​Gold And Its significance In Asia And Singapore

Gold and its significance in Asia and Singapore

Gold has played a significant role in the different aspects of human life for thousands of years. Many cultures view it as a symbol of wealth and prosperity and power. For cultures which have grown to appreciate its value, the status of gold has grown tremendously and this has since spread to the international stage. Since 1100 BC, gold has played different roles in Asian cultures including as an inlay in bronze items and various types of jewellery. Gold price keeps on fluctuating according to market.

As compared to the western nations, there is a great appreciation of how vital gold is in these Asian cultures. An example of such countries is Singapore which has become a center for bullion industry with a fully operational ecosystem that includes bullion banks, refiners, traders, retailers, jewellers and manufacturers (Huxlter, 2018).

Since last year, Swiss exports to Asia for refined gold grew by 70%. This shows that there is a high demand for gold in Asia. Even with China being the world’s largest producer of gold, they are also one of the largest global importers of metal. One of the reasons why Singapore has become a natural choice as the regional bullion hub is due to its economic strategic positioning (Gregersen, 2017).

Singapore being established as the economic hub of the region gives it easy access to the ASEAN countries, Australia and China. It has, therefore, become the regional bullion hub also. With this advantage, Singapore can easily meet the high demand for physical gold needed by its Asian counterparts. These golds are used for investment, hedging against inflation and also for jewellery manufacturing. In addition, Singapore has got good connections and relationships with various adjacent markets including Indonesia, Thailand and Australia.

Gold Price

As compared to other markets, Asia has a high private sector demand for gold. This is due to the cultural affinity for the metal which runs deep in many Asian families. The high private sector demand has seen the market constitute about two-thirds of the global consumer demand for gold, with 50% of this coming from China and India.

The ASEAN bloc is another large consumer of gold in the Asian market with an average of 8% of global consumer demand. One key reason for this high demand is for adornment purposes and traditional purposes. This has also resulted from the growing wealth in the region.

The Asian markets have also seen an emerging breed of consumers who are attracted to gold due to the risk diversification benefits of holding the metal and also the fact that they can use it as a hedge against risky events that may occur in the global economy.

Historically, when the world economy is doing well, and global trade is flourishing, there is usually a stagnation in the prices of gold, but when there are events that can cause a destabilization of the global economy and trade, the value of the precious metal usually increases (Say, 2018). Due to this phenomenon, investors view gold to be more stable as compared to other instruments of trade since it can maintain its value for a longer period.

Most Asian countries have also implemented friendly policies which are aimed at encouraging gold trade in the region. For example, Singapore has already implemented a policy which exempts investment-grade gold, silver and platinum from the 7% GST which has strategically turned the nation into a bullion trading hub. This policy applies to gold of 99.5% purity (Company, 2012).

Gold Price

Gold shares various characteristics with money including the fact that it is a finite tangible asset which is divisible, fungible, relatively scarce, indestructible and it cannot be debased or synthesized. Also, its high value-to-weight ratio and ease of portability and storage mean that most Asian traders see it as the ultimate safe haven asset.

Also, gold is not issued by any government, bank or central bank which means that it has no counterparty risks or default risks. For investors, this has meant that they view gold to have the same ultimate reputation as money has. In terms of its functions in trade, the metal also performs the three functions of money, that is it can be used as a medium of exchange, it can be used to store value and it is used as a unit for economic transaction and valuation (Bullionstar, 2018).

For most Asian governments, the need to hold sufficient stock of gold for when and if gold takes the core role in a new international monetary system has meant that they are encouraging an increase in both private and official gold reserves that are held by their central banks (Rajan, 2017). An example is China who through the Shanghai Gold Exchange has created the largest physical gold trading hub.

Among the Chinese population, there is the knowledge that gold is money and hence with the blessing of their government, they continue to increase private investment in gold. With the government hoping to accumulate as much gold as possible, the Chinese view the metal as an essential tool for trade.

This has also seen a big inflow of physical gold from the west to various Asian nations as its trading takes control from the more western paper gold trading. By using gold to store value, most of the Asian governments also see the metal as an avenue of internationalizing their currencies. This will be achieved by allowing the remonetization of gold (Manly, 2016).

Gold has held significant importance in the Asian nations both from a cultural point of view and as a tool for trade. The metal has been used to signify wealth, prosperity and a representation of finances. As an investment tool, the fact that the metal has been able to hold its value for long means that most of these nations, including Singapore and China, are strategically positioning themselves as global centers for gold trade due to the appeal it has to private investors and its innate value.

With some of these nations hoping to increase gold reserves within their countries in the hope of dominating future international monetary systems, gold is expected to continue holding a significant role in these markets.

References

Bullionstar, 2018. Why Buy Gold. [Online]
[Accessed 26 September 2018].

The company, G. B. a. W. M., 2012. Singapore is Seeking to be the Asian Bullion Hub with Tax-Free Gold and Silver. [Online]
[Accessed 24 September 2018].

Gregersen, G., 2017. How Geopolitics Could Make Singapore the most Important Gold Market. [Online]
[Accessed 24 September 2018].

Huxlter, M., 2018. A Growing Role for Singapore as a Bullion Hub in Asia. [Online]
[Accessed 24 September 2018].

Bullionstar, Manly, R., 2016. Shanghai Gold Benchmark Price- New Kid on the Block. [Online]
[Accessed 24 September 2018].

Rajan, R., 2017. What is Driving the Demand for Gold in Asia?. [Online]
[Accessed 24 September 2018].

Say, N., 2018. Gold has Longstanding Cultural Importance in Asia. [Online]
[Accessed 26 September 2018].

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