Singapore and Hong Kong open a new gold race

(Edited and refined by Josephine Hong, with the assistance of AI translation.)

Since the start of the year, Singapore and Hong Kong have each rolled out a series of major initiatives to strengthen their respective gold-trading ecosystems, opening up a new “front” in the two financial centres’ long-running competition.

Market observers told Lianhe Zaobao (LHZB) that while competition and overlap exist between the two markets in the gold sector, there is ample room for the two trading centres to coexist given the vast size of the Asian market and the steadily rising demand.

Boosted by policy

So far this year, Singapore and Hong Kong have stepped up efforts to develop themselves as gold hubs. In March, Minister for National Development and Monetary Authority of Singapore (MAS) deputy chairman Chee Hong Tat announced several focus areas of development, including developing gold-related capital market products; putting in place robust and internationally aligned standards for vaulting and logistics; and building a clearing system to support secure and efficient over-the-counter (OTC) settlement for trading large bar and kilobar gold in Singapore. MAS is also looking to provide vaulting services for foreign central banks and sovereign entities.

In July, Hong Kong began trialling a new central clearing and settlement system for gold, making it more convenient to deposit, withdraw and trade physical gold. Hong Kong also launched the first phase of “Delivery Connect” with the Shanghai Gold Exchange, while expanding storage capacity and refining capability, diversifying gold investment products, and exploring tax incentives.

Bloomberg recently quoted sources as saying that the People’s Bank of China is gradually transferring gold previously stored in London to Hong Kong, a move expected to further support Hong Kong’s efforts to establish itself as a gold-trading centre.

Hong Kong leverages mainland China

Albert Cheng, CEO of Singapore Bullion Market Association (SBMA), told Lianhe Zaobao (LHZB) that Hong Kong’s key advantage lies in its close ties with mainland China.

Pete Walden, deputy CEO of physical precious metals trading platform BullionStar, explained that mainland China is one of the world’s largest gold consumers and producers, with substantial demand for the precious metal. Hong Kong is therefore better positioned to handle gold trading and storage volumes originating from mainland China. 

He added that Hong Kong is the world’s largest offshore RMB centre. As the RMB becomes increasingly internationalised, more gold trading, settlement and investment is likely to be denominated in the RMB, which could benefit Hong Kong.

Unlike Hong Kong, Singapore does not have a vast hinterland. Walden said, “Singapore can leverage its trusted and neutral position to facilitate gold investment and storage, serving clients from Asia, the Middle East and other regions.”

He also believes that Singapore’s political stability, neutral foreign policy stance, policy consistency and strong rule of law are highly important to gold storage and trading businesses. These attributes also make Singapore a preferred location for institutions and private investors when deciding where to store their gold.

Walden added that Singapore has world-class vaulting and logistics infrastructure. Since 2012, investment-grade gold and silver bullion have been exempted from the Goods and Services Tax, further enhancing the country’s appeal.

BullionStar operates a precious-metals centre on New Bridge Road, as well as a vault at the Le Freeport storage facility in Singapore.

Walden revealed that in the first half of this year, the gold and silver stored in its vaults were worth more than S$2 billion (US$1.56 billion), an increase of about 35% compared with the second half of last year. “Despite the fluctuations in precious-metals prices, the amount of precious metals that customers have stored in our vaults has continued to increase significantly,” he said.

SBMA’s Cheng believes that Singapore’s main challenge is building sufficient transaction volume and market-making activity, and establishing global influence over gold pricing.

At present, gold-pricing power is concentrated mainly in London and New York. Most spot gold is traded OTC in London, giving the city a leading role in determining spot gold prices. New York, which focuses on gold futures and options, provides a platform for hedging and speculation, allowing the market to gauge investor sentiment towards gold.

Shaokai Fan, head of Asia Pacific (excluding China) and global head of Central Banks at the World Gold Council, told LHZB that Singapore and Hong Kong’s gold industries do compete and overlap to some extent. However, the Asian market is vast and demand is rising, leaving enough room for both trading centres to coexist.

He said, “Take Europe as an example. Although London and Zurich are geographically close to each other, gold demand and trading volumes are substantial, and the two cities have different market positions. Both have successfully established themselves as gold-trading centres. I believe a similar dynamic could emerge between Singapore and Hong Kong.”

Singapore’s major banks expand gold services

With demand for gold investment on the rise, Singapore’s three major banks have introduced more gold-related investment products and services.

For example, DBS Bank began offering customers tokenised physical-gold investment and trading services in the second half of this year. Investors can hold digital tokens backed by physical gold stored in a dedicated vault operated by DBS.

In June, Oversea-Chinese Banking Corporation Limited (OCBC) announced its entry into the physical-gold trading and custody business, catering to institutional clients, as well as high-net-worth and ultra-high-net-worth clients of its Singapore banking business.

United Overseas Bank Limited (UOB) has been operating a physical-gold business for decades and is also one of the few banks in Singapore to offer retail customers the purchase and sale of gold bars and coins.

Kelvin Ng, head of Group Global Markets at UOB, told LHZB that its physical-gold business performed strongly last year, with trading volume rising about 59% year-on-year. Transactions in gold savings accounts also increased by 48% year-on-year.

He said, “All these signs indicate that during periods of market volatility, investors continue to regard gold as an important tool for preserving wealth over the long term and diversifying their investment portfolios.”

Kenneth Lai, head of Global Markets at OCBC, also said, “Since launching our physical-gold services in June, we have seen encouraging interest from institutional clients and Singapore banking customers. We are confident about the long-term demand for physical gold.”

James Tan, group head of Investment Products & Advisory at DBS Bank, pointed out that gold inflows have surged over the past two years, while market attention has also risen sharply. He expects demand for gold to continue growing steadily over the next five years.

This article was first published in Lianhe Zaobao as “新加坡和香港争做黄金枢纽 分析：市场足以容纳两大交易中心共存”.

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