Vanishing Gold Trade Prompts Singapore to Refine Contract

  • Gold trading on Singapore Exchange has dwindled in past year
  • Bourse to extend hours and tweak operation to boost trade

Just over a year ago, Singapore Exchange Ltd. started gold trading to help bolster the country’s role as a bullion hub in Asia, the world’s largest consuming region. Transactions slumped to zero in November and the bourse is now trying to revitalize the market.

“Volumes haven’t been spectacular,” William Chin, vice president of commodities at the exchange, said in an interview. “One of the key reasons is the contract specification itself, and this is quite normal across different products. You don’t always get it right the first time round.”

Singapore isn’t alone in trying to solidify its position as a trading hub for commodities from oil to iron ore and rubber. Shanghai offered bullion contracts in the free-trade zone last year and CME Group Inc. started futures with physical delivery in Hong Kong in January as they seek to tap rising demand from China, the top producer and consumer. Singapore’s contract is intended to appeal primarily to industrial users.

The absence of volume in November follows only two transactions in October and compares with 52 a year earlier, exchange data show. There have been a total of 308 trades since inception. At 25 kilograms, it’s bigger than the 1 kilogram lot traded on the CME for Hong Kong delivery and larger than contracts of as much as 12.5 kilograms in Shanghai. The size is intended to attract investors looking for a transparent, wholesale benchmark for physical delivery in Asia, Chin said.

“If Singapore wants to play this role in extending its location as a gold hub, it needs time,” Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., said in an interview Dec. 3. The bourse may struggle to achieve high volumes as it seeks to appeal to “niche” wholesale users, he said.

Longer Hours

The exchange is extending trading hours by pushing the close back to 3:30 p.m. from 11:30 a.m., Chin said last week. The bourse is also taking steps to allow easier verification of gold to be delivered against the contract and will permit sellers to transfer their position to a new seller such as a bullion bank if they are unable to deliver, he said. The measures come into effect this week after getting regulatory approval, he said.

“This is a quite different, unique contract as compared to other markets,” Ng Cheng Thye, former chairman of the Singapore Bullion Market Association, said by phone on Monday. “We’re seeing a group of Hong Kong mid-sized wholesalers and retailers who are very keen to participate in this contract because they find that it’s an opportunity for them to source the physical.”

The government removed a 7 percent goods and services tax on investment-grade gold, silver and platinum in 2012 as part of efforts to boost trading. Metalor Technologies SA from Switzerland has set up a refinery in Singapore, while Malca Amit Global Ltd. and Brink’s Co. operate vaults in the free-trade zone. ICBC Standard Bank Plc, Bank of Nova Scotia and UOB Bullion & Futures Ltd. are among members listed by the local bullion market association.

China consumed 974 tons of gold in 2014, ahead of India with 811 tons, World Gold Council data show. The two countries represented more than 50 percent of global demand last year. Thailand, Indonesia, Vietnam, Singapore and Malaysia consumed 280 tons, or less than a third of China’s total, council data show.

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