Record Negative Inflation for Singapore

On 23 May 2016, Singapore smashed the record for the longest streak of negative inflation, recording a stunning 18 consecutive months of declining Consumer Price Index CPI (all items). On a year-on-year basis, CPI (all items) for February 2016 was -0.8%. Is this a good development for Singapore and should wealth builders pop the champagne because things are going to be cheaper? This is certainly not the case because the data is disturbing and reveals dark sides of the economy that every Singaporean should take note.

The statistics on consumer price development track three data, namely CPI (all items), CPI-OOA which excludes rental from owner-occupied accommodation and MAS Core Inflation, which excludes the cost of accommodation and private transport costs. The top reasons for the negative CPI (all items) are due to declining housing prices, weaker Certificate of Entitlement (COE) premiums and slump in global oil prices. Together, these three factors drove CPI (all items) to 18 months of downward trend. The negative trend is expected to continue as Monetary Authority of Singapore (MAS) forecasted that CPI (all items) is projected to average -1.0 to 0.0% for the whole year.

On the other hand, MAS Core Inflation rose to 0.5% in February due to higher food inflation.

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Will Singaporeans pay the banks to deposit their savings?

When the Bank of Japan (BoJ) announced the shock move to implement Negative Interest Rate Policy (NIRP) in January 2016, it took the market by storm. The aggressive step reflected the extent of Japan’s economy difficulties and the scary prospect of deflation. Just what is NIRP all about and why should Singaporeans take note of this development? Will Singaporeans pay the banks to deposit their savings?

NIRP is used by countries to devalue their currencies so that their exports can be cheaper and thus spurring economic growth. Previously, during the era of the Great Financial Crisis in 2008, major economies like USA, Europe, Japan and China all resorted to Quantitative Easing (QE) to encourage spending in the hope of achieving growth in the long-term. However, after a long period of sluggish global growth, policy makers started to panic because they have run out of idea to stimulate growth. In Europe, countries like Denmark, Sweden and Switzerland had already embarked on NIRP. Japan followed suit early this year.

Together, Europe and Japan produce 20% of the global GDP. Thus, they are major players in terms of global trade. By adopting NIRP, they are essentially triggering a global currency war and issuing a subtle challenge to United States.

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Buy gold to protect your wealth against negative interest rates

In the aftermath of Great Financial Crisis in 2008, policy makers had resorted to financial engineering to restore global economy. Some notable policies were Zero Interest Rates and Quantitative Easing (QE) which aimed to encouraging spending and lending. However, after so many years, these policies were deemed ineffective and so several European countries and Japan had devised the Negative Interest Rate Policy (NIRP) in a bid to revive their ailing economies. What does this mean to you as a wealth builder and how can you protect your wealth against negative interest rates?


Very simply put, for those who live in countries with NIRP, the banks will charge depositors for putting their monies in the bank. Yes, that’s right. Instead of receiving money on your saving deposits, you have to pay the bank money. This may sound strange but the intent of this policy is to prevent wealth builders from hoarding money and also to encourage banks to lend money. The objective of central banks implementing this policy is basically to prevent deflation from eroding the demand side of the market.

It is still early days of NIRP and the long-term effects are unclear. Nevertheless, by resorting to negative interest rates, policy makers had inadvertently revealed that they have run out of ideas to salvage the affected economies.

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Rising US Dollar and Its Impact on Gold

Gold is often denominated and traded in US dollars, so a weak dollar will cause gold to be less expensive to buy. In addition, when US dollars devalue, investors will seek an alternative safe haven, such as gold, to store value. Loosely speaking, gold’s value is often correlated to the strength of the dollar. However, with the introduction of quantitative easing by the US government since 2008, I have always been puzzled that global inflation has not shot through the roof and purchasing power of the US dollar has not been diminished a single bit. In BullionStar’s website, I found my answer.

BullionStar explained that 80% of the global trade is still conducted in US dollars as businessmen still trust the stability of US government. In my opinion, a lot of credit must go to President Obama, who took over from his predecessor, George Bush, during the Great Financial Recession in 2009. Under Obama’s leadership, he helped to steer United States out of economic recession and in 2015, his hard work finally paid off. United States’ economy is finally showing sign of recovery and unemployment rate decreases substantially since last year. As a result. the value of US dollar rise for the past few months.

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BullionStar: Storage of Coins

Below is a piece of editorial from BullionStar, a bullion dealer based in Singapore which exempted investment grade precious metals from the goods and services tax (GST). Just like BullionStar, one of the the goals of SG Wealth Builder is to educate Singaporeans on the merits of owning gold and silver bullion as a means of wealth preservation.

A common question that our customers ask us is, “How do I keep my precious metals such that its’ condition will be immaculate forever?” The short answer is that for silver, it is not possible since silver tarnishing is a natural process, as discussed in another editorial by my colleague Gustav. However, there are ways in which we can delay the process for as long as possible so that your precious metals are still beautiful to look at.

1.Keeping your precious metals in a cool and dry place

For collectors who are beginning their collection, it would be good to invest in a good storage solution in order to protect the coins. One could consider large air-tite boxes or even camera cabinets that allows for the adjustment of humidity. Do take care to keep the boxes in a place where it would not be exposed to high temperatures or light.

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Gold and the currency market

For the past few weeks, the rising Singapore dollar has caused substantial market swing in the currency market. Notably, Malaysia ringgit reached a low on April 17 when one Singapore dollar could buy RM2.7234. This inevitably created worries for many Malaysians who travel to Singapore or send their children here to study on a daily basis. The unfavorable exchange rate has reduced their purchasing power substantially.

If you think that the currency movements affect only forex traders, then you are wrong. In fact, it affects our daily lives because a stronger Singapore dollar can make imports cheaper and hence, help to curb inflation.

Indeed, the exchange rate is merely a tool used by many central banks, such as the Monetary of Singapore, to manage the country’s economy. From an investor’s standpoint, volatility in the currency market may not be a good news if the majority of their wealth is in cash holdings. Just imagine, a Malaysian millionaire who stash most of his bank savings in Malaysia ringgit must be very worried now. This is because the ringgit may depreciate further due to the strengthening of US dollars and potential analysts’ downgrades.

On the other hand, Singapore investors should not be complacent and think that Singapore dollar would always remain strong.

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Tapering QE is a sideshow and the road ahead is inflationary

In my interaction with local finance bloggers, I was surprised that many of them confessed that they didn’t know anything about gold bullion. In recent years, there were also a lot of negative reports of Singaporeans fallen prey to gold scams and frauds, losing millions of dollars in the process. With this in mind, SG Wealth Builder partners with BullionStar to educate Singaporean about the precious metal and the fundamental behind it. This article is extracted with permission from BullionStar, a Singapore online bullion company where you can buy gold and silver at competitive prices.

The word ‘taper’ has never gotten so much attention than in 2013 when it was used to describe the gradual tightening of the money printing spigot of the Quantitative Easing (QE) program. It started in March when the Federal Reserve said that they will reduce the QE bond purchases if economic indicators improve.

In April, a number of top Federal Reserve officials fed the media with more taper talk. St Louis Fed Bank president James Bullard said that he favoured “trimming” the QE program in $10-$15 billion increments if the economy improves. Then John Williams, president of the Federal Reserve Bank of San Francisco, said that if there was substantial improvement in the labour market, the Federal Reserve “could end the purchase program sometime late this year”.

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BullionStar: China’s physical gold demand continues to be strong

This article is extracted from BullionStar, a Singapore online bullion company where you can buy gold and silver at competitive prices.

Numbers for China’s gold imports from Hong Kong for the month of September is out. Net gold imports from Hong Kong were 109.4 metric tons. This was slighly lower than the import figures in August.

Nevertheless, these are very strong numbers showing China’s high demand for physical gold. It marks the fifth consecutive month that gold import numbers are in excess of 100 metric tons. In the first 9 months of 2013, China has imported an estimated 832 metric tons of gold. The Chinese are already the No. 1 gold mining nation today and they are enroute to become the No. 1 buyer of gold this year.

Such strong gold import numbers continue to support the view that China is accumulating her gold reserves. This is in line with China’s intention to prepare for the on-going efforts to internationalise the renminbi and reduce potential currency exchange risks of using the US dollar.

In today’s fiat currency dominated world, it is easy to lose sight of the true value of gold when it is relegated to being a commodity traded with other commodities (such as corn, cattle or copper) on the futures market.

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Investing in Gold

The sky is falling for India’s rupee, which has fallen 20.1% since the start of this year. The currency has slumped the most in two decades to a record low in the wake of government’s economic mismanagement and failure to tackle deteriorating infrastructure. The frightening slide in the currency has conversely led to a incredible hike in demand for gold in India. According to the World Gold Council, in the first half of 2013, India accounted for a staggering 28% of global consumer demand. The 566.5 tonnes of gold bought by Indians way surpassed Americans’ 83.4 tonnes purchased.
The reason why Indians crave for gold is because consumers buy the yellow metal for auspicious reason during their wedding and festival season, which will start in November and last till January. It is estimated that Indian household currently hold 31,000 tonnes of gold worth a massive USD$1.3 trillion at USD$1400 per ounce. In order to reduce its trade deficit, Indian government has been trying hard to curb gold imports by hiking the metal’s import taxes.
gold bullion
Import duties were raised to 6% in late January and then 8% in early June and then subsequently 10% in August. The same tax is also applicable to silver and platinum to fight substitution.
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BullionStar Review: The 5 stage life cycle of a fiat currency

The 5 stage life cycle of a fiat currency This article is extracted from BullionStar, a Singapore online bullion company where you can buy gold and silver at competitive prices.

Gold and paper currencies have been at war for more than three thousand years. When currencies were pegged to gold, they appeared to coexist peacefully. Nevertheless, when the peg ceased internationally, they became each other’s nemesis and thus began the battle for monetary supremacy. A study on the history of money, and its relationship with inflation, is essential to appreciate the role of gold as money.

For paper currency, there is always a boom-bust cycle. It often begins with the healing of a country’s economic woes and promises of prosperity for all. To better illustrate how the boom-bust cycle works, one can draw reference to the recent economic history of United States. In the late nineties, US technology stocks formed a huge bubble mainly because of over leveraging of debt through low interest rates. Start-up technology companies with mediocre or even negative earnings were valued in the millions. After the crash, which coincided with the terrorist attack on New York, interest rates were lowered again to spur economic growth, forming another bubble in housing. When the housing bubble burst, it almost took down the whole world’s banking system with credit facilities drying up, thus triggering the global financial crisis in 2008.

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Why Gold will Rally

This article is extracted from BullionStar, a Singapore gold and silver bullion company where you can buy gold and silver at competitive prices.

The collapse in gold price from a high of USD$ 1,900 per ounce in August 2011 down to USD$ 1,340 has led many investors to wonder whether gold will continue its downward spiral.

One of the most powerful price indicators is the net positions by professionals who hedge gold. These hedgers are not those speculators or traders in the commodity market, but rather, most of them are legitimate hedgers who are owners of mining companies. They use options and futures contracts to hedge their position, to ensure a positive fiat-margin on the mining.

If they don’t hedge, it is usually an indication that the market will turn bullish because these hedgers hope to profit from a rise in the price of the commodity. Conversely, if there is an increase in the net short position, it would be an indicator of a bear market looming.

Currently, the hedgers are the least net short in a dozen of years. This means that they have not been so bullish on gold since it was priced at USD$ 300 per troy ounce. 
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BullionStar Singapore: Strong Buy Signal on Gold

This article is extracted from BullionStar, a Singapore online bullion company where you can buy gold and silver at competitive prices.

Crisis? What crisis? One could be forgiven for thinking that the plunge in gold price during the second quarter of 2013 could spell the end of one of the longest bull-run for the world’s gold markets. But apparently this was not the really the case, at least not for physical gold. According to the May 2013 press release from The World Gold Council (WGC), demand for bullions and jewellery, which makes up of 72% of global demand, has seen a surge following the mid-April price fall. This has left many retailers in China and India running out of stocks and refineries having to introduce waiting lists for buyers. On the other hand, gold-backed ETFs have seen outflows of 350 tonnes out of a total of 2700 tonnes held, from January to end of April.

The divergence in behaviours reflects the dichotomous nature of investment in gold, with consumers who prefer bullions and jewellery behaving very differently from investors of paper gold. This phenomenon indicates that even if there is an outflow of investments from the paper gold market, there will be always be a ready market among Indian and Chinese consumers.

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