While there are a number of specialist companies such as BullionStar servicing Singapore’s retail gold bullion market, the most unusual place to buy gold bars in Singapore must be the Mustafa Centre in the Little India neighborhood.
Located in a building on Syed Alwi Road, and part of another adjacent building on Serangoon Road, the Mustafa Centre is a cluttered haphazard department store and arcade that seems to sell everything from clothes to electronics, from perfumes to gold jewelry, and everything in between. It is also known as being one of the biggest gold jewelry outlets in Singapore.
Crowded and Congested
The Mustafa Centre itself is frequently crowded, often congested, and stays open 24 hours a day. Even trying to approach one of the entrances to the Mustafa Centre can be a stressful experience, and this is after navigating through a maze of often crowded streets if you find yourself approaching from the nearest MRT Station, which is itself a 15 minute walk from Mustafa’s premises.
Once you do happen to find Mustafa’s gold jewelry section, which is located in the basement 1 level of one of the centre's buildings, you will have to navigate past a floorspace crammed with clothes displays before stumbling upon a series of interconnected aisles assigned to gold jewelry.
While this jewelry space is about the size of a basketball court and stacked full of counters displaying gold earrings, gold rings, and gold chains and necklaces, the gold bar and gold coin display is relegated to a tiny rectangular counter, as if it was an after-thought among the masses of gold jewelry being hawked. This small gold bar and coin counter is itself cluttered, and badly presented, and is reminiscent of the display cases of a second-hand IT equipment shop.
The advertised prices for the limited selection of gold bars and gold coins that are on offer at Mustafa consists of a partially typed and partially hand-written price list page that sits on top of the counter. When this correspondent visited on the Sunday afternoon of 29 October, the price list strangely had the dates 28 - 29 October scrawled at the top, as if it had just been written one time that weekend on the Saturday and then not updated over the weekend.
The accuracy of the prices on that particular price list are therefore called into question. Where the Mustafa Centre sources its gold prices or 'Gold Rate' from is also not clear. In India and India's expat communities, 'Gold Rate' is a term often used to refer to the gold price.
Mustafa's bullion products and their prices, although typed, are squashed on to the list, with various hand-written notes along the left and right side margins. Strangely, parts of the list are highlighted in yellow highlighter marker. What this signifies we do not know, but perhaps it refers to the products that are in stock as opposed to out of stock.
Within the actual display cases of Mustafa's gold bar display cases, the gold bars are very much crammed into the display area as if everything in stock is actually on display. The old adage of "more is less" as regards presentation and visual display seems to have been lost on whoever lays out the Mustafa display cases.
Disappointingly, there is also a very limited range and brands of gold bars and gold coins actually offered by Mustafa's gold bullion counter, with nearly everything in the bar section being of the PAMP brand, and with very few gold coin types at all.
A number of precious metals research consultancies regularly do field trips to bullion markets around the world, including Singapore, so as to gauge at first hand the level of retail demand for bullion in a particular market. As regards Singapore, some anecdotal evidence we have heard from these consultancies is that it is virtually impossible to calculate the level of gold bullion demand in the Little India area.
Some of the reason for this is because gold bars and gold coins regularly arrive into Little India that have been hand carried from countries such as Dubai or other regional markets. And so this gold would not be reflected in the Singapore supply statistics of, for example, the Swiss refineries or the Canadian and Australian mints.
There are also a lot of resales of gold bullion in Little India, such as a parent swapping gold bars for gold jewelry to give to a sibling as a wedding present. It is therefore difficult to estimate where the gold bullion sold in Little India comes from. Not Mustafa specifically, but this issue must be borne in mind as regards Little India in general.
BullionStar's Spacious Shop and Showroom
In contrast to Little India's Mustafa, BullionStar could not be more different. BullionStar's shop and bullion showroom in central Singapore is located in an easily accessible and well-known section of New Bridge Road across from Clarke Quay Central Shopping mall. BullionStar's premises is also adjacent to the Clarke Quay MRT station. Those working in the Central Business District (CBD) will find that BullionStar is just a short lunchtime walk from the CBD. And from Chinatown, BullionStar's showroom is less than a 10 minute walk.
All of the gold bars and gold coins in the extensive range of gold bullion stocked by BullionStar are sourced either directly from the world's most prestigious precious metals refineries and mints such as Argor-Heraeus, PAMP, Heraeus, Valcambi, and the Royal Canadian Mint, or are supplied directly to BullionStar by the world's most renowned precious metals wholesalers such as Dillon Gage and A-Mark. BullionStar staff are also knowledgeable about all aspects of the range of gold and silver bullion stocked.
In BullionStar's shop and showroom, the floor-space is generous, the design calm and ergonomic, with many display cases devoted to gold bullion and silver bullion. Nothing is cluttered, and visitors and customers entering the air-conditioned showroom will be able to browse and view a huge range of gold bars and gold coins, and silver bars and silver coins, with every product type stylishly and spaciously displayed in its own display case. All display cases are also well-lit and well presented.
An impressive feature which BullionStar customers find useful are the electronic screens next to each display case which show updated prices for those products. These prices are live and are displayed electronically and updated electronically in real-time.
A final point to note is that the Mustafa Centre's gold bullion counter does relatively poorly in customer reviews, with customer feedback of poor customer service, dis-interested staff, and prices higher than elsewhere in Singapore. Based on reviews on the Singapore website 'Bullion Reviews', Mustafa scores lowest out of all 6 Singapore bullion dealers featured, with Mustafa getting a total score of 3.9 from 27 reviews.
In contrast, on the same review site, BullionStar receives a total score of 9.1 from 131 reviews. And BullionStar's prices are generally perceived to be some of the most competitive, if not the most competitive, in Singapore.
This blog post, BullionStar Financials FY 2017 - Year in Review, reviews BullionStar's performance for the financial year ending 30 June 2017 (FY 2017).
BullionStar hit a new milestone in FY 2017 with sales revenues totaling SGD 174,703,445 - a 35.3% increase over FY 2016.
During FY 2017, BullionStar launched its dedicated mobile website. When accessing www.bullionstar.com on a mobile phone, visitors and customers are able to manage all their precious metals needs on a website that optimizes the mobile user's experience, with layouts and user options tailored for mobile browsing.
During the financial year, BullionStar also continued expanding the content of its Gold University, a unique Wikipedia-style resource of up-to-date factual information covering topics such as gold markets, gold vaults, refineries and mints, and central bank policies.
In FY 2017, BullionStar increased its product range to include over 650 different bullion, numismatics and coin supply products across 10 different product categories.
BullionStar furthermore exhibited at FreedomFest 2016, which is the world's largest gathering for freedom-minded people.
BullionStar Financials FY 2017 - Year in Review - Sales
BullionStar’s sales revenue for FY 2017 grew by 35.3% to SGD 174.7 m, up from SGD 129.2 m in FY 2016.
For H1 2017, total global bullion demand increased by 11.2% when calculated in tonnage based on data from the World Gold Council comparing H1 2017 to H1 2016.
According to the World Gold Council, between 2016 and 2017, overall gold demand in Singapore shrank from 18.1 tonnes to 17.1 tonnes, a 9% fall. At the same time, demand for gold bullion fell from 5.9 tonnes in 2016 to 5 tonnes in 2017. In 2016, BullionStar sold approximately 2.3 tonnes of gold bullion, thereby representing 13.5% of all gold sold in Singapore and 46% of all gold bullion sold in Singapore.
Despite marginal growth in the bullion sector globally, and despite precious metal spot prices being range bound in a narrow range for most of the financial year - which typically results in lesser volume - BullionStar has continued to grow strongly.
With customers from 101 countries, BullionStar has continued to attract long-term international customers who are looking to geographically diversify their wealth holdings into the safe jurisdiction that Singapore offers.
With its FY 2017 results, BullionStar remains in a very strong financial position and has been profitable for the fourth year in a row. BullionStar has no long-term debts to any financial institutions.
The strong performance and growth of the company is reflected in the diagram below.
Sales per Product Category
A comparison between the chart below for FY 2017 and the corresponding chart for FY 2016 reveals that the proportional demand for gold, relative to silver, is largely unchanged. Gold consisted of approximately 73% of total sales for both FY 2016 and FY 2017.
During the financial year, BullionStar has successfully attracted larger international customers, increased the average order size, and increased the sales of larger gold bars such as 1 kg gold bars. In FY 2017, the 1 kg gold bar segment consisted of 26.8% of the overall demand for gold bars, compared to 21.5% for FY 2016.
The trend of higher sales of bullion bars and lower sales for bullion coins, as witnessed last financial year, continued during FY 2017. Sales of gold coins as a percentage of total sales fell from 18% to 12.6%, while sales of silver coins decreased from 7.2% to 4.6%.
What Lies Ahead
Unsustainable debt levels continue to plague many western countries. Together with increased geopolitical instability, the demand for physical gold has increased in the last few months, despite lackluster movements in gold spot prices. BullionStar’s sales revenue for July 2017, following on from the end of BullionStar's financial year, amounted to approximately SGD 20 m, significantly higher than average.
BullionStar expects FY 2018 to be a strong year with sales revenues at least on par with FY 2017.
BullionStar expects to launch several different new products during FY 2018 as well as conduct a major revamp of its website.
Gold & Silver Prices
The gold spot price development during BullionStar's FY 2017 was less volatile than in previous years, with gold trading between a low of SGD 52.30/gram and a high of SGD 59.39/gram. During FY 2017, the gold price decreased from SGD 57.15/gram on 1 July 2016 to SGD 55.02/gram on 30 June 2017, equivalent to a 3.7% decrease when denominated in Singapore Dollars.
The silver price, when denominated in Singapore Dollars, fell by 7.5% during the period, from SGD 0.8/gram on 1 July 2016 to SGD 0.74/gram on 30 June 2017.
BullionStar Vault Storage
When our customers store their metals with BullionStar, they have full control of their bullion portfolio online 24/7. We employ no less than 5 different audit schemes, including third party audits by the LBMA-approved auditor Bureau Veritas, to verify the existence and correctness of the stored bullion. With our vault being integrated into the same venue as our shop and showroom, customers can physically audit and withdraw their precious metals without any prior notification.
By the end of FY 2017, we stored approximately SGD 119.6 m in precious metals as vault storage provider on behalf of our customers. This corresponds to an increase of 42.2% compared to one year ago.
We are proud of our status as the premier bullion dealer in Singapore, offering customers seeking wealth protection and asset preservation a unique solution to international diversification. BullionStar's average rating at Google Reviews, with more than 800 genuine customer reviews is an outstanding 4.8.
BullionStar is Singapore's premier bullion dealer offering a wide range of precious metals products and services. BullionStar is breaking new ground by introducing modern technology into the age-old precious metals industry. With a proprietary online platform, BullionStar offers customers the ability to efficiently handle and control their bullion holdings 24/7 at their convenience.
BullionStar runs a one-stop retail shop and vault for precious metals at 45 New Bridge Road in Singapore where customers can view, buy, sell, value, deposit, test, audit and physically withdraw precious metals.
With original research and analysis covering the precious metals market on a whole and the Asian market specifically, world renowned analysts Koos Jansen and Ronan Manly keep readers updated on the news that matters.
The following speech, by BullionStar CEO Torgny Persson, was given to an audience during a Precious Metals Seminar held at BullionStar's shop and showroom premises in Singapore on 19 October 2016.
What have I got here?
It’s 87 grams of gold.
As many of you know, we have our own bullion vault integrated in BullionStar's bullion centre here in Singapore. What if I told you that every day we sell 6 kgs (6000 grams of gold), meaning that we sell about 1500 kgs gold per year to customers storing with us, but that we actually only keep 87 grams of gold in storage as reserves.
You would call it fraud and have me arrested, right? I’m obviously running a Ponzi scheme with very small fractionalised reserves backing up huge trading of unallocated paper gold.
Now, for clarity, that's not how we conduct business. When you buy and store bullion with BullionStar, your bullion is fully allocated and you can withdraw your metals at any time by just walking into BullionStar's bullion centre. You don’t even have to notify us beforehand.
What I just explained to you is something else - it’s bullion banking per definition - more precisely it’s unallocated gold trading by bullion banks.
As most of you know, the London Bullion Market Association (LBMA) has held its annual Precious Metals Conference in Singapore over the last two days. The LBMA is at the core of the world’s bullion trading system, a system which generates extremely large trading volumes every trading day. To understand the gold market, one has to understand the LBMA system as it is of great significance to both the price of gold and also to the physical movements of gold around the world. I will therefore provide you with an introduction to bullion banking and this LBMA system, and talk about how bullion banking operates.
Bullion Banking - Unallocated Gold
Almost all gold traded in the LBMA system today is in the form of unallocated gold which is accounted for in unallocated accounts. The definition of an unallocated gold account, as we can read on the LMBA’s website, is that the holder of such an account with a LBMA bullion bank does not have any ownership interest in any specific gold bars.
Instead, the account holder is merely an unsecured creditor of the bullion bank and holds a claim on the bullion bank for an amount of gold. At the same time, the bullion bank has a liability to this customer for this same amount of gold. Therefore unallocated gold is essentially paper gold. It is gold that doesn’t exist in the physical realm.
The creation of unallocated gold is in fact very similar to how fiat currency is created in the fractional reserve banking system. The fractional reserve banking system provides a good gateway into understanding bullion banking.
How is Fiat Money Created Today?
Let’s quickly recap on how fiat money is created in the fractional reserve banking system.
Money is created out of thin air. When a bank extends a loan, the money is created out of thin air.
Let’s take an example:
1) Robert plan to buy a house for $1 million.
2) Robert goes to a bank and the bank takes a look at Robert and deems him credible. With today’s low lending standards, it is rather easy for Robert to secure a loan. The bank deposits $1 million into Robert's account.
3) Where does this $1 million come from? The answer is 'nowhere'. It doesn't come from anywhere. The money is created out of thin air when loaned out to Robert.
This is easy to understand but hard to believe for some people. But it is true that this money is created out of thin air and lent into existence. About 92% of our money today is lent into existence in this fashion.
Banks keep a very small amounts of money in reserve to cover withdrawals, but they face liabilities which are far larger in size that their reserves.
The term "loan" as used in banking has been corrupted and twisted by banks. When a bank extends a loan, there is nothing loaned. To loan something you need to be in possession of it first, but when banks make loans, there is no countervailing transaction - The money is just created when the loan is extended.
How is Paper Gold Created?
Now, what about gold? How is gold created? You might say gold can’t be created, it has to be mined, right? Yes, you would be correct, physical gold cannot be created, but gold as an investment product definitely can be created and is created on a massive scale.
When a bullion bank customer goes to the bank and requests to buy gold, the standard procedure is for the bullion bank to create unallocated paper gold and credit this paper gold to the customer’s account. This ’gold’ is simply created out of thin air as a book-keeping entry in the bank’s accounting system.
Similarly, if actual physical gold is deposited into an unallocated account operated by a bullion bank, this deposit of gold is also in fact very similar to a deposit of fiat money. Just as a bank keeps deposited fiat money on its own balance sheet, a bullion bank keeps deposited physical bullion on its own balance sheet.
Bullion banks don’t generally safeguard or segregate gold deposited with them or held by them unless they are specifically instructed to do so if a customer opens an allocated gold account.
This means that depositors of gold into bullion banks' unallocated accounts are no longer the legal owners of the gold that they have deposited. Instead, they are just one of the general creditors to the bank, and they merely hold a claim for gold against the bank.
By depositing gold into an unallocated account at a bullion bank, you therefore lose ownership of your gold in return for a mere claim on gold.
Trading in unallocated gold by the bullion banks is thus based on book-keeping entries denominated in gold. The gold is fractionally reserved. Gold is created out of thin air as book-keeping entries in the banks' ledger systems, and even gold that is deposited into an unallocated account becomes the property of the bank.
LBMA Unallocated Gold Trading Volumes
From the LBMA’s published clearing statistics, which is one of the only transactional statistics that the LBMA does publish, we know that 600 tonnes of gold are "cleared" in the London Gold Market each and every trading day. Cleared means that it’s 600 tonnes of gold that's transferred between participants after netting out all trades between all trading participants.
According to a LBMA gold trading survey conducted in 2011 (the last such survey), the ratio between trading turnover and clearing on the London Gold Market was about 10 to 1. This means that the total amount of gold traded in the LBMA system each day is about the equivalent of 6,000 tonnes!
In other words, almost twice as much gold is traded in the LBMA system in a single trading day than is physically mined globally during an entire year.
But what is backing this 6,000 tonnes of unallocated gold traded each day, or 1.5 million tonnes of gold traded each year?
Let’s take a look at the reserve side of bullion banking in the LBMA system.
Bullion Bank Gold Reserves
The LBMA bullion banks' outstanding gold liabilities, and the unallocated trading system in the London Gold Market are ultimately backed by a quantity of 400 oz Good Delivery gold bars.
However, bullion banks don’t really want to hold physical gold. They will buy it if someone forces it on them but bullion banks have no real need for physical gold and are therefore incentivised to keep as little gold as possible in reserve, and lend out the gold they hold in reserve so as not to incur storage fees and handling costs. Banking reserves are looked upon as a dead asset so the banks minimise these reserves and try to make them into live assets by loaning them out.
When a bullion bank receives a gold bar by buying or borrowing it, it either sells, leases or allocates that bar elsewhere.
This sets a bullion bank apart from any other bullion entity because a bullion bank can hold deposits of gold on its balance sheet as assets even if it no longer has, or never had, the actual physical gold in its possession.
How much backing is there for all the unallocated gold traded in the LBMA-system?
We don’t exactly know as there are no reserve figures published but we can make an educated guess.
Vaulted Gold in London
How much gold is actually vaulted in London? The LBMA recently said on its website that there was approximately 6,500 tonnes of gold stored in London, about three-quarters of which was at the Bank of England. The Bank of England recently revealed that it was custodian for 4,734 tonnes of gold in its vaults.
This would leave 1,766 tonnes of gold privately stored in the LBMA vaulting system outside the Bank of England.
BullionStar research recently calculated (30 September 2016) that ETF gold holdings held in London accounted for 1,679 tonnes. This would mean that there are only 1,766 - 1,679 = 87 tonnes of gold in the LBMA system which is not allocated to ETFs!
Therefore, nearly all of the LBMA reserves are allocated to the ETFs with only 87 tonnes of gold left to back up the vast amorphous of unallocated gold trading amounting to 6,000 tonnes per day or 1.5 million tonnes per year!
Chart layout inspired by GoldChartsrus /Nick Laird. Data gathered by Goldchartsrus/BullionStar's Ronan Manly
Physical gold in the LBMA bullion banking system is therefore like physical cash in the monetary system. It is rarely seen!
LBMA is a banking system that by definition is based on fractional reserve banking.
HSBC, JP Morgan and ICBC Standard Bank are the only LBMA bank custodians with their own precious metals vaults in London. Most of the circa 42 LBMA bullion banks don’t even have their own gold vaults but still keep books denominated in gold ounces. A bullion bank without a gold vaults instead holds its gold reserves with a bullion bank that does have a gold vault.
For example, if Citibank keeps its reserves with a bank with a vault such as JP Morgan, then Citibank merely holds a gold claim for which JP Morgan has a gold liability. These unallocated gold reserves are therefore just pooled with the bullion banks that do have vaults.
The bullion banks without a vault never see or touch the metal they keep in reserves. If a bullion bank stores its gold reserves at another bullion bank’s vault, this means that the reserves are unallocated credits/claims which are standing behind the bank’s own liabilities. So even the reserves are fractionalised. So not only are bullion banks’ liabilities to their customers unallocated, even the reserves are unallocated inter-bank liabilities which are fractionalised.
Paper gold thus stands behind the liabilities of paper gold.
The LBMA system serves as a pool of reserves and uses coordinated reserve management where the different participating bullion banks can loan and lend to each other the few physical reserves that there are in the system so as to meet any demand for physical bullion.
Gold Bank Run
The bullion banks face massive liabilities in the form of unallocated gold credits. Bullion banks are thus, just like normal banks, susceptible to bank runs.
The difference between bullion banks and normal commercial banks is that whereas central banks are the ultimate lenders of last resort to commercial banks, most central banks no longer back-stop bullion banks as the lender of last resort because most central banks no longer sell or lease bullion that can be used to prop up bullion banks' reserves.
In case of the LBMA, the central bank is replaced by a private company called London Precious Metal Clearing Limited (LPMCL) which is run by 5 clearing bullion banks and whose clearing system AURUM nets out all gold claims and liabilities in the LBMA system. The clearing system functions as a pooled system in that only net balances are cleared and the bullion banks' gold reserves are essentially pooled and can be leased and double counted whenever necessary.
When they no longer have any physical gold to deliver, the ultimate rescue plan for bullion banks is to use cash settlement instead.
In the same way that banks increasingly promote cashless solutions as a means to reduce cash handling costs, earn credit card fees, reduce the risk of bank runs and lock in customers, LBMA system bullion banks promote gold-less gold transacting.
Just as the banking system inherently incentivises reckless debt behavior, the bullion banking system inherently incentivises the reckless creation of paper gold assets.
LBMA – The Paper Gold Protector
In creating artificial paper gold, bullion banking protects the fiat money system.
If even a small minority of the paper gold traded today was backed up by physical gold, the price of gold would have skyrocketed. A gold price significantly higher than today would point towards the inferiority of the fiat money system, and possibly the collapse or implosion of the current monetary system.
Bullion banks and gold industry organisations, such as the LBMA and the World Gold Council, which itself has developed and owns securitized gold products, can profit from gold trading volumes that are far higher than they would be if they were limited to the constraints imposed by the availability of physical gold to trade.
The bullion banks and the LBMA work hard to overcome the tangible limitations of physical gold mining. By promoting gold-less gold transacting, the LBMA unallocated system artificially increases the supply of gold, earning the banks higher fees from artificially large trading volumes.
To reiterate, the LBMA unallocated gold trading is a banking system based on fractional reserve banking which is all about exposure to the price of gold but not to gold itself.
The LBMA system is used to coordinate unallocated paper gold trading where ‘gold’ is created out of thin air, and the tiny physical reserves held are pooled and shared out among participants so as to minimise costly reserves and avoid gold bank runs.
When bullion banks need to allocate gold to the ETFs, such as to the SPDR Gold Trust (GLD) in London, they use credits from the same unallocated gold credit system as was previously used to offset other gold liabilities. Even though the ETF may own the gold outright, the gold is still being double counted within the system because its being allocated out of a bullion bank pooled systems of credits.
To summarize what the LBMA is all about, it is a paper gold protector for the bullion banks which allows the bullion banks to earn fees from an artificially high trade turnover while at the same time protecting the fiat currency system.
The Guarded Secret of no Gold
The fractionally-reserved bullion banking system is a fragile system. Many investors and savers holding paper gold believe that the gold they are holding is backed up by real physical gold. But if the bullion banking system implodes, which it will do if the high demand for real physical gold in Asia is sustained at anywhere near today’s levels, these holders of paper gold will at best end up holding paper claims which will be cash-settled, or at worst these paper gold holders will be empty-handed.
Demand for ETF’s and unallocated gold will likely not stress the system systemically since the pooled LBMA gold reserves are used for leasing and double counting. It is the demand for real physical gold, draining bank gold reserves, that stresses the system.
Many gold investors/savers buy various paper gold products as a means of protecting themselves against the fiat currency Ponzi scheme. It may therefore come as a surprise to some holders that these investments are no safer or even less safe than the fiat currency against from which they are seeking to protect themselves. Bullion banks give the impression that these investors into unallocated gold are actually holding gold, whereas in reality they are just unsecured creditors holding paper gold, gold that is created out of thin air, in a fractionally-reserved Ponzi scheme.
As long as everyone is happy to buy and sell ledger entries/book-keeping entries, this fragile system can continue to balance on a thin thread. The systemic problem arises when larger entities start to demand physical delivery, a trend which has been happening in the last few years, most notably in Asia and Russia. There is therefore an imminent risk of the bullion banking system collapsing in the next few years.
This is an accident waiting to happen, because when enough holders of paper gold ask for delivery, the default that will follow will trigger the biggest bank run for gold in history, which due to gold’s significance as a monetary proxy, will shake the entire monetary system.
When there is no longer any physical metal to deliver, the ensuing shortage will result in a disconnect between prices, in which paper gold will become worthless while the price of real physical gold will be revalued at a much higher level based on the market equilibrium for physical supply and demand of gold.
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