This Tiny Nation Could Be a Gold Trading Hub

The tiny Southeast Asian city-state Singapore has transformed itself into one of the world's top financial hubs and has now set its sights on turning the wealthy island into a gold bullion center.

A step in that direction came this week when Deutsche Bank opened its second-largest gold storage facility in the world in Singapore.

"If you look at the existing primary locations of London, Zurich and New York, these are clearly Western-centric," Mark Smallwood, head of APAC wealth planning at Deutsche Asset &Wealth Management said Wednesday. "The launch is really part of the story of Singapore, and about a story of evolving storage facilities for gold bullion."

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The opening of the vault, which has the capacity to store up to 200 tons of the precious metal, comes after the Singapore government removed a sales tax on gold in October.

JPMorgan already has a gold storage facility in Singapore which it opened in 2010, according to Reuters. And in April this year BullionVault, an online precious metal exchange, opened a gold vault in the country.

Singapore is already the fastest growing wealth center in the world with $550 billion in assets under management, according to research firm WealthInsight and now aims to become a gold trading hub.

(Read More: Singapore Will Replace Switzerland as Wealth Capital)

The government trade body International Enterprise Singapore said the city state aims to expand its share of the global gold market to 10-15 percent from the current 2 percent over the next decade, according to a report on its website.

AP

And to achieve that, a high security storage facility called the Singapore Freeport was launched in 2010, which subleases space to storage management companies.

According to Smallwood, this facility is one of the leaders in precious metals storage and logistics and Deutsche Bank's vault is located there.

He added that the bank's vault in Singapore is targeting institutional and private clients as physical demand for gold in the region remains very strong.

"Asian investors are very gold-centric and the reason for it as we have seen had to be put in the context of where the gold price has gone in the last 10 or 12 years," Smallwood said, adding that the price of gold moved from around $250 an ounce in 2002 to peak at the $1,900 mark and is now down to the $1,377 level.

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The metal has been under pressure this year, down over 17 percent, as funds flow out of gold-backed exchange-traded funds (ETFs), central banks dump holdings and a strengthening U.S. dollar underpins weakness in commodity markets.

The recent rout in gold prices has resulted in a shift in the way people want to own gold in the market, said Tom Price, global commodity analyst at UBS.

"The opening of a warehouse for gold shows a shift in the market in the last few months, where people have some concerns over ETFs and they'd rather own a gold brick than an ETF," Price said.

Smallwood backed that sentiment saying that clients want to see their gold inventory by the bar in the storage facility.

— By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu