Singapore recently made a huge step forward in establishing itself as one of the biggest players in the global market for investing in gold.
The Asian city's government repealed a 7% tax on gold and silver effective Oct. 1. Now investors can store their gold in Singapore without costly value-added taxes.
"It seems a little unfair to put a sales tax on what is essentially money. The removal of the GST on gold will allow Singapore to better compete with Hong Kong and other bullion trading centers in the region," Nick Trevethan, a senior commodity strategist at ANZ in Singapore told Reuters.
Singapore currently controls roughly 2% of global gold demand and aims to grow that share to some 10% to 15% over the next five to 10 years.
The market expansion is expected to increase global demand for gold and silver bars and coins in the fourth quarter of 2012. An influx of precious metal traders to Singapore is also expected, with more commodity offices and bullion storage facilities to follow.
Anticipating the opportunity, JPMorgan Chase & Co. (NYSE: JPM) opened a precious metals vault in the city in 2010.
"I think this is really going to change the landscape in Singapore," a gold dealer told Asia One Business. "A lot of companies will find the incentive to start operations in Singapore. This news is going to draw attention to Singapore as a safer place to park funds."
Why Store Wealth in Singapore?
Currently, Singapore imports gold bars from Australia, Switzerland, Hong Kong and Japan. The bars are then sold to buyers scattered across Southeast Asia and India, home of the largest gold consumers in the world.
In addition, gold scraps from across the region are traded in Singapore. This exchange has a hand in helping to determine the premiums for gold bars against prices in London.
With the value-added tax now gone, Singapore is poised to pounce on the growing precious metal investment and trading trend, and claim a prominent place in the thriving industry.
The city's easy trading laws, strong dollar, robust locale, low personal and business taxes, no capital gains tax, and reputation as a secure shelter for the storage of wealth are all among Singapore's advantages.
And then there is Singapore's low crime rate and political stability.
"People feel safe storing there gold here," Gregor Gregersen, director of Singapore-based physical gold and silver supplier Silver Bullion Pte. Ltd, told The Wall Street Journal.
Investors have been waiting to invest in gold until after the tax break takes effect. Singapore's gold sales are expected to jump about 10% this month now that the tax has been cut.
"Within Asia, investors want to hold their gold in Singapore. China is riskier than Singapore, so Singapore should attract more demand," Cedric Chanu director of Asian precious metal trading for Deutsche Bank told the Journal.
Time for Investing in Gold
Worldwide, economies have struggled and global central banks have responded by using record amounts of stimulus, drastically increasing money supplies.
This has led to waning dollar values and as a result, gold and silver have become hedges against reckless global monetary policies and have become a preferred holding as a store of assets and wealth.
"There has been a dramatic increase in customers wanting to move out of paper, that is over-the-counter gold, and into physical. We're seeing customers wanting to move their gold from Europe into Singapore," Chanu noted.
Since the start of the financial crisis in 2008, gold prices skyrocketed from just under $850 an ounce to a peak of $1,920 reached in September 2011. After a pullback, the yellow metal is currently moving back toward its all-time highs, trading around $1,770 an ounce.
Diane Alter is a contributing writer with Money Morning.