Singapore Has Golden Ambitions
Comment of the Day

October 03 2012

Commentary by David Fuller

Singapore Has Golden Ambitions

My thanks to a subscriber for this informative article by Clementine Wallop for The Wall Street Journal (requires subscription registration, PDF also provided). Here is the opening:
Singapore has emerged as one of the world's hubs for private banking for the wealthy, and now it is making a play to become the Fort Knox of Asia.

Starting Monday, the Southeast Asian city-state is scrapping a 7% tax on gold and silver in an effort to turn the city into a precious-metals trading hub to rival London and Zurich, where value-added taxes don't apply to the investment-grade gold trade.

Investors have flocked to gold and silver in recent years as the world economy sputtered. The most nervous among them shunned the futures and funds often used to invest in gold and instead bought bars, ingots and coins to stash their wealth.

Singapore, touting its image as a safe, stable and few-questions-asked haven for investors, is hoping to store an increasing amount of that gold and silver.

"There has been a dramatic increase in customers wanting to move out of paper, that is over-the-counter gold, and into physical," said Cedric Chanu, director, Asia precious-metals trading at Deutsche Bank. "We're seeing customers wanting to move their gold from Europe into Singapore."

Following the tax exemption, Singapore is aiming for a 10%-15% share of global gold demand within five to 10 years, up from around 2% now, government agency IE Singapore said at the time the exemption was announced early this year.

Gregor Gregersen, director of Singapore-based physical gold and silver supplier Silver Bullion Pte. Ltd., pointed to Singapore's low crime rate and political stability as key factors in Singapore's transformation into a precious-metal trading hub. "People feel safe storing their bullion here," he said.

David Fuller's view For decades I have maintained that Singapore has the best economic governance of any country. Does any other nation come even close? Sure, Singapore's population is small at 5.2 million, according to the World Bank, but its citizens and residents have real jobs and a high standard of living.

Some time ago Singapore's government quietly expressed its ambition to become the Switzerland of Asia. It has gone one better because Singapore is very unlikely to cave in under pressure from the US and Eurozone tax authorities, as we have seen with Switzerland and Lichtenstein in recent years. Sure, some despots may deposit their ill-gotten gains in Singapore but most who invest there are attracted by the Lion City's professionalism, including safety and rule of law. Singapore is the hub of arbitration in Asia.

Some investors in the USA, Europe and elsewhere fear that their gold, whether held in bars or bullion funds, could be confiscated by indebted governments. After all, it happened in the last century. Hopefully, this risk will remain low but one never knows. Meanwhile, one's gold is probably safer in Singapore than anywhere else.

Excessive government debt and the wilful debasing of our currencies by unprecedented quantitative easing (effectively the printing of money) are the main factors behind gold's increasing appeal as a proven store of value over the longer term. However, only a decade ago investing in physical gold was difficult, expensive and even illegal in some countries. Nevertheless, owning gold is the oldest investment tradition in the world, and in some Asian countries and much of the Middle East, 24-carat gold jewellery is bought and sold by the ounce, with little or no mark-up for design.

What seems a near certainty in our brave (desperate?) new world of QE is that as it becomes easier to acquire and safely store physical gold, the more popular the yellow metal becomes. Has it become too popular? I do not think so. How many HNW private investors, hedge funds, institutional investors and sovereign wealth funds hold at least 5% of their assets in gold bullion? My impression is very few but their numbers are likely to increase.

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