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Feature | The Investment Case for Gold – Singapore

By Qi Xiu Tay, Manager, World Gold Council

Published on September 8, 2020

A major financial and shipping hub, Singapore stands out in developing ASEAN. GDP per capita has nearly tripled in the last 20 years and Singapore now ranks as one of the most prosperous nations in the world. But risks and challenges remain, even for Singapore.

RISK OF CURRENCY DEPRECIATION

In the immediate future, the economic fall-out from the Covid-19 pandemic remains the most critical risk. A combination of falling exports, lower oil prices, fewer tourists and rising unemployment is widely expected to create a decline in both demand and inflation. This, in turn, increases the risk of further depreciation in the Singapore dollar.

TRADE TENSIONS AND GEOPOLITICAL UNCERTAINTY

Beyond the pandemic, trade-reliant Singapore is deeply vulnerable to ongoing geopolitical uncertainty. Further deterioration in US-China relations could generate considerable friction in ASEAN and prompt a slowdown in global demand. Singapore is not immune to capital outflows typically seen in ASEAN during such times and a global flight to safety could provoke a broad decline in Singapore dollar-denominated assets.

AN AGEING POPULATION

In the long run, an ageing population is expected to place further pressure on Singapore’s public finances. According to the IMF, Singapore’s healthcare spending is expected to double to 8% of GDP by 2050. Sovereign wealth funds, which contributed to 20% of the national budget in 2020, will almost certainly need to take on riskier, illiquid investments to finance growing government expenditure.

Meanwhile, financial institutions will also have to adopt riskier asset allocations to support profitability. An ageing population entails a higher level of savings and lower demand for investments. This will place downward pressure on asset prices and perpetuate a low yield environment.

NAVIGATING THE RISKS IN ASEAN AND THE REST OF ASIA

As a financial hub, Singapore is often seen as a gateway to ASEAN and the rest of Asia. According to the Monetary Authority of Singapore’s 2018 Asset Management Survey, 75% of total AUM managed in Singapore was sourced from outside the country and 67% of total AUM was invested into ASEAN and the broader APAC region. Singapore-based investors thus need to be mindful of the risks and challenges in ASEAN, which could include fluctuating currencies from current account vulnerabilities, volatile commodity prices and geopolitical uncertainties.

THE ROLE OF GOLD

Gold has a vital role to play in the portfolios of Singapore-based investors. Gold’s safe-haven qualities can shelter portfolios from the uncertainties arising from geopolitical risks and trade tensions. In an ageing society, it is an essential safe-haven anchor in portfolios that are pushed to take on more risks. For investors looking to invest in ASEAN, gold can serve as a hedge against current account vulnerabilities and volatile commodity prices.

A LIQUID SAFE-HAVEN, PORTFOLIO DIVERSIFIER AND SOURCE OF RETURNS

Gold has long been recognized as a safe-haven asset and its outperformance during the Covid-19 pandemic and the 2008-2009 financial crisis is testament to its ability to benefit from flight to safety inflows during periods of heightened risk.

In Singapore, gold complements the Straits Times Index with its negative downside correlation to global stocks. As an open and small economy, Singapore is vulnerable to shifts in global market sentiment, and the Straits Times Index tends to fall when global stocks retreat. In contrast, gold, denominated in either US dollars or Singapore dollars, tends to rise when global stocks fall.

But gold’s correlation does not just work for investors during periods of turmoil. It can also deliver positive correlation with stocks and other risk assets in positive markets and our analysis bears this out. When global stocks rally, their correlation to gold can increase, probably driven by a wealth-effect, supporting gold consumer demand, as well as demand from investors seeking protection against higher inflation expectations. In contrast, the Straits Times Index only has limited positive correlation with global stocks during a market rally, while ASEAN stocks tend to fall.

Correlation between gold, Straits Times Index and ASEAN stock returns in various environments of stocks’ performance*

Sources: Bloomberg, MSCI Inc, World Gold Council
*As of 30 June 2020. Correlations computed using weekly returns based on the MSCI World Index, MSCI AC ASEAN Index, Straits Times index and the LBMA Gold Price PM since December 2000. All stock indices are denominated in US dollars

Gold’s ability to perform during both good and bad times has made it an attractive source of returns. Over the last 20 years, the price of gold has increased by an annual average of 8-13% in the local currencies of ASEAN-6, outperforming the Straits Times Index and both ASEAN and APAC stocks. In fact, since the collapse of Bretton Woods in 1971, gold has outperformed all major currencies as a means of exchange, as the long-term growth in gold supply has always been slower than that of any national currency. As a store of wealth and a safe-haven asset, gold is thus able to protect investors from the risk of currency depreciation both in the long and short-term, with the latter proving more relevant amidst the Covid-19 pandemic.

Average daily trading volumes in US dollars*

Sources: Bank of International Settlements, Asian Development Bank, London Bullion Market Association, German Finance Agency, Bloomberg, World Gold Council
*Based on estimated one-year average trading volumes as of 31 December 2019, except for currencies that correspond to March 2019 volumes due to data availability. For methodology details, please see “The relevance of gold as a strategic asset” (Singapore edition) at Goldhub.com

Equally as important, the gold market is also large, global and highly liquid. Average daily trading volume in 2019 was similar to that of short-dated US Treasuries and larger than the combined daily average of the USD/SGD, ASEAN bonds and the three largest equity markets in ASEAN. The scale and depth of the market mean that gold can comfortably accommodate large, buy-and-hold institutional investors. For Singapore-based investors struggling to find a liquid safe-haven in the region, gold is an attractive complement to traditional safe-haven assets, such as US Treasuries, and a better alternative to ASEAN sovereign bonds that are illiquid and prone to capital outflows.

A HEDGE AGAINST CURRENT ACCOUNT VULNERABILITIES AND VOLATILE OIL PRICES

Investing in ASEAN involves risks that are both common to the region and unique to each country. For Singapore-based investors looking to participate in ASEAN’s growth potential, gold can make a valuable contribution to their portfolio.

Gold is one of the few assets that has historically retained its value and, in some cases, provided returns during periods of capital reversals. During the taper tantrum in 2013, for example, rising US treasury yields provoked capital outflows across the region and countries with negative current account balances, such as Indonesia and Philippines, were particularly affected. Local government bond yields soared and currencies fell alongside equity markets. A glance back at that time highlights the relative performance of gold versus domestic bonds. On 22 May 2013, Ben Bernanke, then Chair of the US Federal Reserve (the Fed), appeared before Congress and revealed his tapering plans. Between that day and the end of September, when the sell-off in US Treasuries began to slow down, the Indonesian 10-year government yield rose by 276 basis points. Over that same period, gold rose 23% in Indonesian rupiah.

For ASEAN countries vulnerable to volatile oil prices, such as Indonesia, Malaysia and even Singapore, gold’s historically unstable correlation to this asset class makes it an ideal hedge against fluctuating currencies caused by volatile prices. Whilst gold and oil are both strategic commodities, they have very different supply and demand dynamics, a difference that is reflected in their respective financial behaviour. For instance, the oil market is subject to certain factors that are entirely absent from the gold market, including OPEC-imposed supply constraints, inventory build-ups due to infrastructure issues and the impact of geopolitical tensions on physical supply chains. Oil demand is also largely pro-cyclical, whereas gold displays pro- and counter-cyclical qualities.

Conditional correlation between gold in local currencies and APAC and ASEAN bonds and equities relative to the magnitude of movement in trade-weighted US dollar

Sources: Bloomberg, Federal Reserve Bank of St Louis, ICE Benchmark Administration, MSCI Inc, S&P Dow Jones Indices, World Gold Council
Based on weekly returns in USD between December 2000 and June 2020 of the MSCI AC ASEAN Index, MSCI AC Asia Pacific Index, S&P Pan Asia Corporate Bond Index, S&P Pan Asia Government Bond Index and price of gold in Viet Dong, Thai Baht and Indonesian Rupiah.

A PORTFOLIO ANCHOR

Singapore benefits from political stability and robust economic growth. Yet the city-state is exposed to both risks and challenges in the years ahead. As a small, open economy, Singapore is vulnerable to growing geopolitical uncertainty and global trade tensions. It also struggles with an ageing population and faces the prospect of rising government expenditure in an increasingly low yield environment.

Gold can help investors manage, address and combat each of these risks. First, as a safe-haven asset and a source of returns, gold can bolster institutional portfolios in a low-yield environment and protect investors from the risk of currency depreciation. Second, gold’s liquid markets allow investors to meet liabilities when less liquid assets in their portfolio are difficult to sell, undervalued and possibly mispriced. Third, for investors using Singapore as a gateway to ASEAN, gold acts as a hedge against currency fluctuations arising from local current account vulnerabilities and volatile commodity prices. This combination of positive returns and long-term resilience makes gold an effective, attractive and rewarding asset in today’s environment – an anchor for any Singapore institutional portfolio.

QI XIU TAY is a Manager at the World Gold Council, where he conducts gold-related market research, manages central bank relationships and supports public policy initiatives. Qi Xiu started his career as an Investment Analyst in a family office based in London before spending four years as a sovereign fixed income analyst and economist at Continuum Economics and Informa Global Markets.

* This article was published in partnership with World Gold Council

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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.