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How Will Black Swan Events Impact the Gold Market in 2019?

By Gordon Cheung, Deputy Chief Executive, SBMA

Published on January 17, 2019

Gordon Cheung has over 25 years of trading experience in the interbank bullion market. Before joining SBMA as its Deputy Chief Executive in March 2018, he spent 12 years as the head of trading and hedge fund sales at leading bullion banks in Singapore and Hong Kong.

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The subprime debacle in the United States (US) that triggered the 2008 financial crisis sent the world’s economy into an abyss of miseries. A decade on, some countries are still trying to stay afloat. On the 10th anniversary of the crisis, the US emerged as the first country to recover from distress. Its robust growth enabled the Republicans and President Trump, who took all the credit for work done by his predecessor, to tighten their grip on the Senate following their success in the midterm elections.

The global financial markets have not fared well for bewildered investors in 2018. The economic system has been rattled by political and ideological differences. Nationalism and protectionism that bring about geopolitical and ethnic confrontations have overtaken terrorism as the number-one threat to the recovery of the global economy. The world has never been so divided since World War II in terms of core value differences and humanism. It remains to be seen if President Trump’s America First policy will serve him well in the 2020 elections, but his unilateralism advocacy might backfire at some point in 2019 as the ongoing trade dispute with China may also take a heavy toll on the US manufacturing sector. That being said, the US has inarguably dwarfed the world with its strong growth, making the dollar the most pursued safe haven this year.

The watershed

Since the beginning of 2018, global markets have been volatile due to geopolitical tensions, particularly in Q4 when the US withdrew from the nuclear force treaty with Russia and the US-Sino trade dispute intensified (Figure 1).

Figure 1: CBOE Volatility Index Chart

Source: Investing.com

In October, the leading stock indices reached historical highs, which ended up being a critical watershed where the global equity markets began to lose momentum and tail off amid the outburst of trade disputes (Figure 2). The S&P 500 benchmark alone lost $2 trillion that month, its worst performance since September 2011. Global research firm Preqin reported that the hedge fund world collectively posted a devastating 2.35 percent loss in October. The same report revealed that investors had withdrawn $4.6 billion from the hedge fund pool in Q3, indicating a lopsided shift in sentiment away from risks.

Figure 2: S&P 500 weekly chart

Source: Netdania

The slowdown of growth in China and other emerging markets also stifled the performance of commodities. On the Commodity Trading Advisor (CTA) front, crude stood out as the only rewarding commodity for the gurus. The bearish strategies they employed have enabled them to capitalise on the fact that the US is gaining a more controlling stake in the oil markets as the influence of OPEC wanes.

Gold enters the post-supercycle phase

As for gold, it has a grim story to tell. After its price peaked at $1,920 in September 2005, gold spent the next eight years scrambling for a foothold on the neckline pivot at $1,540. The eventual breach in April 2013 marked an end to the decade-long supercycle of gold. Interestingly, importation of gold into China surged to a record high in the same year. The trend reversal saw gold embarking on another protracted period of corrective tracking even though demand from China has remained strong. This reveals that import statistics for China is becoming more of a reference than an indicator of the performance of gold.

Despite the prevalent risk aversion stance, gold barely appeared on the radar of investors in 2018. The overall demand in Asia barring China has declined significantly, and the supply of recycled gold has shrunk in the same period (Figure 3). This explains why gold skidded further in May to $1,300 before hovering around the $1,160–1,370 range (Figure 4). All these phenomena may indicate that a mid-term bear cycle is slowly unfolding for gold, which is a call for the gold bugs to reassess the aftereffects of the supercycle with a realistic approach.

Figure 3: China bar and coin investment

Source: Metals Focus, GFMS, Thomson Reuters, World Gold Council

Figure 4: Gold spot price

Source: Netdania

Potential drivers in 2019

The factors that have been driving the financial markets in 2018 will continue to do so in 2019. Black swan events will likely swarm global markets in 2019 and catch investors off guard. On the gold front, with China pretty much saturated against a backdrop of bleak economy, Chinese demand for gold will likely taper off.

Below are the potential happenings in 2019 that will keep investors on edge. The factors make up a mixed bag, the resultant impact of which will likely be negative for gold. We expect gold to test $1,320 in H1 before making a reversal to $1,100, which will remain intact for the rest of the year.

China:

  • An all-time high debt-to-GDP ratio projection of 51.21 percent is putting China’s economy in a dilemma. Any policies to deleverage and rein in lending will force a large amount of technology startups and private enterprises into bankruptcy, whereas to maintain the status quo will send the economy into steep recession.
  • Facing an imminent implosion that will force the government to put the expansionary strategies such as the Made in China 2025 plan and the Belt and Road Initiative on hold.
  • More manufacturers will relocate their production lines to Vietnam, India, Pakistan and Latin America, causing the unemployment rate to soar.
  • The yuan will depreciate.
  • The demand for gold will decrease.

United States:

  • Stock markets will undergo a cyclical downturn. Economic growth will slow down. The strength of the dollar will subside.
  • To raise the stakes in the 2020 presidential election, President Trump will continue to leverage on his unpredictability, making himself a black swan.
  • If Michael Bloomberg reaffirms his bid to run in 2020 presidential election, he will likely win by considerable odds. The dollar will strengthen in Q4 if that happens.

Eurozone:

  • The economy will remain sluggish and mixed.
  • Stay alert to Italy, Greece, Portugal, Spain and France.

United Kingdom:

  • Brexit will have unforeseeable consequences for the economy.
  • The pound will fall further.

Global:

  • The global economy likely goes into stagnation. Inflation will remain flattish, offset by lower commodity prices.
  • Oil benchmark falls to $35. The Fed will be cautious with its rate policy or put rate hikes on hold.
  • Nationalism will continue to be a dominant ideology that may come at a high price for its advocates.

Gordon Cheung has over 25 years of trading experience in the interbank bullion market. Before joining SBMA as its Deputy Chief Executive in March 2018, he spent 12 years as the head of trading and hedge fund sales at leading bullion banks in Singapore and Hong Kong.

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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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Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

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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.