Singapore's Excellent Gold Ownership Regulations Help in a Systemic Crisis

With gold investment becoming a prominent strategy for asset protection portfolio diversification, one issue generated unprecedented interest:

Are the investors the actual owners of their gold? How is Singapore different from other jurisdictions in this respect?

Before the article delves into this issue, it’s important to make a difference between two different interpretations of the term ‘’long-term gold investment’’. For investors that expect to get higher yields on their investment (for example, by ‘’playing’’ with the price with ETFs), ‘’long-term’’ would be anywhere between 3 – 5 years. For those who would like to invest in gold as an insurance asset, ‘’long- term’’ would usually imply a period longer than 10 years.

The explained difference is important because it is inherent in the reason behind purchasing the gold in the first place. Not only does it affect the choice between investing in physical gold as opposed to paper gold but also whether an investor should make sure they are the sole owner of their gold.

More specifically, if the gold is purchased for the purposes of asset protection or, put simply, insurance, the investor wants to have their physical gold in case of a systemic crisis. Read on to discover why physical ownership of gold is important for this scenario to play out as planned, as well as how Singapore’s jurisdiction and reputable gold bullion dealers make it possible for investors from all over the world.

Why is physical ownership of gold important?

Investing in physical gold (most notably, gold bullion) is largely considered to be the best option when it comes to gold investment for the purposes of wealth protection. Investors who purchase gold bullion and intend on storing it in a private vault should make sure they are the legal title owners of the bullion. Otherwise, investors are normally reduced to the status of creditor to whom the bullion is owed. This may be problematic for several reasons.

As a creditor rather than the legal title owner of the stored gold, you buy and have the bullion stored usually on an unallocated or fully allocated basis. The bank or dealer you choose to store your gold with issues a statement that shows the amount of gold (or other investment precious metals) they owe you –so it’s basically an IOU (I Owe You) statement. Even though an IOU serves as proof that the gold is owed to you, it still doesn’t mean that you are its legal title owner.

So, what are the possible scenarios?

As a creditor, you will most often be offered the payout in cash instead of physical gold. You may choose to take the cash or insist on receiving the bullion. If you insist on getting the physical gold and the bank/dealer doesn’t have it in stock, it can try to buy it to honor the contract or declare inability to provide you with the bullion. Settlement in cash is typically offered again, which you can either accept or take the matter to court by suing the counterparty. 

However, if the bank/dealer goes bankrupt, investors are not only defaulted against, but sometimes even unlikely to obtain a cash payout equivalent to the amount of bullion they invested in. Namely, as creditors, investors are not legal title owners of the bullion – the bank is. In case of bankruptcy, the bank’s assets are liquidated, and a liquidation authority is in charge of payouts to creditors.

In times of systemic crises, investors are more likely to demand their gold bullion rather than accept cash. The problem is that, in these situations, there might simply not be enough gold in the market to cover all liabilities. If the bank doesn’t have enough physical gold in stock in times of crisis, they are most likely not going to be able to purchase it to cover the liabilities. If most creditors still insist on receiving physical gold and the bank is unable to deliver, there will either be an ‘’insurance’’ clause in the contract covering the occurrence of such an event in the cash equivalent or the creditors will need to initiate a litigation procedure. Again, the litigation would most likely be settled in cash, possibly involving some additional penalties.

There were cases when investors had reasons to believe that their physical gold was never even present in the storage. A high-profile example involved the German Government and the Federal Reserve Bank of New York. Namely, in 2012, the German Government, who had been storing half of their gold supply in the NYC Fed, asked to bring the gold to Germany. NYC Fed was unable to deliver the gold and even refused the request to have the gold audited. The situation was finally resolved in 2017, five years after the German Government actually asked for the repatriation of the gold. Naturally, speculation was raised as to whether the gold was actually present in the NYC Fed vaults, which also further piqued investors’ interest in the issue of legal ownership of stored bullion.

Therefore, without being the legal title owners of their stored gold, investors may discover that the physical gold they invested in is actually missing. Even though investors can accept a cash payout (as many do), there are situations (such as systemic crises), where investors would prefer payment in physical bullion.

How to make sure you own your gold?

The choice of storage plays one of the key roles in determining whether you will be the legal title owner of the stored gold bullion. One way to make sure you have the full ownership is to have your gold stored on a segregated ownership basis. Singapore’s Silver Bullion has devised a trading, buying and sellback storage system that guarantees full ownership by the client on a segregated ownership basis. Some of the specificities of the system are as follows:

  • stored gold is  uniquely identified with a number and a bar code
  • the investor/owner is  able to audit and retrieve their gold shortly after they make the request
  • a third independent party  audits the stored bullion on a regular basis
  • the investor/owner receives photographs of all individual items stored.

Is it possible to be the sole owner of gold in Singapore?

As a jurisdiction with world-class infrastructure for precious metals trade and storage, Singapore is home to reputable gold bullion dealers and storage providers, such as Silver Bullion. Silver Bullion’s Bullion Storage provides the clients with Parcel Segregation – stored gold is placed in tamper evident parcel bags, each of which is given its own unique number. As this storage option is based on segregated ownership, the client/investor is the legal title owner of the bullion.

Gold nationalizations and seizure of gold

Ensuring that you are the legal owner of the bullion you purchased and stored is only one of the elements that guarantee a bulletproof asset protection strategy. Namely, the choice of a safe, investor-friendly jurisdiction is paramount, especially considering the instances of gold nationalization. Namely, gold is known to have been nationalized through history, most notably in the U.S. in 1933.

Since instances of gold nationalization have already happened during economic crises, who is to say they won’t happen again? It’s not unlikely for indebted countries to nationalize gold held by their citizens in case of a global crisis. Therefore, the investors should choose a jurisdiction that has a legal system where gold seizures are least likely to happen.

Will being the owner of gold stored in Singapore protect you from gold nationalizations?

Singapore’s economic prosperity relies on a number of factors, with investor confidence being one of the most important ones. The Singapore government has taken a number of measures that boost the Confidence of investors. The most notable measure was taken in 2012 when Investment Precious Metals (IPM) became non-taxable in Singapore.

Singapore closely follows its own rule of law that protects private property. Investment grade bullion stored under Singapore jurisdiction is considered private property of the investor under Singapore Law and is therefore out of reach of external authorities such as the US Internal Revenue Service (IRS). As such, it’s considered one of the safest jurisdictions in the world.