Page 22 - Bullion World Volume 5 Issue 06 June 2025

Bullion World | Volume 5 | Issue 06 | June 2025
B ullion W orld | V olume 5 | I ssue 06 | J une 2025
a supportive tax regime for bullion and has even a jurisdiction trusted by the lender, would effectively
exempted gold, silver and platinum Britannia coins remove the borrower’s sovereign risk premium,
from capital gains taxes. London’s high liquidity enabling lower-cost financing for the borrower and
and low vaulting fees have attracted many central thereby creating greater utility for gold stored in Hong
banks to store a sizable portion of their national Kong.
gold reserves there. For Hong Kong or Singapore
to become jurisdictions competing with London, Hypothetically, if the Central Bank of Brazil’s cost of
they would need to provide enough utility to offset borrowing in USD is 8%, then Brazilian-owned gold
London’s advantages to certain target markets. (e.g. US$1 billion) stored in Hong Kong could be
The Hong Kong government appears to be reasonably collateralised at 5%, saving Brazil US$30
executing on a credible plan to develop such a million in sovereign interest payments per year. It is
utility, while Singapore currently does not. reasonable to assume that such utility, along with larger
geopolitical drivers, will eventually drive substantial
The sovereign gold hub concept – amounts of sovereign gold to Hong Kong.
a promising path
Once a minimum amount of such standardised gold
Challenging London’s dominance requires the bonds is created, Hong Kong could list such bonds
provision of attractive services that are not currently to be traded on its secondary markets, creating a
well-established in London. A standardised gold new kind of gold-backed bond that should fare well
collateralisation (not repo transactions) whereby the compared to traditional unbacked sovereign bonds,
gold owner retains ownership but has a lien placed given our age of geopolitical turbulence.
on the gold on behalf of the lender would be a very
attractive service for sovereign entities. I have some
experience implementing such systems, having SINGAPORE’S POSSIBLE
built such a small-scale platform that nonetheless
processed around 21,000 loans for quantum of BIG OPPORTUNITY
US$700 million over the past decade.
As highlighted by Hong Kong’s chief executive,
Singapore already has better vaulting
Instead of gold collateralised loans, London banks tend
to favour sale-and-repurchase agreements (repos) infrastructure and being wealthy, neutral, and
but sovereign entities are unlikely to use these as it trusted, the country is perfectly positioned to
involves legally selling their national gold reserves. become a geopolitically relevant sovereign gold
hub as well as a critical bridge between East and
West.
In this context Hong Kong’s declared plan on
“establishing a holistic gold trading centre … while
expanding related transactions including collateral, However, despite the IPM insertion on the GST Act
loan and hedging, hence creating a comprehensive in 2012, Singapore taxation policies still consider
[precious metals] ecosystem” appears to have reached investment precious metals (IPM) as a commodity
a similar conclusion. that ought to be ultimately exported, not vaulted.
The resulting de-facto taxation is disadvantaging
local vaults and refiners and is sending a mixed
In the coming years I expect that Hong Kong will try
to attract sovereign entities, hypothetically Brazil, to message on whether such sovereign gold hub
move a portion of their gold reserves to Hong Kong. plans would find support in Singapore.
Once authenticated as genuine and stored in Hong
Kong, these reserves would then act as nearly risk-free I am hopeful that Singapore will also create a
collateral to lenders in both Hong Kong and the rest of multi-disciplinary working group to look into the
the world. The gold, being intrinsically valuable and in Singapore’s future gold hub plans.

Courtesy Crucible Issue 33

22
22