Gold on bullet train!

Lifetime Membership What a havoc! Donald Trump’s aggressive tariffs upended the entire world trade order and sent global stock markets into huge turmoil for the past weeks. In the ensuing chaos, US stocks were walloped as US tariffs on Chinese goods hit a whopping 145% while China retaliated with 125% tariffs on US goods. The explosive trade war between the top two global economies sent investors fleeing to gold, turbocharging gold price to high heavens in the process. At the point of writing, gold price hit a record high of US$3,250 an ounce.

The last global trade war took place in 1930 and led to World War II. Given that this generation of investors have not lived in the era of global trade war, investors must not be reckless and enter the market with a view of buying stocks on the cheap. There is a real risk of catching a falling knife. In my view, a disruption in the global trade system is more complicated than a financial crisis and could take years to play out due to the intertwined nature of the trade system between countries.

The tit-for-tat tariffs between US and China have led to claims from analysts that recession is on the way. Many analysts also expect the Fed to have three to four rate cuts in 2025. Against this backdrop, gold price surged due to the economic uncertainty and weaker dollar. As recession anxiety increases, investors turn to gold as a safe haven to hedge against uncertainties.

But what is absolutely puzzling to me was the demolition of US Treasury market. Just like gold, government bonds like US Treasury have always been seen as a safe haven. However, the turmoil in the financial markets saw acute selloff of US Treasury and caused the yield to peak at 4.51% (bond yields move inversely to the price). One reason could be that foreign investors are dumping US Treasuries or it could be investors’ fundamental shift from bond to cash.

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Singapore government bought bullion!

The recent selloff in the US Treasury, once seen as a safe haven in times of financial crises, is troubling as it indicates a shift in asset classes from US by global investors. So investors must not lull into thinking that the stock market correction is over. For all you know, this crisis could be light from an oncoming train and not light at end of tunnel. As such, investors must stay vigilant and refrain from impulsive or speculative trading.Apart from the upheaval in the bond and stock markets, another notable shakeup is the borrowing interest rate in Singapore, specifically The Singapore Overnight Rate Average (SORA). As at 17 April 2025, Singapore’s 3-month compounded SORA has plunged to a low of 2.46% versus the 3.7611% high in November 2023. In the coming months, with the ongoing global trade war, I presume SORA will continue to plummet even further though US Fed may slow down interest rate cuts in US to fight inflation.

Singapore government ramped up purchase of gold

According to the MAS website on International Reserves and Foreign Currency Liquidity, the volume of gold held in our national reserves in December 2022 was 4.94 million troy ounces. As at January 2023, the volume of gold held surged to 6.38 million troy ounces.

However, in January 2025, the volume of gold held in our reserves swelled to 7.07 million troy ounces. At its peak, MAS held 7.7 million troy ounces of gold in May – June 2024 period. That was before Donald Trump’s became US President for the second time and when gold price was at US$2,300 per troy ounces. Subsequently, as gold price surged, the government started to trim its holding to 7.07 million troy ounces. This means that the government had made a killing from the divestment.

Generally speaking, the MAS is very discreet when it comes to gold buying as it does not make any public announcements over the years. As such, the average gold prices at which the MAS had entered could not be determined. Even though I doubt that the regulator had bought at the lowest prices, the fact that gold price had rocketed after the MAS’ buying vindicated that the purchases were very, very shrewd.

Unlike retail investors, central governments bought bullion as a means to diversify reserves. For Singapore government, this is no exception. Question now is what could have prompted Singapore government to buy gold and if this is the perfect time for retail investors to buy gold?

To put things into perspective, the gold purchases in 2024 were not the first time that Singapore government entered the market in recent years. In 2023, MAS increased its gold holdings following Temasek Holding’s write-off a devastating US$275 million investment in cryptocurrency exchange, FTX.

And then in 2023, the series of interest rate hikes by US Federal Reserves had started to take its toll on the banking sector. Within the span of just one week, three large US banks had failed – Silicon Valley Bank, Silvergate and Signature Bank. The collapses ignited global fear of contagion in the financial sector, leading to another massive financial crisis not seen since 2008.

In particular, the overnight disappearance of Silicon Valley Bank had not only sparked off a global shockwave, but also sent numerous tech companies in US into a tailspin as many of them had deposited funds in the bank. Amid the turmoil in the banking sector, gold price surged from US$1,809 per troy ounce to almost US$2,000 per troy ounce within two weeks.

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