Singapore's central bank is launching a gold custody service as part of efforts to position the city-state as Asia's leading gold trading hub.

The service allows foreign central banks, international institutions and sovereign entities to hold gold reserves in Singapore while gaining access to gold market liquidity during Asian trading hours. The Monetary Authority of Singapore (MAS) said on Tuesday that the gold will be stored in the vault of the Singapore National Mint, which can currently hold up to 500 metric tons of gold and can be expanded further if demand grows.

Despite significant volatility in gold prices this year, Singapore is actively enhancing the appeal of its gold trading market and betting that demand for gold assets will remain strong. On Tuesday, MAS also provided an update on the development of the country's over-the-counter gold clearing system. Six founding banks, including JPMorgan, Deutsche Bank and DBS Bank, are working with Singapore Exchange Ltd (ASX: S68.SI) to develop the system.

MAS said: "Industry testing of the clearing system has been completed, and the clearing system rulebook is nearing finalization. Live trading and market operations are expected to commence in the first quarter of 2027."

In addition, MAS will work with the Ministry of Finance to introduce a tax framework to support wholesale precious metals investment activities, including extending the goods and services tax exemption for services such as gold custody. MAS said that taken together, these measures will lay the foundation for the further development of Singapore's gold market.

Global uncertainty has persisted this year, but gold's performance has not lived up to what the market might have expected. Higher interest rates and turbulence in the bond market have offset some of the support from safe-haven flows into gold. However, central bank demand for gold remains solid.

A survey released by the World Gold Council in June showed that 89% of surveyed central bank reserve managers expect global central banks to continue increasing their gold holdings over the next 12 months. The survey also noted that central banks are increasingly adjusting where they store their gold reserves. Ten percent of respondents said they have already begun diversifying their gold storage locations overseas. The World Gold Council said: "This trend is expected to continue, with 7% of respondents planning to increase domestic storage of gold in the coming year, while another 9% plan to further diversify their overseas storage locations."