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A Career Pursuing a Vibrant Gold Market in Asia

 

Albert Cheng CEO, Singapore Bullion Market Association

 

Despite the centrality of gold in the life and culture of Asia, and its function as a medium of exchange in the region for hundreds of years, the role the Asian gold market has played globally has been less significant than its peers. Only in the past two decades has Asia actively engaged with the rest of the world, but there is still much to be done to develop a vibrant gold market in the region, so that Asia can play a more significant role in the future multi-polar gold market, particularly in the developing economies of Southeast Asia, which have rich and diverse precious metals markets.

 

Growth of the gold market globally

 

The modern gold market has only 46 years of history, beginning in 1971 when US President Nixon ended the international convertibility of gold to the US dollar. London was an exception, as it was the ultimate market, even when gold trading was an exclusive activity, limited to governments, imperial families, dignities and the ultra-rich. The rest of the world has since slowly opened to gold trading (table 1), but Asia, and ASEAN in particular has to play catch up, which brings many opportunities.

 

Table 1: Significant events in the history of the gold industry worldwide

 

London

1684 (Mocatta and Goldsmid founded), 1897 (Silver Fix), 1919 (Gold Fix), 1939-1954 (London Market closed), 1987 (LBMA founded)

South Africa

1886 (Gold discovered in Johannesburg), 1967 (Krugerrand launched)

Zurich

1800 (Lombard Odier and Pictet founded), 1950s (90% of refineries capacity)

New York

1971 (closing of the gold window), 1974 (citizens allowed to own gold, gold futures listed)

Tokyo

1973 (controls lifted), 1984 (gold futures listed)

Hong Kong

1910 (CGSE founded), 1974 (controls lifted)

Singapore

1973 (controls lifted, 1978 (Gold Exchange of Singapore founded)

China

2002 (Shanghai Gold Exchange founded)

 

 

My career in the bullion market began over 30 years ago in 1985 when I joined the Royal Canadian Mint as a regional manager in Hong Kong, where I was immediately tasked to promote the Gold Maple Leaf coin in Asia. My efforts eventually made the Gold Maple Leaf the best-selling bullion investment coin in Japan, South Korea, Taiwan, Hong Kong, Malaysia and Singapore, though now only a handful of players still actively trade the coins, which are largely kept in the rainy day stockpiles of individuals who believe in holding physical gold.

 

I moved to Singapore to join the World Gold Council in 1993 as a market development manager and remained at WGC until my retirement in 2015. As Managing Director, Far East, I oversaw the breakthrough development of China’s gold market and advised the People’s Bank of China in the development of the Shanghai Gold Exchange, for which I still play a role as International Advisor. In the investment sector, I helped introduce the best-selling retail product, the Gold Accumulation Plan (GAP), to ICBC in China, which eventually spread to all major bullion banks.

 

In the jewellery sector, two major breakthroughs were the introduction of Italian inspired K-gold (18 karat gold) jewellery to China, opening a new category of jewellery to inspire the creation of the whole value chain from manufacturing, wholesale to retail, and to the monolithic pure gold jewellery sector; and to champion a shift in the retail of pure gold jewellery from weight-based sales to piece-based sales. This has allowed larger profit margins that have raised the quality of designs, marketing and merchandising. With these changes, gold began to trade more widely in China in various forms and products. In ASEAN, significant progress was made in the opening and development of the gold markets of Thailand, Malaysia and Vietnam.

 

Changing minds

 

My roles at the Royal Canadian Mint and World Gold Council involved much dialogue with regulators in each country to convince them to remove barriers to gold investment and the movement of jewellery products, which would benefit industry stakeholders and ultimately, investors and jewellery lovers.

 

As a lobbyist, I found that purposeful discussions with the right audience yielded results, such as the removal or lowering of import duty or tax, more transparent custom clearing procedures, and documentation. The removal of GST for investment-grade precious metals in Singapore from Oct 1, 2012, to kick off the proposition of building Singapore as a precious metals hub, under the guidance of IE Singapore, was a good demonstration of successful engagement with government regulators. I had to be active and take part in road shows and briefing sessions to gather third party opinions that I would provide to regulators and stakeholders so that there would be mutually beneficial outcomes for all parties.

 

I encouraged regulators to see the benefits of having a more open gold market, which would create more jobs, contribute to the country’s GDP, and add vibrancy to the financial sector. Most importantly, I believed that an open gold market would help quench the thirst of consumers longing for physical gold, especially in Asia’s nascent economies, where they sought gold products with their newly earned wealth.

 

Since then, Asia has become the driver of the rising demand for gold, with East Asia and the Indian subcontinent accounting for more than 70% of global physical bar investment. In addition, about 50% of the world’s scrap gold comes from Asia, according to Thomson Reuters.

 

Connecting ASEAN to a multi-polar gold market

 

My retirement in April 2015 did not last long as I responded to calls from industry players, including government agency International Enterprise (IE) Singapore to leverage my experience and connections to champion for a more connected ASEAN precious metals community, and to build Singapore as a hub for this industry.

 

The Singapore Bullion Market Association (SBMA), previously an informal industry association that only met occasionally for business networking, began developing its competencies to become the central body for the bullion industry, and I was appointed its honorary CEO in November 2015. The SBMA hopes to create a more harmonized tax regime (Table 2), regulatory infrastructure and industry standards among ASEAN jurisdictions, including legal documents, testing, assaying, and operating procedures. The association also wants to look beyond the immediate horizon to further develop the Singapore and ASEAN gold markets through advocacy and research activities.

 

There are many reasons to be excited at the prospects for gold markets in ASEAN countries, with region’s increasing wealth and disposable income, the fact that gold is rooted in life and culture of people, the introduction of Shari’ah Standard on Gold, a new generation of gold investors, and the establishment of the ASEAN Economic Community (AEC), which provides SBMA the opportunity to create a seamless regional market and production base.

 

 

Table 2: Duties and taxes for gold products in ASEAN countries

 

 

        Import Duty

  VAT/GST/OTHERS

Gold Bar

Jewellery

Gold Bar

Jewellery

Singapore

0%

0%

0%

7%

Thailand

0%

Exempted

0%

7%

Indonesia

5%

15%

10%

10%

Malaysia

0%

10%

0%

6%

Philippines

7%

3% or 10%

12%

12%

Vietnam

Quota

30%

Quota

10%

Cambodia

0%

7%

0%

10%

Brunei

15%

15%

0%

0%

Lao PDR

10%

10%

10%

10%

Myanmar

NA

NA

NA

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In general, gold market globalisation is well advanced in terms of trade links, though there are still important exceptions, such as the near-prohibition of gold exports from China. In terms of domestic gold trading, this has become liberalised in most countries, but currency and capital controls still hinder cross-border activity in several cases. I believe in ASEAN, and think it has great potential. Singapore is at the heart of global trade flows, with world-class infrastructure for precious metals storage and trading, which puts the country in a good position to play a pivotal role in the development of the precious metals markets in ASEAN, and further afield in Asia, so the region can play a role in the future multi-polar global gold trading system.

 

My vision is to continue help nurture Asia’s gold markets toward a free market model, where physical gold can move freely in terms of trade, settlement and clearing, storage, manufacture, and retail. Investors and gold jewellery lovers will be availed with investment and jewellery products they want without being disadvantaged by taxes, duties, or government decrees. This is a very probable proposition in today’s interconnected world, with the breakthroughs the internet and blockchain technology can have for this industry.

 

As such, continued cooperation and partnership agreements, like the memoranda of understanding (MOUs) SBMA signed with Myanmar Gold Development Public Co. Ltd and The Chinese Gold & Silver Exchange Society at the Asia Pacific Precious Metals Conference (APPMC) 2017 held in Singapore, will only help to promote interconnectivity in the global gold market and connect the region’s precious metals community to global bullion players. The next APPMC will be held in Singapore on June 3–5 2018, so mark your calendars as I hope to see you all there.

 

Disclaimer: Views are personal and not the views of the publisher.