Forget the Western naysayers: If you want to understand gold, follow the money in Asia
There is a fundamental flaw in the way gold is valued. That flaw is that market sentiment about the yellow metal is driven largely by Western analysts and institutions. By and large (and with a small number of honourable exceptions), they hate gold. If they don’t hate it, they certainly don’t like it, they can’t figure out why there is so much interest in the metal, and they can’t wait to put out client notes predicting the next big fall in the gold price.
Meanwhile, in what seems a parallel universe, Asia continues to embrace gold. For heaven’s sake, now look at Singapore, which has surely the most canny government in the world in economic terms — they have built, on a relatively tiny island with few natural resources, one of the globe’s great financial success stories, albeit with scant regard for those who oppose its will. Well, Singapore has decided it wants to get some of the gold action, and make itself the gold-price referencing centre for Southeast Asia. Singapore doesn’t get attracted to “barbarous relics”, as John Maynard Keynes described the yellow one in 1924.
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Malaysia does not buy the “gold is dead” story, either. On Monday the country’s stock exchange, the Bursa Malaysia, begins trading gold futures. The 100-gram, ringgit-denominated contract will allow investors to trade without worrying about currency fluctuations, said Chong Kim Seng, chief executive officer of Bursa Malaysia Derivatives. (The ringgit is the Malaysian currency.) So Kuala Lumpur joins Singapore, Taipei, Shanghai and Hong Kong as Asia gold futures trading centres. With the Malaysian contract, the investor needs only RM1,000 ($315) to start trading. All contracts will be cash-settled; there is no delivery of physical gold. (Which reminds us that $250 billion gold derivatives are traded globally every day, greater that the volume of Sterling Gilts or German Bunds. Another part of the derivatives time-bomb ticking away; just hope not everyone wants to trade their paper for physical gold all the same time.)
Now The Nation, one of two English dailies in Bangkok, reports that Singapore has been trying to persuade Thailand’s top five gold traders to establish footholds in the city-state as it aims to become a centre for gold-price referencing in Southeast Asia. The newspaper said Nuttapong Hirunyasiri, managing director of MTS Gold Futures, said the Singaporean government had dispatched a team to Thailand to offer relaxed regulations and tax incentives to traders who open offices in that country.
Consumer gold demand in Thailand rose 58% in the June quarter (compared to the three months to June 30, 2012). While India and China import the largest tonnages, Thailand — while No. 3 in absolute tonnages — actually comes in at No. 1 in Asia on imports of gold per capita.
According to The Financial Times, Singapore — not content with being a regional hub for trading coal, iron ore and crude oil — now aims to do the same with gold. Last year, in what was clearly in preparation for this move, Singapore abolished sales taxes on imports of investment-grade gold and other precious metals. Then, four months ago, Switzerland’s Metalor Technologies opened a refinery in Singapore with the aim of producing 360 tonnes of gold bars a year.
Trade Minister Lim Hng Kiang said Singapore wants to capture between 10% and 15% of the world’s bullion trade. And here is an interesting point in The Financial Times report: we have been watching China’s gold imports through Hong Kong, but it seems that about a fifth of Beijing’s gold purchases are routed through Singapore, which indicates China is importing even more gold than we thought.
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