Positioned for Gold
To all Malaysians,
This is unprecedented.
We are experiencing the greatest wealth transfer the world has ever seen. Interestingly, would you believe, if I say, our country is situated right at the heartbeat where this epic shift of wealth is taking place?
Am I kidding? Nope.
Today, as I write, gold is flowing in our direction. It is heading our way. Yet, surprisingly, most of us are still not aware of it. Consequently, we are missing a golden opportunity to prosper as a nation as gold is slipping through our hands. It is frustrating.
Why are we not conscious about it?
Here’s what I believe.
Firstly, we do not appreciate gold as a financial asset to our country. Most are unaware that gold remains instrumental and is directly linked to a nation’s prosperity. Here, I would like to share an age-old principle with you.
Empires rose in great power as gold flowed in.
Empires faltered as gold flowed out.
Without failure, this principle has worked for empires across ages and locations. This includes the Greek Empire, the Roman Empire, multiple dynasties in China, the Renaissance and the British Empire. Presently, it is now working for the United States.
Let’s think about it. How did the United States become the most powerful nation in the world?
The answer is gold. In 1933, U.S. citizens were forced to sell their gold possessions to their government. In the late 1930s, the United States received gold from Europe as Europe purchased food, medicine, weapons and military supplies from America during the Second World War.
After the war, the United States had the largest gold holdings in the world. The US Dollar was made the global reserve currency and was convertible to gold at a fixed rate of US$ 35 an ounce. International trade, commerce, and prices of commodities were denominated in the US Dollar as it was deemed as good as gold.
Meanwhile, the British Empire was in a dire state financially after the Second World War. England had borrowed US$ 3.75 Billion (US$ 50 Billion in 2017) from America to repair its economy as it went essentially bankrupt. The British Empire crumbled as it had no financial means to protect its colonies. Many nations subsequently went through a process of decolonization and received independence from the British.
And yes, Malaysia was included.
Thus, after World War 2,
America rose to power as gold flowed in.
Britain faded away as gold flowed out.
Today, we are witnessing the same principle in action. But, it is now working against the United States.
In 1950, the United States had 20,279 tonnes of gold. By 2017, U.S. gold holdings was reduced to 8,134 tonnes. Suffice to say, gold has flowed out of America.
And, it is now flowing into Asia.
In 2000, China liberalised gold ownership among its citizens. Since then, China has grown its gold market to become the largest in the world. In 2016, China accounted for 30.8% of global gold jewellery demand and 27.7% of global gold bullion investment demand. With 1,842 tonnes, China has the sixth largest official gold holdings in the world.
India remains a close rival to China in terms of gold demand. In 2016, India accounted for 25.2% of global gold jewellery demand and 15.7% of global gold bullion investment demand. Combined, these two nations accounted for approximately half of the world’s gold bullion demand in 2016.
What would be the extent of Asia’s gold demand if we include key markets in Southeast Asia and the Middle East? They comprises of Vietnam, Thailand, Indonesia, the UAE and Saudi Arabia. In total, Asia commands approximately 60 - 70% of global gold demand presently.
Gold is flowing from the West to the East.
Here’s a simple question.
Which country is located between China and India?
Can you see how our country is strategically positioned to capture the heartbeat of today’s gold market in the world?
It is placed within a 7-hour flight radius to all of Asia’s major gold players. Towards the north, we have China. Towards the east, we have India and the Middle East. Towards the south, we have Indonesia and Australia. Both Indonesia and Australia are among top gold producing countries in the world.
But, are we capitalizing on our position? Absolutely NOT.
This is because we don’t have the foresight and aspirations to do so, unlike Singapore.
Singapore aims to rival London and Zurich as a global precious metals hub. It made sense as Singapore has established itself to be a wealth management hub as it is both politically and economically stable.
Singapore plans to expand its global gold trading market from 2% presently to at least 10 - 15% over the next 5 - 10 years. Singapore has already undertaken several key measures to direct the flow of gold into the country. To name a few, they include:
1. Since October 2012, investment precious metals (IPM) have been exempted from Goods & Services Tax (GST).
2. There are no licensing requirements for the import / export of metals to ensure free flow of such metals through Singapore with minimal hassle.
3. It has built a precious metals trading ecosystem comprising of international banks, private banks, gold traders and wholesalers, logistics & security and refineries.
4. Singapore has established the Singapore Freeport in 2010. Modelled after the Swiss Freeport, it is located next to Changi International Airport and has cutting-edge security. It allows tailor-made logistical solutions for shipping and storage of precious metals in Singapore.
Sigh. Can you feel a little of my frustration?
While Singapore is advancing, Malaysia is still relatively clueless about this glorious opportunity presented to us. So, what can we do about it? On a personal basis,
1. Learn Financial History. Let us not just work from 9am to 5pm without knowing the origins and the true value of our Ringgit (which is constantly diminishing).
2. Have a Global Perspective. Let us not just focused on what’s happening locally. Take Singapore as an example. It is positioning itself to be a global precious metals hub as it always keeps global perspective in mind.
3. Get some gold. I’m referring specifically to physical bullion and not gold trading, gold passbooks, or gold schemes. It’s not meant as an investment but rather as a vehicle to preserve the purchasing power of a portion of your personal wealth.
Co-Founder of Goldsilvermethod.com