Indonesia’s gold imports in 2022 amounted to US$2.68 billion, the highest seen between 2014-21. In 2014, the import value registered US$0.02 billion. After that it soared by 2,000 percent in 2015 and the growth continued, despite slowing to 41 percent YoY in 2021.
The Covid-19 pandemic apparently did not reduce the demand for gold products; it even tended to increase. In 2020, gold and gold products imports hit 7.5 percent, with a total value of US$1.9 billion. In 2022, imports are estimated to increase by 41 percent, as investment in gold spiked in line with the rising global gold prices. This can be seen from state-owned miner PT Aneka Tambang’s (Antam) sales figure in the first half of 2021, which increased by 69 percent YoY. Figure 3. Indonesia’s Gold Imports (million USD)
So, what are the countries of origin for most of Indonesia’s gold and gold derivative products? First is Hong Kong with an import value reaching US$1.2 billion (45 percent), followed by Australia with US$485 million (18.1 percent), Singapore with US$433 million (16.1 percent) and Japan with US$207 million (7.7 percent).
Of course, there is intense public debate with regard to Indonesia’s importing gold from Singapore, a small country that lacks natural resources. Apparently, all this has been going on while Indonesia’s gold has been placed first in Singapore before being reimported into Indonesia. This is why Indonesia – despite its huge gold deposits – is below Singapore in terms of gold reserves. Figure 4. Indonesia’s Gold Imports by Countries (million USD)
Increased gold imports mean Indonesia has to spend more of its precious foreign exchange, while it can easily meet the domestic demand given its enormous gold wealth. With gold prices increasing sharply between 2020-22, the country can save a substantial amount of its foreign exchange with an increase in gold production.
This increase in imports follow the rise in exports of gold and granules in 2020. These were then reimported in the form of gold bars and jewelry. Despite a trade surplus in gold and gold products, this practice of importing gold is wasteful for the country’s foreign exchange.
Gold prices are relatively stable over the long term, and only fluctuate in the short term. The price of Indonesian gold has almost doubled, from Rp550 million per kilogram in 2018 to Rp900 million in 2022. This means that for most Indonesian people, gold is a very promising investment instrument in the long run as an alternative to land or property. Figure 5. Indonesia’s Gold Price
The argument for a bullion bank
Indonesia’s gold ecosystem includes mining, production and sales to end-consumers. Of course, the supply chain needs assistance from the financial system to expand production. A financing institution is needed for gold and gold products to generate added value to the economy.
A Bullion bank is the answer. A Bullion bank will be able to reduce the export of granules which have historically been processed into gold bars; keeping it all in-country means there will be no need to import anymore. Bullion bank will be able to accelerate the gold industry and development of domestic gold products. Bullion banks will be able to serve gold diversion, capital lending and gold transactions as a hub for investors to enter the domestic gold and gold products industry. With a bullion bank, this industry can be developed from upstream to downstream, through the adoption of mining technology to increase processing capacity. Accelerated development of the gold industry will benefit its derivative industries – such as power plants.
It is hoped that a bullion bank can spur the production of gold and gold products as efficiency increases (lower logistics and production costs) and the country can wean itself off imports. Gold production, which is rising sharply, can be increased to an optimal level to absorb domestic gold raw materials. Increased production will surely provide added value to the economy. This added value to the supply chain can have a cascading positive impact on the economy in general.