Gold Price & Gold Demand - Torgny Persson
This interview with Torgny Persson and Gustav Andersson from BullionStar was conducted by the Singaporean blogger SG Wealth Builder 8 July 2015.
Question: In view of the emergence of China as the leading producer and importer of gold bullion, what do you think would be the implications for the global markets and how should investors in Singapore position themselves?
Answer: The Chinese public are buying vast amounts of gold. Our precious metals analyst Koos Jansen is writing regular updates on the withdrawals from the Shanghai Gold Exchange. Total Chinese gold demand can be measured by the amount of physical gold that is withdrawn from the vaults of the SGE.
The Chinese government hasn’t updated its official gold holdings figure of 1054 tons for several years, but many have speculated that the actual figure is much higher (probably by several thousand tonnes) than the official one.
In addition to increasing their reserves, the Chinese government is actively encouraging the public to invest their savings in physical gold as they believe that gold will, in one form or another, be a part of a new financial and monetary landscape. Under such a scenario, it is likely that gold would be valued at a substantially higher price than it is today.
We recommend people to put at least a part of their savings in gold and silver as precious metals always retain value in the long run, whereas fiat currencies, although they may function well as a medium of exchange in the short run, always depreciate in the long run.
At BullionStar, we’ve made it easy for our customers to buy gold and silver. You can open an account in less than a minute and buy your first gram of gold in another minute, using our product called Vault Gram® with which you can buy gold, silver and platinum in increments of as small as 1 gram.
Question: Since 2008, the massive amount of money being printed by the Fed through the QE programs has resulted in historic bull runs for the stock market. Conversely, inflation has not rocketed as predicted. What do you think could be the key reasons?
Answer: The stock market in general is extremely overvalued and bound for a major correction or collapse. Looking at the charts of the major stock indexes, like S&P 500 or Dow Jones Industrial Average, it’s apparent that the price increases are as extreme as ever and even more extreme than before the crisis of 2008, but with much less volatility, indicating an artificial overvaluation. The low volatility is probably due to the advent of high frequency robot trading while the massive price increases are likely emanating from artificially low interest rates and QE. Where have all the newly printed money from the QE programs gone? The answer is that although consumer price index inflation might be low, asset price inflation isn’t. Both stock and property prices are due for a major correction or outright collapse in many countries.
An alternative answer to why we’ve seen so little CPI inflation (Consumer Price Index Inflation), while there’s been a lot of real monetary inflation, could be that some markets are working reasonably effective, creating an oversupply of the goods they produce. In a capitalist market, oversupply should lead to lower prices showing up as lower CPI inflation. A lower price on a basket of commonly purchased goods must be seen as a positive thing – a great benefit for consumers. Unfortunately, many central banks are scared of low inflation and dead scared of deflation. Sweden is one country where the central bank has set a negative key interest rate. The latest adjustment leaves the rate as low as -0.35 percent.
Whereas CPI Inflation may be low for the moment, there’s a big risk of an onslaught of inflation, or even hyperinflation, lying ahead. One must remember that hyperinflation is not the same thing as a slightly higher inflation rate than normal. Hyperinflation is a massive increase in the velocity of money (the speed with which the monetary unit circulates) happening when the confidence for the system is collapsing. During the last years, the velocity of money has been low. Should confidence in the system evaporate, people will start to spend their money and all the newly created money will come out of hiding bidding up prices which will lead to hyperinflation. This has happened many times before, like with the Mark in Germany in the 1920’s and with the ‘banana currency’ that the Japanese introduced during the occupation of Singapore under WWII.
Question: In your opinion, what is the bullion market size in Singapore and do you foresee demand going up in the near future?
Answer: According to World Gold Council’s report on Gold Demand Trends, the demand for bullion stood at 7.5 tons in Singapore for 2014 and 1.8 tons for Q1 2015. Bullionstar is public with its financial sales figures and plans to release the figures for H1 2015 in August 2015 on the BullionStar blog.
Question: Singapore’s government GST exemption on investment grade bullion since 2012 has led to a slew of bullion dealers setting up shops in Singapore. How does BullionStar differentiates itself from the rest of the competitors?
Answer: BullionStar offers a range of products and services that is unique, not only to Singapore, but to the entire world. Preconditions that are paramount for running our type of operation all exist here in Singapore – strong rule of law, low crime rate and no taxes or reporting requirements for bullion whatsoever. While the safe, low tax environment is a strong selling point for all bullion dealers in Singapore, our uniqueness lies in the full scale bullion center we’ve set up that can cater to all your bullion needs in one and the same place.
– 20 showcase displays full of bullion. You can visit the shop to view different varieties of bullion bars and bullion coins.
– Bullion vault that is integrated with the shop & showroom which enables you as a customer to deposit, audit and physically withdraw your bullion in a matter of minutes with no prior appointment necessary.
– Full online control of your deposited bullion via our unique My Vault Storage® solution which allows you to efficiently trade your bullion 24/7.
– Sell your scrap metal and jewellery for cash, or trade it for investment grade bullion, through our brand GoldBuyers.com.sg. You can visit our shop for a free valuation of your scrap metal or jewellery.
Question: Can you share with readers BullionStar’s product varieties and what are the best selling products in your shop?
Answer: We are offering our customers investment grade gold, silver and platinum in the form of bars and coins. We recently extended our selection of products to also include gold numismatics and silver numismatics. These products lend themselves well as a gift for friends or loved ones.
The infographics in our Year in Review for 2014 gives you a good idea of our most popular bullion products. The most popular product by far is the 100 gram gold bar minted by PAMP. In addition to offering a low price premium over the spot price of gold, these bars are very liquid and easy to resell with a very low spread between buy and sell price.
Our own BullionStar 100 gram bar, minted by the renowned Suisse refinery Argor Heareus, is also selling well. The BullionStar bar is unique as there’s no spread between buy and sell price for the bars.
For gold coins, the Canadian Gold Maples are the most popular coin making up about 50 % of our gold coin sales.
Question: Many Singapore investors still prefer to buy stocks and bonds over bullion, what do you think can be done to educate Singaporeans on the merits of buying bullion?
Answer: At BullionStar, we do our best not only to facilitate for trading physical bullion but also to educate people on the merits of buying and owning physical gold and silver bullion.
We are passionate about delivering good content, not only via our own website, but also through Facebook and Twitter where you can follow us. In addition to publishing our own blog posts under ‘Inside BullionStar’, we have engaged some of the best precious metals analysts on the planet, namely Koos Jansen and Ronan Manly.
We’ve also worked hard to develop our own unique chart tool which you can use to measure most assets in terms of gold as a unit of account. Market indexes like the S&P 500, or commodities like corn and wheat, can be measured in gold.
Question: Do you really believe that the world would revert to the gold monetary standards in the next 5 years? And what would be the implications for the man in the street?
Answer: It’s difficult to predict. Authors like Willem Middelkoop as well as our own precious metals analyst Koos Jansen has written on the subject of a possible new gold standard in the making and whether or not gold should be included into the SDR.
If gold were to be included in an emerging new monetary system, it will probably not be similar to the classical American gold standard in which you could redeem paper notes for physical gold coins, but rather as support for the monetary system on a central bank level.
Whether the resurgence of gold is as a store of value alone or both as a store of value and medium of exchange, the price of gold will have to increase significantly or we will run out of physical gold!