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Australia, Asia and Gold

By Nicholas Frappell, General Manager, ABC Bullion

Published on June 4, 2018
Data by World Gold Council.

Nicholas Frappell is General Manager of ABC Bullion. Prior to joining ABC in Sydney, he worked for Mitsui & Co. Precious Metals Inc., in Hong Kong and London, Triland Metals and RBS Sempra Commodities, and Sumitomo Corporation in Tokyo, after starting in precious metals at Bank of Boston in London.

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As the world’s second-largest producer of gold, Australia, conveniently located near to centres of high demand, is almost perfectly positioned to support the Asian market. In 2017, just over 2,000 tonnes of physical gold were consumed in markets within a 12-hour flight from major Australian cities, with domestic production taking place in one of the most secure and environmentally conscious nations on earth.

Trade statistics show that approximately 90% of Australia’s physical gold exports went to Asian countries in 2013–2015. However, this share fell to 59% in 2016. Conversely, gold exports to the United Kingdom, the terminal market for OTC gold, hovered around 2.5–4.5% between 2013 and 2015, before jumping to 39% in 2016. This reflects the supply overhang of secondary material in local markets, and a 290 metric ton decline in demand in China, Hong Kong, India and Thailand between 2015 and 2016, which led to a sharp decline in the gold premium in local markets.*

Overview of the Australian market

The Australian market has a healthy demand for physical gold and silver, given its relatively small population. Precious metals, provided they are investment grade, are exempt from GST. The strong increase in the price of AUD gold over the past 15 years continues to attract domestic investors, with local demand supported by the large Chinese, Vietnamese and Indian communities living in Australia, who maintain a keen appreciation of gold and consume small gold bars, including tael-sized cast bars.

The second feature of the Australian market is the “superannuation” or pension sector. In Australia, all workers are required by law to save 9.5% of their income in a superannuation fund, which they cannot access until they retire. People saving in a superannuation fund can create self-managed superannuation funds (SMSFs), which are tax-advantaged savings structures that allow savers to hold physical gold and silver as a portion of their retirement portfolio.

ABC Bullion and our sister company Custodian Vaults play a crucial role by distributing our allocation bullion products, as well as our investment bars to SMSF investors, the vast majority of whom then choose to vault their bars at Custodian, as legislation requires that investment bars held as part of their investment portfolio must be in secure storage.

The total amount of funds managed within the “super” sector is already over A$2.5 trillion, making it one of the largest pools of retirement capital in the world. It will only continue to grow, with accounting firm Deloitte estimating that funds under management will hit A$4 trillion by 2025, and A$9.5 trillion by 2035. SMSF investors are currently the largest share of this market, which has huge potential for domestic physical gold demand, especially given record low interest rates in Australia and a softening local housing market.

Australian dealers also enjoy a growing international client base as buyers seek geographic diversification of metal holdings in secure and politically stable locations with no sales tax applied to gold and silver investment bars.

How do Australian dealers support the Asian market?

Australian bullion dealers serve the market in several ways. Certain Australian banks that are licensed to import gold into China help channel demand at a macro level, and provide additional liquidity to the Shanghai International Gold Exchange from time to time, as well as providing financing facilities to enable miners and refiners to process through-put before bars even reach Asian shores. Crucially, ABC Refinery, the exclusive producer of ABC Bullion, is one of only two Australian refiners that meet the stringent SGE quality standard and enjoy LBMA Good Delivery status.

Apart from making cast bars designed to local requirements, Australian refiners are busy making minted products suitable for Asian consumers, with Lunar-series coins, Diwali coins, and in the case of ABC Bullion, a beautiful minted tablet available in 10 and 20-gram sizes that are designed for the Islamic gold investor.

With almost 250 million Muslims living in Malaysia and Indonesia, this is another segment of the market with great investment potential. The question is: what products are best suited to meet the demand in these markets?

It is well known that demand for gold, particularly in Asia, includes demand for high-karat gold jewellery, which is why ABC Refinery and ABC Bullion are members of the Pallion Group – a vertically integrated precious metal consortium that also creates custom jewellery, fabricated precious metals and jewellery supplies. Pallion supports the Asian market by providing a comprehensive, ethically sourced, product range, to meet the varying consumption preferences of Asian consumers. As with any business, it is all about giving the customers what they want and gold is no different.

Nicholas Frappell is General Manager of ABC Bullion. Prior to joining ABC in Sydney, he worked for Mitsui & Co. Precious Metals Inc., in Hong Kong and London, Triland Metals and RBS Sempra Commodities, and Sumitomo Corporation in Tokyo, after starting in precious metals at Bank of Boston in London.

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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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Mr John Levin

Global Metals
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Fabian Lew

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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.

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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.

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Mr Nikos Kavalis

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