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Gold to Shine Again

By Chen Guangzhi, Head of Research, KGI Securities (Singapore)

Gold to Shine Again​

Gold has remained range-bound between US$1,600/oz+ to US$2,000/oz during the COVID-19 pandemic. However, there has been a V-shaped rebound since 4Q22 that persists till now, with the recent surge fuelled by the banking crisis in the US and Europe. Gold has broken out of US$2,000/oz for the third time since the pandemic outbreak.

Figure 1: Gold Performance

Bloomberg Code Name Closing Price 1-Month Return 3-Month Return 1-Year Total Return 3-Year Total Return 5-Year Total Return YTD Return
XAU Gold Spot $/Oz 2022.58 9.51% 10.35% 5.13% 24.76% 52.44% 10.87%

Source: Bloomberg, KGI Research

Key Factors Impacting Gold

Several positive factors are supporting gold’s performance. Firstly, gold prices are generally inversely correlated to the US dollar. The US dollar peaked in 3Q22 along with inflation topping out, and the subsequent downswing of the US dollar has supported gold’s rebound over the past 6 months.

Figure 2: Gold and US Dollar Index

Figure 2: Gold and US Dollar Index​
Source: Bloomberg, KGI Research
Secondly, gold is sensitive to changes in interest rates. Gold itself does not generate any yields but only price appreciation and depreciation. Specifically, gold prices are also inversely correlated to real yields, which factor in the nominal interest rate and inflation rate.

Figure 3: Gold and UST 10-year Real Yield

Figure 3: Gold and UST 10-year Real Yield​
Source: Bloomberg, KGI Research

Thirdly, geopolitical tensions impact investors’ sentiment towards safe-haven assets. Gold’s last breakout of US$2,000/oz was in March 2022 when Russia unexpectedly invaded Ukraine, and fears of World War III drove funds to flock to gold.

Lastly, a persistent increase in the money supply inflates gold prices in the long term. Gold, once used as a currency, has now become a commodity. The limited reserves of nonrenewable gold resources make gold a good anchor to fiat money. Gold’s rally from March 2020 to July 2020 coincided with the Fed’s unprecedented US$3 trillion liquidity injection, bringing gold to reach an all-time high of around US$2,070/oz.

Figure 4: Gold and Fed Fund Rate, Gold Return During QE period

Figure 4: Gold and Fed Fund Rate, Gold Return During QE period​
Source: Bloomberg, KGI Research

Figure 5: Gold and Central Banks’ Total Assets

Figure 5: Gold and Central Banks’ Total Assets​
Central banks: FED, ECB, PBOC, BOJ, SNB Source: Bloomberg, KGI Research

Outlook

Gold is expected to reach a new all-time high in 2023, supported by the abovementioned factors. Inflation measures such as CPI, PPI, and PCE in the US are on a downward trajectory based on the last two quarters’ figures. Meanwhile, the banking crisis in March 2023 is attributed to the steep rate hikes in 2022. The Fed is expected to prioritise financial stability over inflation, and the market anticipates the rate hike cycle to end in 1H23, followed by an ensuing rate cut in 2H23. Falling real yields provide strong support for gold’s price.

GOLD IS EXPECTED TO REACH A NEW ALL-TIME HIGH IN 2023, SUPPORTED BY THE ABOVEMENTIONED FACTORS.

The odds of escalating geopolitical tensions are high. The Russia-Ukraine military conflict has yet to be resolved, and Finland’s recent entry into NATO has raised concerns about potential military action by Russia over Finland’s borders, similar to what happened in Ukraine before the invasion. The biggest risk remains the tensions between China and the US. The confrontation between the world’s largest and second-largest powers is expected to last at least for the next decade. Both the US and Taiwan will have presidential elections in 2024, bringing uncertainties. Consequently, the demand for safehaven assets, especially gold, is expected to intensify.

Expansionary monetary policies are expected during a recession. The US has a more than 60% probability of entering a recession in the near term, and the US will reach its debt ceiling in June, with raising the debt ceiling and ensuing increase in the deficit being the likely resolution. This will result in a new round of quantitative easing. China has also adopted loosening monetary policies since the end of zero-COVID lockdowns to resume economic growth. In the foreseeable future, fiat money will continue to flood the world, leading to higher gold prices.

Figure 6: Gold Returns During US Recessions

Begin End Gold S&P 500
Feb-20 Apr-20 7.0% -10.4%
Nov-07 Jun-09 18.2% -37.9%
Mar-01 Nov-01 3.3% -8.2%
Jul-90 Mar-91 -0.5% 4.4%
Jul-81 Nov-82 3.3% 6.8%
Jan-80 Jul-80 12.4% 15.6%
Oct-73 Apr-75 77.1% -23.7%
Nov-69 Nov-70 6.6% -7.0%
Mar-60 Feb-61 -0.1% 14.6%
Jul-57 Apr-58 0.4% -9.3%
Jun-53 May-54 0.6% 20.5%
Average Return 11.7% -3.2%

Source: Bloomberg, KGI Research

CHEN GUANGZHI

CHEN GUANGZHI is the head of research at KGI Securities (Singapore). He has more than 7 years of experience in equity research with coverage of the US, China, Hong Kong, and Singapore markets. He graduated from Singapore Management University with a master’s degree in applied finance and from South China University of Technology with a bachelor’s degree in e-commerce. Meanwhile, he is a CFA charterholder.

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Singapore Bullion Market Association Secretariat-Lee-Jia-Yi

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.

SECRETARIAT SBMA-Emily-Oh

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.

SECRETARIAT SBMA Clara-Chang

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.

SBMA Committee-Photo-john-levin

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.

SBMA Secretariat-Fabian-Lew

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.

SBMA-margare-secretariat

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.

SBMA-Albert-secretariat

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.

Ms Pawan Nawawattanasub

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.

SBMA-Shaokai-Fan

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.

SBMA-Committee-Alan-Liew

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.

SBMA-Committee-Nikos

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.

SBMA-Committee-khun nuttapong

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.

SBMA Committee-Photo-Raman-Walia

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.

SBMA Committee-Photo-Andrew-Clarke

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.

SBMA Committee-Photo-Kazuya-Naoki

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.

SBMA Committee-Photo-Vinh-Nguyen

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.

SBMA Committee-KL-Yap

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.