• SGX offers investors opportunities to participate in the gold sector through three mining stocks – Wilton Resources, CNMC Goldmine and Anchor Resources – and one Exchange Traded Fund, the SPDR Gold Shares ETF.

• Spot gold has fallen over 4% since hitting a one-year high of US$1,349.22 on 7 September 2017, which reduces its YTD gain to 12%. Bullion's performance has been impacted by flagging investor interest after the recent surge in US equity markets, the focus on cryptocurrencies like Bitcoin, and as central banks began paring their stimulus policies.

• The World Gold Council has consistently flagged the diversification role of gold, noting that the commodity fulfils a classic role as a haven asset. A key motivation for including bullion in a portfolio has been the metal’s history of maintaining low correlations to most other asset classes, which helps to reduce overall portfolio risk.

Singapore Exchange offers investors opportunities to participate in the gold sector through three mining stocks and one Exchange Traded Fund (ETF). 

SGX’s trio of gold miners – Wilton Resources, CNMC Goldmine and Anchor Resources – are categorised to the Materials Sector by the Global Industry Classification Standard (GICS®) under its Gold sub-industry. The SPDR Gold Shares ETF (stock code: O87) offers investors an innovative, relatively cost-efficient and secure way to access the gold market – investors need not take physical delivery of gold, and have the ability to buy and sell that interest through the trading of a security on a regulated stock exchange.

Singapore’s Metal and Mining Sector (by Market Capitalisation)

Source: Bloomberg, (data as of 22 November 2017)
Companies are classified by their MSCI Global Industry Classification Standard (GICS®) Sub-Industries

Spot Gold Prices 4% Off One-Year High

Spot gold has fallen over 4% since hitting a one-year high of US$1,349.22 on 7 September 2017, which reduces its year-to-date gain to 12%. With US equities setting fresh historical highs, and cryptocurrencies like Bitcoin gaining in popularity, investor interest in gold has waned.

Being a non-interest bearing asset, gold’s performance has also been hit after central banks around the world began paring their stimulus policies. The US Federal Reserve is shrinking its balance sheet and raising interest rates – with four rate hikes so far and another widely anticipated in December – while the European Central Bank is about to start tapering its bond purchases.

BMI Research said in a report published on 1 October 2017 that gold prices are expected to drift sideways as rising US rates keep a lid on investment demand and a full-fledged confrontation between the US and North Korea remains unlikely. BMI has forecast an average gold price of US$1,250/oz in 2017, but cut its projection for 2018 and 2019 to US$1,300/oz and US$1,325/oz.

Gold Spot Price [USD]

Source: Bloomberg, (data as of 22 November 2017)

Gold Demand Trends

According to a report published by the World Gold Council on 9 November 2017, global demand for bullion in the July-September quarter fell to an eight-year low as Indian jewellery demand shrank and ETF inflows slowed.

The YoY drop in worldwide demand for gold was largely attributable to India. Domestic demand sank 25% YoY in the third quarter after the government introduced a 3% Goods and Services Tax (GST) in July, and brought the industry under the umbrella of the Prevention of Money Laundering Act (PMLA) in late August.

However, China’s bar and coin demand was notable during the quarter, rising 57% YoY. In the year-to-date, China’s gold market has seen the second-highest volume of bar and coin demand on record, largely driven by fears over a potential depreciation of the yuan and the spectre of rising inflation. After the government imposed restrictions on domestic real estate transactions earlier this year, and given the lack of alternative investment opportunities, investors – especially high net worth individuals – have flocked to gold.

Bullion will continue to be supported by its intrinsic value and the key role it plays in the composition of foreign exchange reserves, Robert Samson, Nikko Asset Management’s senior portfolio manager of multi-asset, told The Edge newspaper recently.

“For China, [gold] is used as a reserve, which will be partly used to back its currency in exchange for oil. There has been a slow decline in dollar reserves on a global scale, and some of that is going into gold,” he added.

A Diversification Tool

The World Gold Council has consistently flagged the diversification role of gold, noting that bullion fulfils a classic role as a haven asset. It has previously suggested that when investors add risky assets to their portfolios, gold should make up 2% to 10% of the portfolio. More specifically, for portfolios made up of 60% equities and 40% debt, it suggested a 5% to 6% allocation to gold to effectively manage portfolio risk.

The World Gold Council maintains that a key motivation for including gold in a portfolio has been the metal’s history of maintaining low correlations to most other asset classes. Including assets that have a low correlation to each other helps reduce the overall risk of a portfolio.

SGX’s Gold Plays

While gold stocks have a high correlation to physical gold, they are typically considered leveraged plays on the metal. In addition to gold prices, there are also many other factors – such as corporate activity, currency, gold discovery, earnings power, operating efficiencies – that will impact the price of gold stocks.

Mining companies may also often take up to 10 years or longer to develop their gold mining projects and bring them to production. As the process of gold exploration could be expensive, some smaller companies may also need additional fundraising to finance this stage of development.

While there are no upstream gold mining activities in Singapore, the city-state is home to downstream international gold refineries and bullion product manufacturing plants, with significant storage capacity through Singapore Freeport. In October 2012, the government lifted the Goods and Services Tax on Investment-Grade Precious Metals.

Of the 16 mining companies listed on SGX, three stocks – all on Catalist – are focused on gold mining. CNMC Goldmine Holdings, Wilton Resources Corporation and Anchor Resources are in different stages of the gold exploration, development and production cycle. These three gold plays have a combined market capitalisation of S$321 million, and have averaged a price change of -28.7% in the 2017 year-to-date, bringing their one-year and three-year price changes to -30.0% and -36.2%.

The table below details the three gold mining stocks, sorted by market capitalisation. Click on the stock name to access its profile on SGX StockFacts.

Source: Bloomberg & SGX StockFacts (data as of 22 November 2017).
* Last price of companies are denoted in their respective trading currencies.
SGD equivalents are shown in table.

CNMC Goldmine Holdings 

CNMC engages in the exploration, development, mining, and marketing of gold in Malaysia. The company primarily focuses on the Sokor Gold Field project, which covers an area of approximately 10 square kilometers with five identified gold deposits located in the district of Tanah Merah, Kelantan. It also processes mined ore into gold dores.

For its latest quarterly financial results, click here.

To read the kopi-C profile of CNMC CEO Chris Lim, click here.

Wilton Resources 

Wilton engages in the exploration, mining, and production of gold in Indonesia. It holds interest in the Ciemas Gold Project, comprising two concession blocks covering a total area of 3,078.5 hectares located in Sukabumi Regency, West Java Province of Indonesia. The company is also involved in general trading, transportation, construction, real estate, logging, farming, plantation, forestry, electrical, mechanical, computer, workshop, and printing businesses.

For its latest quarterly financial results, click here.

Anchor Resources 

Anchor engages in the exploration, mining, processing, production, and sale of gold and related minerals. The company holds interests in the Lubuk Mandi mine and Bukit Panji property located in Terengganu, Malaysia. It also provides mining consultancy services.

For its latest quarterly financial results, click here.

Gold ETF on SGX

The SPDR Gold Shares ETF aims to lower many of the barriers which have prevented some investors from investing in gold. These barriers have included the logistics of buying, storing and insuring gold. In addition, certain pension funds and mutual funds do not or cannot hold physical commodities, such as gold, or the derivatives.

SPDR Gold Shares represents fractional, undivided beneficial ownership interests in the trust, the sole assets of which are gold bullion, and, from time to time, cash. The ETF is set up to reflect the performance of bullion, less the fund’s expenses. It tracks the London Bullion Market Association PM Gold Price, and the physical bullion is kept in the form of London Good Delivery bars. The management fees of the fund is at 0.40% p.a. of the daily NAV of the Trust, accrued daily. Investors should refer to the fund prospectus for more information, including product risks.

The ETF is designated as a non-Specified Investment Product, and is thus an Excluded Investment Product (EIP), accessible to anyone without pre-qualification.

Did You Know?

The aim of gold exploration is to discover a new gold deposit and quantify the amount and quality of the mineral in order to assess if it can be profitably extracted. The majority of gold mines are open-pit mines, also known as open-cut or open-cast mining. This method is used to mine minerals where the deposit is located near the surface. As noted in SGX’s Investor’s Guide to the Minerals Industry, the key sources of risk and reward are exploration, technical, financial, environmental, social, political, and sovereign issues.