa Tenggara (AMNT), and the Martabe gold mine in North Sumatra is operated and wholly owned by PT Agincourt Resources (PTAR), both of which are key players in Indonesia’s mining sector.

Gold Refining

Logam Mulia boasts a refining capacity of about 60 tonnes (1,929,045 Troy ounces) of fine gold annually and holds the distinction of being on the London Bullion Market Association (LBMA) Good Delivery List. The refinery operates under the umbrella of PT Aneka Tambang, commonly known as ANTAM, which is a state-owned corporation involved in mineral exploration, extraction, refining and metals production. Besides refining its own dore bullion from its two mines, Pongkor in West Java, and Cibaliung in Bantan, Logam Mulia also provides refining services to third parties, accounting for more than half of its revenue. The company specialises in creating 24k gold bars, which are certified by LBMA, available in weights ranging from 1 gram to 100 grams. While Logam Mulia is a major player, Indonesia’s gold refining landscape also includes several other medium-sized refineries.

Gold Deman

Gold Demand

Indonesia’s domestic gold demand is among the highest in the ASEAN region. According to Metals Focus, domestic gold demand from 2017 to 2022 was as follows: 2017: 58.7 tonnes, 2018: 64.0 tonnes, 2019: 54.5 tonnes, 2020: 37.3 tonnes, 2021: 46.8 tonnes and 2022: 49.8 tonnes. The nation’s gold is primarily imported from Japan, which accounts for 32% of the total, followed by Hong Kong at 21%, and both Australia and Singapore at 15% each, with Switzerland contributing 6%. Conversely, Indonesia’s gold exports are more significant to Singapore, receiving 62%, and Hong Kong at 24%, with Thailand (8%) and Switzerland (5%) also being notable destinations.

  1. Jewellery Consumption
    The annual demand for Indonesia’s jewellery consumption from 2017 to 2022 was as follows – 2017: 38.56 tonnes, 2018: 41.89 tonnes, 2019: 40.38 tonnes, 2020: 20.90 tonnes, 2021: 27.00 tonnes and 2022: 28.26 tonnes. Historically favouring 24k and 22k gold, the Indonesian market now shows a pronounced tilt towards jewellery below 18k, which currently represents over half of the market. The Asosiasi Pengusaha Emas & Permata Indonesia (APEPI), known in English as the Indonesian Goldsmiths and Jewellers Association, plays a pivotal role in this sector, not only in representation but also in driving industry growth through events such as the Indonesia Jewellery Fair. Recent regulatory developments include the establishment of the SNI, or Indonesian National Standard in 2021, which sets benchmarks for gold purity. The minimum carat required to be a gold product is 8k or 33.33%. While adherence to SNI is not yet compulsory, its inception indicates progressive steps towards comprehensive regulation. Furthermore, the government has introduced additional measures in 2022 to enhance the quality assurance of precious metals, involving sophisticated testing and certification methods.
  2. Retail Investment
    As for retail investment, which is the purchase of gold wafers and gold bars for investment purposes, annual demand from 2017 to 2022 was as follows – 2017: 20.20 tonnes, 2018: 22.16 tonnes, 2019: 14.20 tonnes, 2020: 16.80 tonnes, 2021: 19.80 tonnes and 2022: 21.5 tonnes.
  3. Gold dinars and silver dirhams
    Given the large muslim population, there is robust demand for traditional Islamic coins like Dinars and Dirhams. Since 2000, these coins have been minted by Logam Mulia and Islamic Mint Nusantara, following the establishment of Walkala Induk Nusantara (WIM). IMN has also introduced Dinarfirst, a mobile/electronic payment system. It also organises market day festivals, where traders use dinars and dirhams for trade. The Indonesian dinars include the LM Dinar (Logam Mulia), Dinar Peruri (Perum Peruri) and IMN Dinar.

Gold Trading

  1. Online gold trading
    Gold trading is widespread in Indonesia, and there is no restriction or price control over the buying and selling of gold, making it a dynamic market segment. Online gold trading is gaining traction among the younger generation of investors in Indonesia, and it is gaining popularity as an investment vehicle, complemented by a robust pawnbroking industry that often uses gold as collateral.
  2. Commodities exchanges
    Indonesia’s commodities market infrastructure includes two major exchanges based in Jakarta: the Jakarta Futures Exchange (JFX) and the Indonesia Commodity and Derivatives Exchange (ICDX), both offering gold futures contracts. The JFX operates with a clearing house, PT Kliring Berjangka Indonesia (Persero), or PT KBI, and in English as the Indonesian Derivatives Clearing House (IDCH), which ICDX trades are settled and cleared via the Indonesia Clearing House (ICH). Commodity futures trading is regulated by the Commodity Futures Trading Act (COFTRA) and supervised by BAPPEBTI, the state futures trading regulatory agency. Both JFX and ICDX are members of the Association of Futures Markets.

JFX lists three contracts:

  • Gold Futures Contract (GOLD): The Gold 250-gram futures (GOL250) and the Gold 100-gram futures (GOL100) have similar contract specifications to the kilo contract (GOL), the main differences being contract lot size. The 250-gram contract has a minimum delivery of four lots (i.e., 1 kg), while the 100-gram contract has a minimum delivery of 10 lots (i.e., 1 kg). Reportable positions and position limits also differ across the three contracts.
  • Gold Periodic Rolling Contract: There are five contracts in this series. These are 1-month contracts, which, if open on the last business day of the month, automatically roll into the next month. Contract sizes are 100 grams, 50 grams, 25 grams, 10 grams and 5 grams. Regarding the grade, the gold bar has a purity of 99.99% with a stamp and serial number from ANTAM.
  • “Rolling” daily gold contracts (cash-settled): These contracts are named Gold Rolling Contract (KGE), Dollar Denominated Gold Rolling Contract (KGE USD), Fixed Rate Dollar Denominated Rolling Gold Contract (KGE USD Fixed Rate) and Gold Index Rolling Contract (KIE). Gold Index is calculated by dividing KGE settlement prices in JFX with the Loco London physical market.

ICDX lists three contracts

  • GOLDGR: Quoted in Indonesian rupiah (IDR), 100 grams contract size, 9999 fineness. Cash or physical settlement. For physical delivery, the seller submits a certificate of gold deposit to the ICDX clearing house. This contract, launched November 2009, has PT Antam Tbk and UBPP Logam Mulia as delivery points.
  • GOLDUD: Quoted in US dollars, contract size 10 ounces, 9999 fine, cash-settled, settlement price based on loco London gold price. Launched April 2011.
  • GOLDID: Quoted in US dollars, but with a fixed conversion rate of US$1 = 10,000 IDR. Cash-settled, contract size 10 ounces. Settlement price based on loco London gold price. Launched April 2011.

Exchange-traded gold contracts on Jakarta’s commodity exchanges have yet to become popular, with minimal daily trading volumes reflecting limited industry engagement. This situation is compounded by the absence of a dedicated gold exchange in Indonesia. Consequently, the pricing of gold within the country is often not transparent, with domestic prices frequently surpassing those on the international market.

Proposal to Set Up Local Bullion Banking in 2024​

Proposal to Set Up Local Bullion Banking in 2024

At the 2022 Asia Pacific Precious Metals Conference (APPMC) in June, the Indonesian government unveiled an initiative to set up a bullion bank by 2024, a strategic move developed in collaboration with stakeholders in the mining and financial sectors, including the central bank. Iskandar Simorangkir, deputy for macroeconomics and finance policy coordination at the Coordinating Ministry for Economic Affairs, highlighted the potential for this bank to reduce the country’s need to import gold products after being certified overseas, thus fostering the local market and offering new financing avenues. Furthermore, this institution is expected to utilise gold-based financial instruments to manage stability. In the subsequent year, at the 2023 conference, it was announced that PT Pegadaian has been selected to begin piloting bullion services, introducing products such as dore financing, unallocated account, and gold metal loans, marking the first phase of this ambitious project.

Conclusion

Indonesia’s comprehensive gold market spans mining, refining, jewellery manufacturing, and retailing, offering a competitive landscape especially valued by locals, who see gold as a form of savings, rather than investment. However, the lack of infrastructure and tax regulations have led to market distortions, with illegal flows and off-market transactions. The government’s plans to streamline the market by allowing bullion banking and the relaxation of tax regime herald potential market improvements, fostering growth and stimulating further development of the industry, particularly in jewellery manufacturing, in both domestic and export markets. Additionally, this strategy promises a boost for the retail sector through reliable raw material sources, a simplified regulatory environment, and a more organised industry structure.

The country’s robust gold supply, including 125 tonnes from mining and recycling, matched with a demand of about 49.8 tonnes in 2022, suggests a market ripe for engagement. This is further enriched by initiatives like the Shari’ah Standard on Gold, the introduction of dinar coins, and the ASEAN free-trade agreement with India, combined with increasing regulatory support, making the Indonesian gold market increasingly attractive for participants.

Appendix

Links

Economic Data (2022)

Population: 276 million

GDP growth: 5.3%

GDP/P: US$4,788

Inflation: 4.2%

Exports: US$323.08 billion

Imports: US$275.70 billion

Total reserves (including gold): US$137.22 billion

External debt stocks (2021): US$416.47 billion

Source: World Bank

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Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

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Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

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Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

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Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

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Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

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Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

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Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

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Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

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Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

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Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

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Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

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Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

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Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

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Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

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Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

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Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.