Ongoing US-China trade tensions, Brexit fears and Hong Kong’s long-drawn protests, have turned investors toward gold. But what innovations will be needed to cope with the influx of gold into Singapore?
Singapore is slowly taking over Hong Kong’s throne as the main physical gateway of gold to China, the world’s top bullion buyer, as a result of ongoing anti-government protests.
Industry experts claim that at least hundreds of millions worth of gold has left Hong Kong, mostly to Singapore.
Gold has become more valuable than ever. With political tensions around the world, this is apparent as gold prices have increased by 20.19% in the past one year and gold futures continue to end higher.
With the influx of gold into Singapore, will there be challenges such as insurance hurdles and storage complications? Is the industry able to support this influx or will it have to be supported by technological innovations such as gold digitization? What innovations can we expect in 2020?
We seek some answers from gold expert and innovator Shaun Djie, Chief Operating Officer and Co-Founder of Digix, the world’s first smart-asset company using blockchain to account for the authentication and provenance of 99.99% investment-grade gold bullions.
With the influx of gold from HK to Singapore, will this open a vault of challenges in areas such as insurance and storage?
Djie: While the influx of gold from Hong Kong to Singapore is substantial, I do not foresee this posing a problem to the local gold market or the local infrastructure supporting it. With the longtime ambition of serving as a gold market hub for the wider Asia-Pacific region — an ambition which was reiterated at this year’s Asia Pacific Precious Metals Conference by the Singapore Bullion Market Association, the city state has been busy positioning itself as a sustainable hub for precious metals in the region.
As Asia is by far the most significant gold mining and consumption market globally, the storage facilities, vaults, and other necessary infrastructures to support the industry here in Singapore has been built for scalability.
The shift in the gold market from Hong Kong to Singapore will most tangibly result in increased demand for gold custodied and stored in Singapore — cementing the country’s position as a gold storage hub.
How does this trend impact investors and economies in the Asia Pacific region, now and in 2020?
Djie: I believe the demand for gold will continue to increase throughout 2020. This will be visible on a global scale and will not be confined to the Asia-Pacific region. Already we are seeing the marked decrease in investor confidence in traditional markets, with uncertainty caused by recent economic and political events—from the situation in Hong Kong to Brexit, and the trade war between the US and China, affecting everything from stock markets to government bonds markets.
Gold is well-regarded globally for its lack of correlation with financial markets, as a result, investor interest is already turning to the “recession-proof” asset class. This trend seems likely to continue in 2020. I also think it is likely that we will see other risk-measured assets such as real estate and money market funds trending upward as investors continue to seek yield on their assets and look for ways to diversify their wealth and to remain cautious of traditional markets.
Is the industry able to support this influx or will it have to be supported by technological innovations such as gold digitization?
Djie: Gold logistics has traditionally been a brick-and-mortar “physical” business. As a result of the influx from Hong Kong to Singapore, it is safe to say that tracking systems will definitely improve, and the demand for banks, funds, and private equity firms who trade and buy gold on their clients’ behalf will begin to examine new ways of innovating with their gold holdings. I don’t believe the actual trading of gold ownership on the blockchain will cater to this particular influx.
However, as part of the generalized increase in demand for gold, one trend we will be seeing more and more of is retail investors seeking to enter the gold market. For these mainstream consumers, having to pay to store, insure, and secure gold holdings is not a feasible option—as it is ultimately a very costly endeavour, even for institutional actors. As the focus of the gold market moves from Hong Kong to Singapore, technological innovation and digitizing gold will have a role to play in democratizing access to the increasingly attractive asset class.
How would blockchain technology help in this situation?
Djie: Blockchain is not suited to solving issues pertaining to the logistics of the gold market, such as moving assets or trading between borders, which will ultimately be what is needed to support the current situation. The brick and mortar business of custodying and securing gold coming into Singapore will also continue to be carried out as it always has been. The infrastructure here in Singapore is more than well-equipped to support this industry shift.
However, by removing the burden of custodying and safeguarding gold holdings from investors — especially retail investors — blockchain will open up new avenues for mainstream consumers to diversify their portfolios and present traditional investors with new ways to purchase gold. While digitized gold may not “support” the influx of gold into Singapore, it will certainly receive some benefits as a result.