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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.


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.


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.


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.


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.


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.


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

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.


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.


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