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Free-trade centers Hong Kong and Singapore are popular locations for the purchase of gold and silver, but buyers should be aware of political risks.
Published: 01-08-2012 17:24
Hong Kong and Singapore at a glance
Hong Kong is one of several destinations people go to for buying gold, and if you know your way around, you can get good deals. Typically, you can buy gold and silver in Hong Kong with just a little paperwork.
Singapore is quite similar to Hong Kong, being a small city-state with one of the freest economies in the world. Like Hong Kong, it is also known as a common place where people go for purchasing gold, with the Singaporean government itself projecting to increase the percentage of gold trade from 2% at present to 10% worldwide by the end of the decade.
What is especially appealing to prospective buyers of gold and silver in Singapore is the lifting on October 1, 2012, of the current 7% importation duty. And unlike Hong Kong, one’s purchases need not be declared to the Singaporean government or any other state. This is especially important, knowing that historically, during times of financial chaos, governments sometimes resort to expropriation of resources, particularly gold, in order to maintain control over the monetary system.
During the Great Depression, Franklin D. Roosevelt, then newly elected president, confiscated the gold of Americans.
Could this happen in Hong Kong?
The China connection
Hong Kong unfortunately suffers from a history of being attached to China, which, in spite of its leaning towards free trade in some respects, retains much of its Communist characteristics such as the limitation of civil liberties and the control of certain sectors of the economy.
No one knows how far China will go in asserting its dominance over Hong Kong, whose status as a free economy was realized during its time of colonization under the British, which ended 1997. But this political uncertainty is one thing to consider when making investment decisions.
Although often touted as the next superpower, China’s economic performance has been in decline in the past couple of years, showing signs of a bubble from all the money printing by its central bank. There are indications of a burst in the bubble, such as the declining Chinese stock exchange, uninhabited ‘ghost’ towns which indicate oversupply in real estate, and the necessity for the China central bank officials to ease liquidity so as to provide ‘stimulus.’ While not seen to go into a recession, growth is not as fast as earlier projected, and may come to a stop soon. When this slowdown occurs, China, which is already aware of the importance of gold reserves, may extend its policies even to its free-trade jurisdiction Hong Kong, imposing controls similar to Roosevelt’s gold confiscation.
In addition, the Chinese government has been amassing a lot of gold itself, in fact increasing its year-on-year gold importations from Hong Kong. This limits supply to a significant extent, creating larger premiums for other buyers in Hong Kong.
Hong Kong and Singapore are both great places overall, and can be expected to maintain their reputation as free economies even while the financial crisis in the West rages on.
But taking into account the generally bullish Southeast Asian economy, and the China-related political risks for Hong Kong — including possible tracking and confiscation of purchases — Singapore appears to be a better place to park your investments, in particular, gold and silver.
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