Promising outlook for gold investors in ASEAN

Reade speaks at the conference about the buoyant outlook for gold.

Investing in gold is one of the best things investors can do for the long term, says John Reade, Chief Market Strategist, World Gold Council. In the keynote at the inaugural Asia Pacific Precious Metals Conference in Singapore, Reade pointed out that gold has been one of the best-performing assets through the global financial crisis, despite its volatility. Reade also made the connection between the price of gold and threats to economic stability – the price of gold traditionally rises in turbulent times as gold is seen as a safe haven.

“Politics has become less predictable. It is much more of an issue this year than we've seen for the last 10 or 20 years,” Reade observed. Brexit in the UK, tensions in North Korea, the continuing conflicts in the Middle East, and the rise of populist parties are all contributing to a more uncertain situation today. “I don't need to remind anyone quite how remarkable that is turning out,” said Reade of US President Trump's election.

Other indicators of the global economy could also impact gold prices positively. The economy has not bounced back quite as much as it was expected to since the 2008 financial crisis; bond yields from US government debt have fallen in the last 20 years, while US equities are expensive when compared to earnings. The bull market for US dollars, which typically follows a cycle of six to seven years, is also getting old, Reade said.

“Gold performs well during times of turbulence; we are in a clearly turbulent environment and potentially one that is more turbulent,” said Reade. “It does particularly well when equity markets fall sharply.”

Reade added that gold is not just there for times of turbulence, and can improve risk-adjusted returns.

Namiki noted that the AEC offers many opportunities to drive ASEAN as a major production and distribution hub for gold. The countries in the AEC combined would be the seventh-largest economy in the world, he said.

Closer to home, Hawk Namiki, Executive Director, Singapore Bullion Market Association, spoke of the significance of the ASEAN Economic Community (AEC) to global trade in gold. Launched at the end of 2015, the AEC is the 7th largest economy in the world in terms of GDP, and has a combined population of 625.6 million, he said, giving ASEAN the clout to be a major production and distribution hub.

Gold is important historically to the region, as it is often seen as more stable than currency, used as a medium of exchange and a unit of measurement, he said. "People convert excess money into gold and store it for a rainy day," he said of people in rural areas. "Besides demand for jewellery, uncertainty is prompting people to invest in gold."

 Ermin Siow, President, Federation of Goldsmiths & Jewellers Association of Malaysia, said the unfavourable exchange rates for the ringgit meant that trade in gold had fallen significantly in recent years.

Gold has evolved with times too. There is now a shari'ah standard for gold which sets out clear guidance for Islamic investment in gold. "This is a new asset class. It will lead to market expansion and a new customer base. (There is) potential for Malaysia and Indonesia to be the gateway to this for the Middle East and the rest of the Islamic world," Namiki said.

Sovereign wealth and pension funds (SWF/PF) are diversifying portfolios into different asset classes including precious metals, he added. Global uncertainty, coupled with increasing wealth and disposable income, gold's roots in the life and culture of the people in the region, and the introduction of the shari'ah standard, should increase total demand for gold going forward, he said.

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The ASEAN Precious Metals Markets and Opportunities panel discussed the state of the gold industry in various countries during the conference:

Myanmar

U Khin Maung.

The Myanmar government aims to set up commercially-viable, sustainable and globalised industry for gold, and has set up new laws and policies to encourage foreign investment in the precious metals industry, said U Khin Maung Han, President, Myanmar Gold Development Public Company. U Khin Maung is part of a 17-member delegation in Singapore to look for new business and partnership opportunities.

Gold deposits have been found running along major fault lines and dormant volcanic formations, and official estimates put gold production at 200 to 400kg per day, U Khin Maung said, with a daily turnover of US$8 million reported for Yangon and Mandalay alone. Of gold stocks in Myanmar, 30% is stored savings, while 60% consists of jewellery and value-added products. Religious artifacts and miscellaneous items each account for 5% of the total.

The country is looking to engage and partner with investors on developing small-scale mines, and gain knowledge transfers for refining, assaying as well as on developing value-added industries, U Khin Maung said. Partners are being recruited to help set up the infrastructure, from the exchange to financial and banking systems, he said.

For those interested, Myanmar has a special economic zone with tax exemption for up to five years, while specialised project zones have a seven-year tax exemption. Components deemed vital to the industry are granted extra benefits in terms of operations and taxes. "We want to participate in oversea links, we want to invent a network,” he said.

Laos

Rithikone Phoummasack, Senior Advisor, AIF Precious Metal Import-Export Service Sole Company, called the Lao gold market "small but high-growth". AIF Gold is the only licensed company licensed to import and distribute gold in Laos. It is also the only licensed company to provide an active gold trading and investment platform.

As in Myanmar, gold is a traditional savings mechanism, and a hedge against depreciation of the local currency.  "If you buy a car, the price may be in gold," he said.  "People don't put money in bank; they may buy gold and put it into the ground."

Phoummasack's estimates are that 60% of gold stores in the country are a store of wealth, while jewellery accounts for 35% of the total, and that gold reserves may amount to 500 to 600 tonnes. The country has gold mines and total production capacity of more than 40 tonnes a year. Ten tonnes of gold were consumed in 2016, and 8 tonnes for investment and trading the same year. There is a 10% import tax and 10% value-added tax on gold importation.

Vietnam

Huynh.

Huynh Trung Khanh, MD, Vietnam Gold Consultants described Vietnam as a strong retail investment market for gold as the average consumption there is 898kg per million inhabitants, against 550kg per million people globally. Vietnam has a population of about 93 million. There are 20 million 'dragon' bars from Sai Gon Jewellery Company (SJC) in circulation, of which 500 to 700 tonnes have been hoarded by the public over the past 10 years, he said.

From 2007 to 2016 the cumulative demand for Vietnam has been 836 tonnes, Huynh said. With the loosening up of conditions on gold bar retail sales and financing loans available from commercial banks, demand has grown to 85 tonnes per annum, he said.

Indonesia

Muhidin details the trends in the gold market in Indonesia.

Muhidin ST, VP, Marketing, Sales and Operations, PT Antam (Persero), shared that Indonesia is the second-largest gold producer in Asia and 4th in the world. PT Antam refines almost all the gold mined in Indonesia. He said gold has been used by Indonesians for many years as jewellery, while major tribes emphasise the importance of savings through gold. "People buy for decoration and for investment," he said.

Malaysia

Ermin Siow, President, Federation of Goldsmiths & Jewellers Association of Malaysia said that jewellery exports for 2016 amounted to RM7,186 million against bullion imports for 2016 of RM9,602 million. While the introduction of goods and services tax (GST) in 2016 had a dampening effect on trade, the market fundamentals remain, Siow said, listing ease of entry and few competitors in the market as some of Malaysia's advantages.

Thailand

Nawattanasub.

Pawan Nawattanasub, CEO, YLG Bullion International Company said that the reality in Thailand is that 95% of gold is purchased for investment and 5% as jewellery. While gold is inseparable from Thai celebrations like weddings and used for marriage dowries, buying behaviour has evolved towards investment and speculation in the last 10 years, she said. Eighty tonnes were consumed last year as 99.99% pure gold, which is popular for investors and gold of 96.5% purity, an alloy strong enough for jewellery. Gold bars are popular, as are gold-based exchange trade funds (ETFs) and derivatives, she added.

Singapore

KL Yap, Singapore Refining BU Manager, Metalor Technologies Singapore said that the precious metals market in Singapore really took off in 2012, when GST was removed on investment-grade precious metals (IPM). The precious metals market ecosystem in Singapore benefits from strong government support and sponsorship, a strong and transparent legal framework, he said, as well as the country's proximity to both gold mines as well as the centres of demand – China, India, and Southeast Asia. In 2015, 4,932 tonnes of physical IPM valued at US$30 billion were traded, of which 89.5% was gold. 

All panelists welcomed discussion, collaboration and investment in their markets, in line with the goals of the conference. Themed Your Gateway to the Asia Pacific Precious Metals Markets, 325 delegates from 23 countries attended the Asia Pacific Precious Metals Conference. Organisers Singapore Bullion Market Association (SBMA) hope to create a seamless regional market and production base for gold, with Singapore as the Asia Pacific regional precious metals trading hub.

"Going forward, SBMA aims to establish Singapore as a hub for connecting the international markets with the precious metals markets in Southeast Asia. The precious metals market in the region has tremendous potential and is seeing explosive growth," said Sunil Kashyap, Chairman, SBMA, in his opening speech.

Panel moderator Albert Cheng, CEO, SBMA closed the panel by noting that as the ASEAN Economic Community takes off, ASEAN countries will grow even closer together. "With this platform we are providing an opportunity for (everyone) to network with each other," he said of the Asia Pacific Precious Metals Conference. 

People often look north for investments and growth instead of south, Cheng added. "We hope they can look south; that's the purpose of this conference. Delegates all want to move their products via Singapore to other countries. We hope this is the start of something new."

A memorandum of understanding was signed with the Myanmar Gold Development company to establish a bilateral framwork of cooperation for the development of the Myanmar precious metals sector.