Gold rush as investors dig deep to survive crisis

With rising COVID-19 infections and geopolitical tensions around the world, uncertainty has continued to cloud investor sentiment. Many investors are scrambling to safety, driving a meteoric rise in the value of gold, a traditional safe haven, to levels not seen since 2012. Sophisticated fund managers have even begun funneling money into gold exchange-traded funds, which were traditionally the preserve of retail investors.

Major countries around the world have seen huge economic contractions as the COVID-19 pandemic caused travel restrictions and depressed consumer spending. This dealt a violent blow to international trade and laid waste to many industries. Desperate to save jobs, many governments have created blockbuster monetary and stimulus packages to shore up their national economies, and while the cash printing machine goes into overdrive, central banks are simultaneously purchasing greater quantities of gold to diversify and reduce their dollar holdings as a bet against geopolitical risks and a potential fall in the value of the US dollar. According to a recent report by Invesco, for the first quarter of 2020, central banks made a 34.4% increase in gold purchases from the fourth quarter of 2019, to a record 374.1 metric tonnes. ¹ It should thus be of no surprise that gold prices have continued to maintain an upward streak. ²

But mines have not been spared from the coronavirus. The world’s deepest mine, AngloGold Ashanti’s Mponeng Gold Mine in South Africa’s Gauteng province, has reported at least 169 confirmed COVID-19 cases. ³ Over 1,000 miners were also infected in Russia. To curb the spread of coronavirus in tight-knit mining communities, some mining companies were compelled to temporarily cease operations. ⁴ Analysis by ​The Telegraph shows that more than 61 mines around the world have been locked down to stem the contagion. Despite this, data from the World Gold Council indicates that the production of gold only dipped 3% year-on-year in the first quarter, and experts are suggesting that the dislocation between the situation on the ground and the value of gold can be attributed to the robustness of the metal’s supply chain. ⁵

The flood of money into gold, and by association, gold exploration companies, has driven mining companies’ valuations skyward. ⁶ ​Data from Bloomberg shows that precious-metals miners, once seen as too leveraged and high-risk for the typical investor, raised a whopping US$2.4 billion in secondary equity offerings during the second quarter of 2020. ⁷ The FTSE Gold Mines Index and the NYSE Arca Gold Miners Index have also both gone up by a third in 2020.

In what could potentially be a bull market for gold equities, shareholders of mining companies can expect to benefit from both yield and commodity price increases. With all the investment monies pouring into the sector, it has established a particularly apparent gold rush in countries like Papua New Guinea, Australia, and Argentina.

The near-term impact of this has implications for both big mining corporations and small scale artisanal mining (ASGM). ⁸ Large-scale gold mining operations that use cyanide in their operations may continue to utilise this toxic chemical and create huge amounts of dangerous tailings. Traditionally, higher gold prices have encouraged, induced, and incentivised growth in the ASGM sector. ASGM outfits which typically use mercury in their operations create toxic environmental pollution, but crucially provide income, foreign exchange, and livelihoods to regions and individuals. ⁹ Projected financial gains need to be reconciled with the environmental impact generated through mining operations. ¹⁰ The gold mining industry as a whole must work towards safeguarding the environment and providing gainful employment to millions in a sustainable manner. ¹¹

Clean Earth Technologies has focused its efforts on a non-toxic gold recovery reagent and dewatering process that is scalable and cost-effective for mining operations around the world. While the economic case for mining improves when gold prices rise, mining activities must be done cleanly, sustainably, and ethically.

Ensure that mining activities do not adversely affect the communities and the environment. Halt unethical and dangerous mining practices. Evaluate your assets and reach out to Clean Earth Technologies for our award-winning mineral processing solution which does not harm the environment.

[1] A record USD15.4 billion in gold was purchased by exchange traded funds and similar products in Q1 2020 globally, and trading volume highlighted the depth of the coronavirus-led market shift towards ‘safe haven’ assets and the central role that exchange-traded products (ETPs) have played in supporting investors. For more on this, see, “New Report From Invesco Finds Record USD15.4bn In Gold Purchased By Exchange Traded Products In Q1 2020,� Mondo Visione, June 24, 2020, https://mondovisione.com/media-and-resources/news/new-report-from-invesco-finds-record-usd154bn-in-gold-purchased-by-exchange-tra/​.

[2] Tom Rees, “Gold Prices Predicted to Hit Record High,� The Telegraph (Telegraph Media Group, July 20, 2020), https://www.telegraph.co.uk/business/2020/07/20/gold-prices-predicted-hit-record-high/​.

[3] Ed Clowes, “New Gold Rush Is on as Investors and Central Banks Hoover up Bullion ,� The Telegraph (Telegraph Media Group, July 6, 2020), ​https://www.telegraph.co.uk/business/2020/07/06/new-gold-rush-investors-central-banks-hoover-bullion/​.

[4] Ed Clowes, “Gold Rush as Investors Dig Deep to Survive Crisis,� WAtoday (WAtoday, July 9, 2020), https://www.watoday.com.au/business/markets/gold-rush-as-investors-dig-deep-to-survive-crisis-20200710-p55arb.html​.

[5] For more on the gold demand trends, see, World Gold Council, “Gold Demand Trends Q1 2020,� World Gold Council (World Gold Council, April 30, 2020), ​https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2020​.

[6] Taha Lokhandwala, “Why the Gold Price Conundrum Will Have a Big Impact on Your Portfolio,� The Telegraph (Telegraph Media Group, July 16, 2020), ​https://www.telegraph.co.uk/investing/gold/gold-price-conundrum-will-have-big-impact-portfolio/​.

[7] With the Covid-19 crisis threatening economies worldwide, precious-metals companies have become the darlings of the investment community and are now attracting a broad base of investors. For more, see, Yvonne Yue Li, Justina Vasquez, and Aoyon Ashraf, “Wall Street Is Throwing Billions at Once-Shunned Gold Miners,� Bloomberg.com (Bloomberg, July 20, 2020), https://www.bloomberg.com/news/articles/2020-07-20/wall-street-is-throwing-billions-at-once-shunned-gold-miners​.

[8] Timothy Laing, “The Economic Impact of the Coronavirus 2019 (Covid-2019): Implications for the Mining Industry,� ​The Extractive Industries and Society​ 7, no. 2 (2020): pp. 580-582, ​https://doi.org/10.1016/j.exis.2020.04.003​.

[9] For more on how the ASGM sector creates jobs in resource-rich countries, see, Yoshio Aizawa, “Artisanal and Small-Scale Mining as an Informal Safety Net: Evidence from Tanzania,� ​Journal of International Development 28, no. 7 (2016): pp. 1029-1049, ​https://doi.org/10.1002/jid.3242​.

[10] Dan Stone, “Can Modern Gold Mining Be Sustainable?,� National Geographic Society Newsroom, December 15, 2017, https://blog.nationalgeographic.org/2012/12/06/can-modern-gold-mining-be-sustainable/​

[11] AbrahamKumah,“SustainabilityandGoldMiningintheDevelopingWorld,�​JournalofCleanerProduction14,no.3-4(2006): pp. 315-323, ​https://doi.org/10.1016/j.jclepro.2004.08.007​.