Surging Asian Gold demand could signal a "structural wealth shift"

Asian banks have beefed up their gold product and service offerings in recent months. According to The Banker, this represents “a structural wealth shift in wealth allocation.”

New products and innovations introduced in the Asian gold market run the gamut from investing platforms that offer fractionalized gold investment, to new ETF offerings, to expanded vaulting capacity.

For instance, DBS in Singapore now offers fractionalized gold trading on a retail app. On this platform, investors can purchase tokens backed by as little as 1 gram of gold.

Meanwhile, HSBC recently announced plans to increase its gold storage capacity in Hong Kong to 200 tonnes. According to official sources, HSBC isn’t alone. Officials say they plan to increase gold storage capacity in the Chinese special administrative region by around 2,000 tonnes over the next three years.

There has also been a major surge in the number of gold-backed ETFs offered in Asia. The region saw the highest ETF gold inflows of any region through the first half of the year, with Asian-based ETFs accumulating over 74 tonnes of gold. With a value of $12 billion, Asian ETF gold inflows set an H1 record.

Perhaps the most significant development in the Asian gold market was the launch of a new Hong Kong-based gold clearing and settlement system that could begin to move the center of gold trade from London and the West to China and the East.

Standard Chartered global head of sales and structuring called this “a fundamental structural shift in wealth allocation,” evidenced by rising demand for gold from central banks, institutional investors, and retail consumers.

While the recent run-up in the gold price has contributed to these developments in the Asian gold market, KPMG China head of banking and capital markets in Hong Kong, Jia Ning Song, told The Banker that this buildout isn’t just a response to a temporary bull market.

“Nobody constructs vaulting capacity, clearing memberships and tokenization platforms — multiyear, capital-intensive commitments — to monetize a 12-month rally. The investments now being made in Hong Kong’s gold ecosystem are geared towards conviction in multi-decade demand.”

Song said nearshoring investments appeal to Asian investors. Setting up local clearing venues allows banks to quote and settle gold during Asian trading hours rather than routing transactions through London and dealing with significant time zone differences.

“As credit risks become more topical, gold’s minimal counterparty risk is proving especially attractive. We anticipate the trend of nearshoring gold holdings into Asia will intensify.”

Song called gold “a fiat hedge” as weakening faith in paper currencies, particularly the dollar, has driven Asian portfolio diversification. He specifically noted the growing levels of global debt, which reached a record of $353 trillion in Q1.

World Gold Council head of Asia-Pacific Shaokai Fan said Asia has the potential to become “a global gold hub.” He said he expects growing demand for vaulting, clearing and settlement in Singapore, Hong Kong, and Shanghai.

Asia already accounts for about 60 percent of global consumer gold demand. In fact, Western investors largely sat out the bull run last year, only jumping on the bandwagon last fall. When Western investors begin to understand the dynamics driving Asian investors, they may well join the party. 

We're already seeing signs that Western investors are starting to follow Asia's lead. Last year, Morgan Stanley CIO Michael Wilson suggested a switch to a 60/20/20 strategy, swapping half of the bond portfolio for gold to serve as a “more resilient” inflation hedge. 

Given that most Western investors have little to no exposure to gold, even a modest increase in gold allocation could send prices soaring higher.