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Why Investors Should Always Hold a Position in Gold

By Nicolas Mathier, Founder, Global Precious Metals

Published on March 20, 2020

NICOLAS MATHIER is the founder of Global Precious Metals. He was previously Manager of Trading & Business Development at Swiss Precious Metals in Singapore. Nicolas began his financial career as an Assistant Private Banker with Lombard Odier & Cie. in Geneva, Switzerland, after which he worked as a relationship manager and trader at Swiss Heritage, a wealth management company based in Singapore.

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The financial system is fraught with counterparty risks which are constantly being tested amid instability, political changes, and threats to our global economy that trickle down from pandemic-hit China; a shift in political ideology towards nationalism causing events like Brexit; potential nuclear proliferation in Iran; or even polarised upcoming United States presidential elections.

The gradual rise in the price of gold over the past decade, and more so its spike in the last two years, is a testament not only to its unhindered store of value and demand over centuries, but also that it is indeed a safe haven in economically troubled times. Continued interest in gold, levels of reserves held by central banks, and volumes that continue to be traded indicate that investors understand the asset’s value; the interest in owning gold as a tangible liquid asset outside of the financial system goes further as a hedge against counterparty risks, failures of which we have seen too many of in recent times.

While markets have bounced back since the last financial crisis, there has been an air of caution and global debt has nevertheless increased, which in part explains the continued appetite for gold as a reliable asset that governments cannot expropriate, and which financial institutions cannot use in their fragile fractional reserve banking systems. These factors further explain why the price of gold has been maintained, if not strengthened. While the price volatility of gold in the short term is reactionary, time has shown that it is also a combination of events that has resulted in a gradual market correction.

PAPER MONEY EVENTUALLY RETURNS TO ITS INTRINSIC VALUE: ZERO

– VOLTAIRE, 1972

Outside of price-influenced buyers of gold, there are a significant number of investors in the precious metal who are all too aware of counterparty risks, and regardless of gold’s performance, are fully invested in the characteristics of physical gold and in maintaining a position outside the banking system. Precious metals stand out in the investment universe because they are no one’s liability and have no counterparty. Financial institutions are highly leveraged to the point that the failure of a significant player would result in a systemic collapse. The term “too big to fail” has been coined to reflect this reality. Banks and other financial institutions are holding record amounts of derivatives and structured products for which value and liquidity are not understood in times of extreme events; at times during major global or local financial distress, gold exchange-traded funds (gold ETFs) and the paper gold exposures move in different ways due to the counterparty risks within those structures. To add to this, major global institutions have been perpetrating frauds and market manipulating markets, which put at risk investors’ holdings and further subject the institutions to dramatic fines and significant losses. In these days of unprecedented financial experiments, many investors choose to diversify part of their portfolio by adding physical precious metals.

At Global Precious Metals, client holdings are fully segregated, so they have distinct and full legal ownership and their assets are devoid of systemic financial sector risk. As gold is a very liquid asset, it can be traded rapidly in large volumes on transparent markets, with no conditions or caveats attached. Having a hard asset that has stood the test of time over centuries, and that is accessible 24 hours a day is of great appeal to HNW clients. Another appeal of physical gold is its confidentiality, and the fact that it also sits outside regulatory proliferation that has been spilling out incessantly in recent years, inhibiting autonomy over one’s assets.

PAPER GOLD VS. PHYSICAL GOLD

There are significant differences between paper gold such as derivatives, unallocated accounts and ETFs, and holding physical gold. Primarily, the benefits derived from holding physical gold, which is a tangible hard asset to which an investor has legal title, is the ability to hold it at home or in a vault with unfettered access. This is not available for ETFs, which are essentially IOUs to be settled in fiat currency. To add to this, custodians of the gold backing the ETFs can use undisclosed sub-custodians holding the bullion in undisclosed locations, and there are several limitations to the liability of the custodian and sub-custodians. If an investor owns an ETF, he does not own gold – he owns equity in a fund that owns gold and related derivatives; If an investor owns a derivative, he does not own gold, he owns exposure to a contract which may or may not be settled sometime in the future.

Most of the world’s gold is held in unallocated accounts provided by financial institutions and large bullion dealers. While such accounts are described as the most convenient, cheapest, and easiest ways to gain exposure to bullion, specific bars are not set aside for the client and the account is backed by the credit worthiness of the institution. The London Bullion Market Association clearly says that with such accounts, “the client is an unsecured creditor”. The reality behind these accounts is that they are an investment structure whereby the investor provides free capital to the supplier (and sometimes pays a small fee in the form of margin to do so) and risks the loss of his capital should the supplier become insolvent. As an investor in unallocated gold, your metal is on the balance sheet of the supplier as a liability and you remain exposed to its insolvency; the actual metal doesn’t necessarily need to exist, pursuant to the terms and conditions of the unallocated storage contract.

Accordingly, the principal difference is that physical gold is owned directly by an investor, whereas paper gold belongs to third parties that have a relationship with the investor through shares or a contract, and physical delivery of the gold-backed paper is contingent upon the terms of the contract, which is usually unavailable to the investor or too costly.

ADVICE FOR INVESTORS

When a client wishes to invest in physical gold, we advise them to consider the following key components:

  1. Storage in a stable jurisdiction known for efficient commercial law and property rights enforcement.
  2. Bullion, logistics, and storage offered by a reputable provider, preferably being part of a reputable group of companies and with the directors clearly identified and accountable.
  3. Full insurance coverage up to the replacement value of the metal, at no additional cost.
  4. Documentation clearly evidencing the title in the property by the investor (usually accomplished with a sale invoice by the company, complemented by a warehouse receipt and a certificate of ownership) to reinforce the fact that the ownership lies with the investor.
  5. A storage agreement that clearly limits what the supplier can do with the investor’s metal and outlines his role as a mere service provider.
  6. Documentation and statements setting forth the exact weight, manufacturer, fineness, and bar number of your property. Failure to do this by the provider means that you are involved in an unallocated storage scheme.
  7. Regular audits by independent third-party auditors.
  8. Competitive storage and administrative fees, which should not exceed 1% of the value of the metal per annum and should be closer to half a percent (including insurance).
  9. Ability to sell your holdings back to the supplier in a convenient and fast way.
  10. Ability to pick up or inspect your bullion at the storage facility with minimum notice to the provider (48 hours maximum).

NICOLAS MATHIER is the founder of Global Precious Metals. He was previously Manager of Trading & Business Development at Swiss Precious Metals in Singapore. Nicolas began his financial career as an Assistant Private Banker with Lombard Odier & Cie. in Geneva, Switzerland, after which he worked as a relationship manager and trader at Swiss Heritage, a wealth management company based in Singapore.

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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 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
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