All is not doom and gloom in gold markets but Sellers need to adopt to new ways of doing business

Due to the COVID-19 being reintroduced into Hong Kong by returnees the border has now been closed. This restrictions does not apply to sea and air freight deliveries.

The closing of borders throughout the World should not stop buying and selling of gold either in standard bar sizes or dore bars. Trading can continue in a more artifice and efficient manner. Costly face-to-face meetings are now replaced with electronic means of communication that are materialistic.

"Hong Kong Business" is buyer of the first instance, smelting gold to determine purity and weight of deliveries, having gold refined to international standards and eventual sale to end buyers.

International Gold Markets

Two Unique Immediate Payment Processes.

A very simple process of buying 1 kg and 12.5 kgs gold has been devised and approved. Sellers with dore bars have not been overlooked with an immediate payment facility now introduced. Sellers, Facilitators and Mandates are requested not to try and amend the process and it will cause failure.

1 kg and 12.5 kg gold bars

(a) Buyer and Seller execute a legal contract to buy and sell an agreed amount of gold to specific specifications.

(b) Seller delivers one tonne tranche of gold to Malca-Amit at Hong Kong International Airport. Malca-Amit will clear Customs & Excise and deliver the consignment to a nominated refinery.

(c) On receipt of the consignment at the refinery it will be inspected and 85% of the agreed price immediately remitted to the Seller and registered Consultants by interbank SWIFT.

(d) The balance of 15% of the agreed price will be remitted by SWIFT on the next working day after issue of new Certificates of Purity and Weight.

(e) The process can be repeated on each working day until the Seller’s stock is exhausted.

(f) The consignment remains the property of the Seller until exchange of title to gold after payment

Dore Bars

(a) Buyer and Seller execute a legal contract to buy and sell an agreed amount of gold dore bars to an mutually acceptable specification.

(b) Seller delivers 250 kg or 500 kg or up to 1,000 kg in a single tranche to Malca-Amit at Hong Kong International Airport. Malca-Amit will clear Customs & Excise and deliver the consignment to a nominated refinery.

(c) On receipt of the consignment at the refinery it will be inspected and if meeting agreed specification 70% of the agreed price will be remitted to the Seller and registered Consultants by interbank SWIFT.

(d) The balance of 30% will be remitted by interbank SWIFT on the next working day after issue of new Certificates of Purity and Weight.

(e) The consignment remains the property of the Seller until exchange of title for gold after payment.

Certain but limited constraints will apply to the acceptance of dore bars for immediate payment:

(f) Purity of dore bars will need to be within purity levels of 97% up to 99.5%. Deliveries below 97% will require special clearance.

(g) The buyer will not be responsible for any domestic taxes in Country of origin.

(h) The Buyer will not pay advance freight charges

(i) The Buyer will not make any advance payments to the Seller due to misuse in the past.

Limitations on Consignment Quantities

The minimum size of air freight consignment to refineries in Hong Kong is 250 kg and up to a maximum of 1.000 kg.

This constraint is due to the refining capacity in Hong Kong currently being one tonne on each working day.

Test tranches of 20 kg by hand carry is no longer feasible due to closure of borders due to COVID-19

Offers to Sell Gold

Offers to sell gold or dore bars need to be written on corporate or personal stationery of the Seller or Mandate. Offers that are not valid may be rejected without any acknowledgement. If a Mandate has been engaged then a copy of the letter of authorisation is needed. Third parties that conceal the Sellers or Mandates name, address and contact numbers are risking losing fees to which they might be entitled. Attention is invited to the paragraph NCDC/IMFPA.

Soft Corporate Offers have no value as they are devoid of legality

Agents, Brokers, Facilitators and Mandates

The major barrier in bringing gold transactions to a fruitful conclusion is not COVID-19 but third parties acting between Buyer and Seller. What are these issues that causes transactions to fail:

(i) Agents, Brokers, Facilitators and frequently Mandates do not know the identity of the Seller.
(ii) Intermediaries place their own interpretation on text provided by the Buyer. This invariably conveys a different and confused meaning.
(iii) Unnecessary delays occur due to long lines of communication.
(iv) Third parties pretending to be buyers.

It is crucial that the Buyer know the identity of the Seller to permit effective due diligence.

What is the problem with this uncomplicated process. Third parties without knowledge and experience consider that they should reinvent the wheel. Tampering with a process that is approved and is in use is an assurance of failure and loss of the prospect of fees.

The buying and selling programmes features in the March 2020 Newsletter are still available. These programmes will not be featured in this Newsletter, copies are available on request.

COVID-19 and the closure of international borders is not the biggest barrier to completing contacts to sell gold. The real issue is agents, brokers, facilitators and mandates trying to mould procedures to their inexperienced way of thinking. These ways are usually derived from Internet and are several generations out of date.

As Buyers we are the first to acknowledge that agents, brokers, facilitators and mandates play an important role in the structure of trading in precious metals. There is no dispute regarding paying consulting fees. Third parties need to step aside and let Buyer and Seller discuss transactions. This is the only way to avoid misunderstanding and ensure a quick finalisation. Unless Buyer and Seller are in communication the chances of success is zero.

Pricing, Discounts and Consulting Fees

It is important for any gold or dore bar transaction to proceed for pricing and discount to be economically viable. It is not unusual for the same offer to be received from different Facilitators but with differing prices and discounts. This is a clear indication of third parties being involve in price scalping. When this occurs transactions are binned with Seller’s and Consultants losing their prospective earning.

There is a great misunderstanding that discounts are accrued profit for the Buyer. This is far removed from reality. Buyers incur several expenses in completing gold transaction:

(a) Cost of money.
(b) Cost of smelting.
(c) Cost issuing new Certificates of Purity & Weight.
(d) Cost of Insurances.
(e) Warehouse costs until gold is resold.
(f) Office overheads.

It is not unusual for third parties to consider it is their right to divide available Consulting Fees among themselves. This is an incorrect assumption. The Buyer will apportion fees to their Consultants and the same will apply to Sellers Consultant. Buyers and Sellers will each be responsible for remittances to their individual Consultants.

Standard consulting fees are 1.5% for Buyer Consultants and 1.5% for Seller’s Consultants. Disbursements above the norm could be subject to investigation. Solutions exist.

CIF, FOB and Logistics

Preference is for gold that is deposited in safekeeping In Hong Kong.

(a) Malca-Amit will collect the gold from the Seller’s security warehouse in Hong Kong and deliver to the Buyer’s nominated refinery.

If gold is being delivered CIF Hong Kong from offshore the following will apply:

(a) The consignment should be delivered to the Buyer’s account with Malca-Amit at Hong Kong International Airport.
(b) Malca-Amit will clear the consignment through Customs & Excise at Hong Kong International Airport.
(c) After clearing Customs & Excise Malca-Amit shall deliver the consignment to the Buyer’s nominated refinery by security insured transport.

If gold is being bought FOB Seller’s nominated airport the following will apply:

(a) The Seller may engage its own freight forwarder to deliver the consignment to Hong Kong or engage Malca-Amit or Malca-Amit’s local agent.

(b) The Seller is solely responsible for freight charges unless such costs are reflected in the product discount.

(c) The consignment should be delivered to the Buyer’s account with Malca-Amit at Hong Kong International Airport.

(d) Malca-Amit shall deliver the consignment to the Buyer’s nominated refinery by security insured transport.

(e) Buyer will not act on Payment on Delivery freight until after smelting.

A specific letter will need to be addressed to the Warehouse Manager by the depositor mentioned on the SKR to release gold to Malca-Amit for delivery to the refinery. A draft text will be provided as appropriate.

 

Contact Jerome, Gold Trade & Finance Partner

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