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Contemporary Secure Logistics

The Future: to follow the Market or to predict the Market’s development?

Lars Johansson, Independent Counsel - Secure & High Value Supply Chains

The global Gold market is constantly developing and lately not only in shifts in the directions the material is moving but also consumer and investment appetite strongholds have changed in global rankings.

Market participants deal with changes on an administrative level, address legal and financial issues as well as risk management themes.
For the Logistics Provider, changes in the market can mean operational disruption, increased physical risk exposure and present challenges to contractual engagements.  

Challenges arising from a political or market-structural change may need to be dealt with as they happen while some can be predicted or even planned for. Part of a successful international Logistics Provider’s job are contingency plans and market scenario alternatives. To some extent question the status quo, monitor geo-politics and market sentiment while asking oneself “What would happen if”- and “Is it possible that…”-questions.

Until recently the world’s biggest physical Gold market India has seen its fair share of challenges in the last 10 years. From variations on tax and import duties, the interesting 80/20 scheme to today’s Dorè imports covering some 50% of annual Gold demand. Domestic refineries do parts of the job previously done in Switzerland, Dubai and South Africa. In whatever shape or form India’s Gold demand is satisfied, those yearly 600+ tons still needs to arrive courtesy of the Logistics Providers.
à What could an India Gold Policy and/or a Spot Exchange mean for global secure logistics?

As VAT was introduced on Gold in 2018 the market reacted swiftly to find alternative solutions and Turkey ended up benefitting both as far as refining as well as the jewellery wholesale market. Logistics was crucial to re-route the material flows and as the VAT was eventually rolled back in Dubai, dynamics had partly changed.
à How will shifting Dorè flows with the industry’s responsible sourcing initiatives logistically affect Dubai? 

The world’s biggest Gold market has seen extraordinary changes on the physical side. The launch of the Shanghai Gold Exchange International Board and later the Shanghai benchmark pricing changed the global market. The initial vaulting in Shanghai was lately complemented by Shenzhen, just across the border from Hong Kong.
Booming demand for 4x9 kilobars developed into a “5x9”-product and later the industry standard of 25 flat-packed bars was required vertically packed literally overnight.  
à With some 400t Gold already mined and refined, what could secure logistics look like if China was to source Dorè just like India in the future?

With Elemetal and Republic Metals closing shops their Dorè and scrap origins will have to find new refiners.
à As long distance doesn’t necessarily equal higher logistics costs could refineries overseas be reconsidered if or not the US face a reputation issue?

As Hong Kong’s status changed Singapore rose as an alternative for physical precious metals activity in the Asia Pacific region. The aim to become the regional precious metal hub has already changed the secure logistics landscape.
à How would regional logistics need to adapt if Singapore’s refining capacity increase substantially?

The World’s Gold Refinery Centre’s role changes as markets like India, having previously sourced heavily in Switzerland, now refine domestically for their demand
à  How would local secure logistics need to adapt if Swiss refinery production capacity, demand and destinations change?

The physical London market looks different today than it did 10 years ago and one can only speculate on the situation 10 years from now.
à Will the logistics role change for London Good Delivery material in the future if less physical material effectively reach the London vaults?

Successful Logistics Providers stay in close contact with the market and its stakeholders on a global level contemporarily studying regional developments as one change or novelty in one market can create risk or opportunity in another. A need-to-know understanding of how the market works has a value and takes the dialogue with the Customer to mutually beneficial levels.  Exchanging information, facts and hunches can help predict the future and ultimately capture business opportunities that may had otherwise never materialized

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