(Mike Maharrey, Money Metals News Service) Asia continues to position itself to challenge Western dominance in the gold market. This is creating high demand for bullion vaulting space in Singapore.
The West has dominated the gold trade for years, with London, New York, and Switzerland as major players. However, as gold progressively flows from West to East, China and other Asian hubs are developing infrastructure to challenge Western dominance.
Singapore is one of the Asian nations taking significant steps to become a regional gold hub.
Last year, Abaxx Exchange launched a physical 1-kilo gold contract denominated in dollars and deliverable in Singapore. The company described it as the first “co-located spot-and-futures infrastructure for gold.”
DBS Group Holdings recently expanded its bullion storage capacity. And according to Bloomberg, other banks are considering similar moves.
DBS ranks as Southeast Asia’s top lender. The company said it is expanding vaulting space to support “growing demand from both private wealth and institutional clients.”
It remains unclear how DBS is expanding bullion storage capacity. It likely contracts with existing private vaulting facilities or specialized logistics companies rather than building new vaults.
According to Bloomberg, OCBC Bank has also approached precious metal storage providers about securing additional space for its clients, and Deutsche Bank is considering a similar move.
An OCBC spokesperson told Bloomberg the bank has seen “steady interest” in its newly established physical gold business, especially from private banking clients.
Banks typically contract with vaulting facilities and logistics companies to move and store gold. However, some banks, including UOB, operate their own depositories.
Bullion Vaulting Space Getting Tight
Demand for physical gold and anticipation of a planned over-the-counter gold clearing system have squeezed storage space in Singapore.
Le Freeport operates a high-security site in the country. It is also referred to as “Asia’s Fort Knox.” According to Bloomberg, it is running out of room in its basement vaulting space.
“Several people familiar with the matter said some banks may not be able to store bullion in its basement – their preferred location because of its enhanced security and higher load-bearing capacity, which enables more bars to be stacked than on upper floors.”
According to Bloomberg, Singapore has at least 2,200 tonnes of gold storage capacity in privately owned facilities. This includes 1,700 tonnes at Le Freeport and 500 at The Reserve.
The Monetary Authority of Singapore (MAS) also has vaulting space and recently announced it will open its doors to sovereign entities and foreign central banks. MAS also plans to offer gold accounts to a select group of Singapore-based bullion banks.
“This strengthens Singapore’s proposition as a jurisdiction where reserve assets can be securely held, actively managed and connected to wider market liquidity during Asian trading hours,” Deputy Prime Minister Gan Kim Yong said earlier this summer.
MAS does not disclose its vaulting capacity.
Regional vaulting space will likely need to expand further as the country preps to launch an over-the-counter gold clearing system run by the Singapore Exchange. The clearing system is expected to be up and running by year-end, with interbank trading expected to be phased in next year.
According to The Straits Times, the new system will standardize and streamline the clearing and physical settlement of trades involving both institutional 400-ounce bars and Asia-preferred one-kilogram bars. The goal is to improve liquidity, price discovery, and settlement during Asian trading hours. This could establish Singapore as a major regional gold hub.
Singapore joins Hong Kong in aggressively building out its bullion market infrastructure. Earlier this year, the Chinese special administrative region launched a revamped dollar-denominated futures contract. It has already reported record physical gold deliveries.
A day after the revitalized futures contract launched, Hong Kong began trial operations of its gold clearing and settlement system. The government-owned clearing system will reportedly “mirror” the financial infrastructure used by the LBMA in London.
Hong Kong also plans to expand its vaulting capacity to 2,000 tonnes within the next three years.
Looking at the bigger picture, these developments in Hong Kong and Singapore reveal a slow but steady migration of the gold trade from the West to the East.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
