Asia’s appetite for bullion is being tested by a global disruption in logistics that is still ongoing despite easing lockdowns, Padraig J Seif, partner at Precious Metals Asia, a leading Hong Kong-based bullion supplier told Indo Asian Commodities.
With flights across the region far below capacities prior to Covid, air cargo rates for the precious metal have shot up as cargo space is limited. Most gold and silver usually travels in the cargo hold of passenger planes, traditionally for security reasons as well as speed because prices can fluctuate wildly between the time of order and delivery.
“I have seen quotes for US $60,000 to transport 100 kg from Hong Kong to Frankfurt, something that usually would cost somewhere between 1,000 USD to 2,000,” Seif said. “In addition the time it took to arrive at the destination could be up to one week additional to the usual time span, which is very long in the PM (Precious Metals) world,” he added.
Precious Metals Asia is a supplier of gold and silver to businesses in Hong Kong, Macao, Singapore, Taiwan, Japan, Australia, as well as Indonesia and Malaysia in the region. In Europe, Precious Metals Asia, serves customers in Germany, Austria, Ireland, and France.
°If you take the Frankfurt route—Hong Kong as an example, usually you have at least one two daily Cathay Pacific flights between the cities and one Lufthansa flight. And then you’d have Emirates, Etihad, Qatar Air also serving both cities on a daily basis. So you had many options for transport,” Seif said. “Now Cathay Pacific does not fly to Frankfurt at all. And Lufthansa has 1 connection per week to Hong Kong. So prices for transport spiked massively.”
Hong Kong and Singapore act as large trading hubs for institutional investors from around the world. This is because unlike most of the rest of the world there is no VAT (Value Added Tax) on silver in either of the two cities and investors save massively by buying and storing precious metals here compared to London, New York or Zurich.
The shortage of cargo space is weighing on the previous metals trade as demand has revived lately in line with an improvement in the regional economies with China leading the way. Even though the logistics pain has improved in recent months since its worst period in the second and third quarter of last year, Seif says “the consequences are still noticeable.”
“Demand has definitely spiked again in mid to late February, especially in terms of silver demand from institutional investors. We are turning over significantly more volume in the past two weeks than is typical for this time of year, and most purchases are large volume purchases,” he added.
In addition to logistics, lower supplies from refineries and China’s closed borders with Hong Kong have also affected the trade.
“Currently we could sell more than we do, but have delivery times of 2 to 3 weeks for some silver products from LBMA refineries. There is no shortage of silver per se, but there is a bit of a bottleneck having the silver cast into bars at refineries,” he added.
“Obviously also the border closures have affected gold demand. Hong Kong and Singapore are large trading hubs for precious metals and a significant amount of demand comes from tourists and foreign businesses travelling to and trading in these hubs. Given all the border closures and tight travel restrictions, we have seen a massive reduction in such travel to Hong Kong and Singapore.”
“This obviously has a massive impact on gold demand in these hubs as tourists buy a lot of jewellery and also smaller investment bars in these hubs,” he added. “In times of crises you tend to see higher demand. But this specific crisis also has had a negative impact on demand due to the specific nature of the crises: shop closures, social restrictions on weddings, travel restrictions and similar have had a real negative impact on people’s ability to purchase gold. “
Traditionally, people travel from Mainland China to Hong Kong as its a popular shopping destination for several luxury items including gold and silver. Being a bulk supplier, Precious Metals Asia does not usually cater to people from Mainland China directly.
“Mainland China travel to Hong Kong is currently virtually non-existent. But anecdotal evidence and also some media reports suggest that Mainland Chinese tourism has diverted to the Chinese Island of Hainan to a large degree and that “shopping” there is at record levels. But I cannot vouch for it and I have no idea as to what people might be buying there. The handful of Mainland China based customers that we have did buy increased amounts of Gold in Q3 and Q4 of 2020, but so far in 2021 it has been quiet.”
This content was originally published here.
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