Jakarta, IO – On several occasions, the Coordinating Economic Ministry has expressed its intention to create a “bullion bank”, a facility offering all types of gold or silver transactions, including services for exporting and importing as well as serving as a depository for precious metals. The Bank is expected to manage the ever-increasing transactions of gold and gold derivatives in Indonesia. This potential can be appreciated from the gold consumption trend and Indonesia’s gold mines, among the largest in the world.
In theory, a bullion bank offers financial services related to precious metals, such as sales transactions, loans, investments, and services related to precious metal assets and their derivatives. Bullion banks can also offer financing to their customers. The precious metals offered by the bullion bank are gold and silver officially recognized as being at least 99.5 and 99.9 percent pure. Central banks are the top holders of gold bullion in the world.
There are differences between bullion banks and commercial banks. Gold stored by the public in commercial banks is not recorded as an asset at the bank, while gold stored in bullion banks can be used as an asset for collateral or trading. As such, a bullion bank will be very useful in countries that have large reserves and substantial production of gold, such as Indonesia.
Currently, the common practice in Indonesian gold production is to export raw gold, and then import gold bars for the jewelry industry. With a bullion bank, gold miners can borrow funds by using their refined gold as collateral.
This practice is becoming more common, given the sharp rise in global gold production in 2022, estimated to reach 3,330 tons, up 11 percent from 2021. This figure also exceeds the 3,310 tons yielded in 2018. Production actually dipped to 2,030 tons (down 7.3 percent YoY) in 2020 before recovering to 3,000 tons (down 1 percent YoY) in 2021. Figure 1. World Gold Production (tons)
Of the 3.33 million tons of gold production globally reported in 2022, China was the top producer, with 399.7 tons (12 percent) related to the high level of gold jewelry consumption in that country. Next is Australia, producing 312.2 tons (9.4 percent). Russia comes in third, with 281.5 tons.
The United States, which holds the largest gold reserves in the world, only produced 253.2 tons (7.6 percent). Then there are Canada, with 193 tons and Indonesia with 190 tons (5.7 percent). Indonesia’s gold production in 2022 actually doubled from the 80.87 tons recorded in 2016, increasing to 132.73 tons in 2018 but declining to only 86.38 tons in the following years, before rising sharply in 2022. Figure 2. Indonesia’s Gold Production (tons)
This production increase is not at all surprising, given that Indonesia has a wealth of gold deposits and other mineral resources. According to Geological Agency data in 2018, there are still gold deposits in Indonesia to the tune of 14.95 billion tons, spread across the gold mining belt from Sumatra to Papua. In fact, the Grasberg mine in Papua is the largest in the world. The status of this gold mountain is indeed quite controversial, considering that it has been managed by a foreign company for long. However, in 2018, the government officially owned a majority stake (51 percent) in PT Freeport, through PT Inalum. Indonesia is also estimated to hold 3.5 billion tons of gold ore reserves, with the gold content reaching 4,600 tons (Sunandar, 2019). With these reserves, Indonesia is thus known as the country with the fifth-largest gold ore reserves after Australia, Russia, South Africa and the United States.
Rising gold imports
Global growth of gold production has resulted in a relatively sharp increase in international gold trade. In 2021, the total import of gold products hit US$441.55 billion globally, up 9.2 percent YoY. By comparison, it was only US$251.33 billion in 2015. Consumption of gold jewelry has increased sharply over the past two years, despite the pandemic.
The largest gold importer in the world is Switzerland, bringing in US$92.34 billion worth of gold (21 percent of all gold imports worldwide). This was followed by India (US$55.78 billion), United Kingdom (US$53.72 billion), and United Arab Emirates (US$48.18 billion). Indonesia itself ranks 19th with US$2.68 billion (0.16 percent).