Lee writes in her Feb 12 report: “Central banks have also been consistent buyers of gold, reinforcing the view that gold is increasingly a key reserve asset. While this has generated a lot of interest for gold and gold-related proxies, we advocate caution as gold has already rallied from less than US$2,000 in early 2024 to US$5,000 now, more than doubling in the last two years. At this stage, it is prudent to assess one’s exposure and risks, as the risk-reward ratio is no longer as attractive as two to three years ago.”
With the rapid gain in gold prices, listed proxy companies in Singapore have rode on the wave.
This comprises companies involved in pawnbroking, retailing and trading of pre-owned jewellery and watches. “Gold jewellery is popularly used as collateral to secure short to medium term financing and is similar to micro-lending business,” notes Lee.
Typically, the practice of using gold jewellery to secure short to medium-term financing is based on a model of lending based on a loan-to-value (LTV) of around 60% to 80% of the assessed assets, with a customer paying interest and a monthly fee to redeem the item.
See also: Gold rebounds above US$5,000 as historic retreat tempts dip buyers
If the item is not redeemed, the pawnshop then sells the item, which usually results in profitability due to the conservative LTV. Under the Singapore Pawnbrokers Act, interest is regulated at 1.5% per month.
On this, Lee writes: “As most of these loans are fully collateralised and the LTV ratio is conservative, credit loss is low. In addition, the market is quite liquid. Nevertheless, other risks exist and this includes gold price volatility and regulatory tightening. If [the] gold price falls sharply, it will impact resale profitability.”
She adds that historically, pledges from lower income households and small business owners increased during periods of slowdown and liquidity crunch. Based on current market conditions and record gold prices however, retail margins have improved.
See also: Gold claws back some ground after dramatic unwinding of rally
The analyst writes: “The bid-sell spread is wide, and this gives rise to extremely high margins. Margins are also supported by a low funding cash-based business model. Margins for this business are estimated to be in the region of 20% to 40%.”
With gold prices remaining well-supported by central bank buying and geopolitical tensions, this results in a “conducive environment” supportive of the pawnbroking business, especially with widening profit margins due to the sharp rise in gold prices. Even more beneficial is that most pawnbrokers carry inventories acquired at significantly lower prices when gold prices were materially lower.
Most of these businesses have decent return on equity (ROE) and stable cashflows. The key listed players in Singapore’s pawnbroking market noted by Lee are Valuemax Group, MoneyMax Financial Services, Aspial Lifestyle. Other proxy gold-related players noted include CNMC Goldmine Holdings and Taka Jewellery Holdings.
The analyst writes: “With the strong 144% to 447% gains for these stocks since the start of 2025, these companies have greatly outperformed the broader market. They have also outperformed both the small-mid cap index as well as iEdge Singapore Next 50 Index (NTR).”
The NTR by contrast has only gained 21% since the start of 2025. To this end, Lee notes that although valuations are “still not high” at an average of 13.2 times for price-to earnings ratio (P/E) and 2.1 times price-to book (P/B) for these stocks excluding CNMC, these have spiked up sharply from levels seen a year ago.
She writes: “Two of the stocks have enjoyed a five-fold increase in market capitalisation, and three are now worth more than $500 million within a period of less than 14 months.”
With this blistering gain, Lee sees that it might be “prudent to re-asses the current situation”.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
She continues: “CNMC is covered by three research firms, Valuemax is covered by two firms, Aspial is covered by one firm. Average daily trading volume has also picked up significantly this year, with most stocks seeing a four to seven times increase this year versus their three-year averages.”
Lee believes a large part of this interest could be driven by retail interest looking for alternative exposure to the strong gold prices.
“For institutional investors, gold exchange traded funds (ETF), gold futures, and other online gold products are likely choices. The well-traded gold ETF (GLD US) has also done well, up some 93% since the start of 2025,” she writes.
To the analyst, earnings will need to come in strongly to support higher valuations. This, coupled with prevailing global uncertainties, encourages her continued preference for companies which are able to provide “sustainable” long-term earnings stream and growth.
Furthermore, gold, which has no yield, is highly sensitive to real interest rates and the US dollar, both of which are heavily influenced by the US Federal Reserve (US Fed).
Lee concludes: “Based on current consensus estimates from Bloomberg, most economists are expecting about two cuts in 2026. If this materialises, a lower US Fed rate will mean lower real yield, and this makes gold relatively more attractive. As gold is priced in US dollar, a weaker US dollar means that gold becomes cheaper in other currencies, and this could support demand from other countries.”
Shares in Valuemax Group, MoneyMax Financial Services, Aspial Lifestyle, CNMC Goldmine Holdings and Taka Jewellery Holdings closed at $1.19, 86.5 cents, 29.5 cents, $1.32 and 21 cents respectively.
