"The center of gravity of the gold market has shifted east, with Singapore, fortuitously placed as the potential fulcrum of this new balance," said Shaokai Fan, head of Asia-Pacific and global head of the World Gold Council.
This shift is attributed to several factors, as below:
Rising Gold Consumption: There's an increase in gold consumption among major emerging market economies, most of which are located in Asia. Among central banks, the People’s Bank of China was the largest buyer of gold in 2023.
Proximity to Central Banks: Singapore's strategic location near central banks that are actively increasing their gold reserves plays a significant role.
Gold Mining Supply Centers: About 25% of the world's gold mining supply is in close proximity to Singapore, including countries like China, Australia, Indonesia, and others.
Political Stability and Tax Policies: Singapore's political stability and the removal of sales tax on investment gold further strengthen its position as a gold trading hub. The removal of GST on investment gold in Singapore, the establishment of good delivery refineries here have bolstered Singapore as a leading hub for gold trading.
Since October 2012, Singapore’s government exempted the Goods and Services Tax (GST), also known as a sales tax, from investment grade precious metals.
Shaokai Fan, the World Gold Council’s Head of Asia-Pacific and Global Head of Central Banks, mentioned that these elements, along with Singapore's potential as an alternative to London and New York for central bank gold vaulting, are setting the stage for Singapore to lead the gold market in the future.
Key drivers of gold demand
The key drivers of gold demand are influenced by a variety of factors, which can be broadly categorized into four main areas:1. Economic Expansion: Periods of growth are very supportive of gold demand in sectors like jewelry, technology, and long-term savings.
2. Risk and Uncertainty: Market downturns often boost investment demand for gold as it is considered a safe haven during times of financial instability.
3. Opportunity Cost: The interest rates and relative currency strength can influence investor attitudes towards gold. Lower interest rates tend to decrease the opportunity cost of holding non-yielding assets like gold.
4. Momentum: Capital flows, positioning, and price trends can ignite or dampen gold's performance. Investor behavior and market trends can significantly affect demand.
Additionally, demand for gold comes from several sources, including jewelry fabrication, investment (bars, coins, ETFs), central bank purchases, and technology/industrial uses. Jewelry consistently accounts for a significant portion of annual gold demand³. Inflation concerns and central bank policies also play a crucial role in driving gold demand.
Varying Gold demand across different regions
Gold demand varies significantly across different regions due to cultural, economic, and market factors.In Asia, countries like China and India are the largest consumers of gold, primarily due to cultural affinity towards gold in jewelry and as an investment. Festivals and weddings often drive significant demand in these regions.
Gold is also an important part of culture in the Middle East, with demand driven by jewelry consumption and investment purposes.
European demand for gold is largely investment-driven, with products like gold-backed ETFs being popular. Central bank purchases also contribute to the demand in this region.
In North America, investment demand, including bars, coins, and ETFs, dominates the gold market. The region also sees significant industrial demand due to technological applications. In Central and South America, the demand in these regions is primarily driven by jewelry and investment, with Brazil and Argentina being notable markets for gold consumption.
African gold demand is mostly for jewelry and investment, but the region is also a significant producer of gold, which affects the local market dynamics.
It's important to note that these trends can shift due to various factors such as economic policies, market conditions, and geopolitical events. The World Gold Council provides comprehensive data on gold demand by sector and country, which is updated quarterly.
Advertisements