World Gold Council | Advanced By Gold | May 2014

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Further high quality research and thought leadership on the role of gold globally from the World Gold Council. You can download the accompanying app by visiting: https://itunes.apple.com/gb/app/advanced-by-gold/id657418524?mt=8

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World Gold Council | Advanced By Gold | May 2014

  1. 1. Advanced by gold Executive Summary
  2. 2. Contents Gold’s impact 03 Preserving wealth 04 Rising aspirations 10 Scientific breakthroughs 17 Putting gold to work 20 Boosting growth 24 Partnership 29 Scan with your mobile device to access the application for the full report. 2
  3. 3. Gold is not a new story. It is, however an evolving one. Today gold’s uniquely versatile qualities are seen in a range of applications, making it part of the fabric of our society. Jewellery accounts for half of global demand. As a financial instrument, enabling medical breakthroughs, supporting community development, contributing to national and global economic wealth, gold is being put to use in more ways than ever before. Gold – making a real impact in the world In the growing markets of China and India, gold – long embedded financially and culturally – has both prominence and prestige. Consumers are enjoying new found wealth, and this can be seen in an increased appetite for gold. Organisations and designers are developing innovative financial products and high-end jewellery for ever more aspirational customers. As the economic recovery in developed markets gathers pace, the role of gold has evolved in turn. Consumer demand for gold jewellery, bars and coins has reached pre-2008 levels, and this is a global phenomenon. For investors intensifying their search for yield, an allocation of gold can protect against the risky assets in their portfolio. Gold brings confidence to global financial markets. It has been trusted when currency has not. As the world moves towards a multi-currency reserve system, many believe that the renminbi will play a part as an alternative reserve to the euro and the dollar. During this transition, gold is likely to have a significant role to play. ‘Today gold continues to have relevance as a foundation asset to help manage risk and preserve wealth.‘ Gold drives economic development and in 2012 contributed US$210 billion to the economies of the largest gold-producing and consuming countries. In the same year, the gold mines in the world’s top 15 producing countries generated an estimated US$78.4 billion of output for their national economies. Gold mining can be a significant source of wealth creation in developing countries. For example, in 2012, gold made up 36% of all Tanzanian exports and 26% of those from Ghana and Papua New Guinea. Gold’s impact 3
  4. 4. The world is “volatile, uncertain, complex and ambiguous” - VUCA. Investment decisions are difficult. Growth is elusive, and security is hard to find, too. Gold is unique. Over the long term, it preserves wealth, and adds to it. As an asset it is supported by growing global demand. As a commodity it is both needed and trusted by a growing cohort of industries and investors. Gold is always in demand somewhere, either as something exquisite to be aspired to, or as an investment. Whatever changes we see in global stock markets, currencies or government credit ratings, gold remains solid over the long term. Seeking solutions and stability in an uncertain world Preserving wealth Gold is adaptable: that is why it continues to be such an important material today. Gold’s properties make it an essential component in emerging technologies, such as medical diagnostics and nanotechnology. Patent applications for gold nanotech applications are soaring. Gold is resistant to bacteria, making it useful, for example, in inner ear implants. Gold nanoparticles can help identify and manage HIV/AIDS and malaria, enabling doctors in both the developed and the developing world to identify and fight disease earlier and more effectively than ever before. Throughout history, the gold market has demonstrated its unique ability to self- balance. In the same way that gold, once mined, can take on many shapes and uses, demand ebbs and flows geographically and sectorally but as a whole, remains strong. Gold’s versatility and scarcity combine to make it a unique substance; it is the ultimate store of wealth in a world advanced by gold. “We are witnessing a global economic rebalancing, with shift of resources and power from West to East.” Aram Shishmanian Chief Executive Office 4
  5. 5. Solidity in a complicated world The world spins on its axis, as every schoolchild knows. But today many of the other certainties we grew up with have been overthrown. Complexity rules. Although showing signs of improvement, the effect of the financial crisis of 2008 is yet to be fully resolved. Meanwhile, a global rebalancing is taking place. The resurgence of Asia, in particular China and India, will see higher growth rates than in the West, with a billion new urban consumers by 2020. Patterns of consumption are shifting. Savings rise in the East while debt remains stubbornly high in the West. However, despite lower projected growth rates in the mature markets of the West, they still remain significant. Indeed, on a per capita measure, developed countries are forecast to remain significantly wealthier. Powerful sources of demand China and India alone already account for more than half of total global demand for gold. Jewellery – which makes up half the global gold market – is valued there not only in its own right as a symbol of timeless relationships, but also as a store of value and an investment. Younger consumers are entering the market too, with new desires and expectations. The growing appetite for gold is part of a bigger trend seen in many fast developing countries, where consumer demand for gold has made up over 50% of the global total since 2000. By 2020, India will add 75 million households with middle class and above earning power; China will add 170 million. For consumers and savers, gold fits the bill, providing protection for wealth as well as being a means to social and financial inclusion. At 1,066 tonnes, Chinese gold purchases in 2013 were remarkable, the highest recorded. Gold demand across sectors: 2013 Jewellery Technology Investment Central bank net purchases Preserving wealth 2009 – 2013 (5 year average) Source: Thomson Reuters GFMS, World Gold Council Totals may not sum to 100% due to rounding 5
  6. 6. Preserving wealth A solid investment Although the gold price fell in 2013, this changing global context, underpinned by new and resilient sources of demand, should provide some reassurance to private investors wondering about gold as an asset class. What are private investors looking for? A reasonable degree of certainty. Gold can offer this as a modest part of any balanced investment portfolio, in terms both of wealth creation and preservation. As a tangible, real asset, gold is more easily understood and trusted than more complex, esoteric financial instruments. Perhaps this is why, as market confidence rises in the US, consumer demand for gold rose 21% in the first quarter of 2013 compared to early 2012. In Japan, as Abenomics was implemented throughout 2013, pension funds increasingly turned to gold, a trend that looks likely to continue. In a world of complicated and unpredictable change, pensions and savings need to build on assets that reduce risk and stabilise returns. Gold can help deliver this valuable protection over the long term. Geographical distribution of gold demand 2013* of global gold demand is from China and India53% Source: Thomson Reuters GFMS *% of consumer demand (jewellery plus total bar and coin demand) 5% US 10% Europe & Russia 11% Middle East & Turkey 20% Others 29% Greater China 25% India physical gold demand coming from developing countries*.71% * Developing countries include (based on classification from IMF): India, China, Indonesia, Thailand, Vietnam, Saudi Arabia, Egypt, UAE, Other Gulf and Turkey. 6
  7. 7. Preserving wealth Specialised training for the experts University of California, Berkeley at dusk The World Gold Council has partnered with the University of California, Berkeley to create the first ‘Executive Programme in Gold Reserves Management’, designed to help central banks manage their investment in gold. Since the financial crisis, central banks have continued to diversify away from the US dollar, becoming committed purchasers of gold. Collectively, these organisations now own one-fifth of the world’s discovered store of the precious metal. But how do central banks ensure that they have the skills and knowledge necessary for the fundamental analysis of gold? 2013 saw the creation of the inaugural ‘Executive Programme in Gold Reserves Management’, designed to help central banks manage their investment in gold and understand the market signals from its movements. Developed as a joint initiative between the World Gold Council and the University of California, Berkeley, this three-day programme brought together 27 senior central bankers representing 18 countries, $5 trillion assets and 8,700 tonnes of gold, under the instruction of academic and professional experts. Former head of the World Bank and keynote speaker at the 2013 programme, Robert Zoellick, commented, “I think it is important for monetary authorities, as well as investors, to better understand the roles of gold and how they might evolve. I see that the agenda for Berkeley's Executive Programme in Gold Reserves Management offers an excellent combination of history, fundamentals, mechanics, and portfolio considerations.” 7
  8. 8. Central bank governors, a serious bunch by and large, are only human. They seek security. Gold can fulfil a monetary function and acts as a protector of the value of reserve assets as a whole. Central banks are increasing their holdings of gold as a percentage of reserve assets. As a new financial architecture emerges in the post-crisis world, it is clear gold has acquired a new relevance. Since 2009, when they first became net purchasers of gold, central banks have bought heavily. 2012 saw levels of buying not seen for five decades. Indeed, by the end of 2013 central banks had been net purchasers of gold for 11 consecutive quarters. Central banks, uncertain about quantitative easing tapering and concerns around the US debt ceiling, continue to diversify away from the US dollar and sovereign debt and recognise gold’s qualities as a reserve asset. Uncertainties are ever present for central bankers. In emerging markets for example, gold will continue to be a key tool to manage risk. Last year alone, central banks purchased 369 tonnes of gold, illustrating the importance reserve managers place on gold. Ever-present risk Although some of the more extreme aspects of the financial crisis may have passed, many states remain deeply indebted, as do many of their citizens. The great experiment of quantitative easing and expansionary monetary policies is nearing its end and with it brings new concerns for households and governments. In this context asset allocation has to be robust. As guardians of collective wealth, central banks have to ensure that risk is hedged with a diverse portfolio of assets. Uncertainties abound. Higher interest rates may force home repossessions and business failures, the end of quantitative easing may reverse emerging market growth and some fear the inflation genie has escaped captivity again and will soon unleash harm on the value of currencies and cash deposits. Banking on gold – new trends in reserve asset management Preserving wealth China: Projected central bank gold holdings Source: Oxford Economics 1,054 tonnes 2012 gold share in reserves (1.7%) 1,58 9 tonnes 2022 projected gold reserves if ratio remains constant at 1.7% 2,524 tonnes 2022 projected gold reserves if ratio increases by 1% to 2.7% Central bank contributions to demand in tonnes Source: Thomson Reuters GFMS, World Gold CouncilNet purchasesNet sales 8
  9. 9. When times are uncertain gold’s capital preservation qualities stand out. Gold’s low correlation to developed-market movements and risky assets make it a “foundation asset”, regardless of prevailing cycles. It is proven to reduce portfolio risk in a wide range of markets and conditions. Measured over the five years of the recent financial crisis, a study of financial returns during stress periods, including the Lehman Brothers’ collapse, European debt crisis and Greek bailout, shows gold to be the best performing asset against a basket of other high quality liquid assets such as government bonds and cash. Raising allocations to gold in the light of uncertain prospects for currencies is a strategically sound option. As central banks and sophisticated investors seek optimal diversification of their portfolios, gold’s ability to protect and enhance wealth will ensure it remains an enduring part of their investment strategies. Outperforming asset “As China weighs up its options for joining in the reserve asset game, gold – the official asset that plays no formal part in the monetary system, yet has never really gone away – is poised, yet again, to play a pivotal role. …no other reserve asset seems safe from impact of the change in the dollar's value." Professor Lord (Meghnad) Desai, Chairman of the OMFIF Advisory Board Preserving wealth China is the only one of the world’s six largest economies that does not have reserve currency status. Yet the country has the second largest economy in the world, and its share of world trade has increased threefold in the past decade. In the coming years, China plans to internationalise its currency, the renminbi. The renminbi is thus a candidate to play a greater role as an alternative reserve asset. Uncertainties around the renminbi relate to China’s exchange rate policy (gradually more flexible since 2005, but still tightly controlled) and accessibility. In a study conducted for the World Gold Council, international finance think-tank OMFIF argues that the renminbi is likely to emerge gradually as a genuine international currency as Beijing eases restrictions on its use in transactions and investments abroad. The renminbi – gold's pivotal role This, the body argues, will enhance the role of gold in the international monetary system in the coming 10 years of rebalancing. Any setbacks to the renminbi’s rise as a reserve currency will benefit gold as a result of doubts about the overall strength of world monetary arrangements. China’s aspiration to take a more assertive role in world politics and economics will encourage Beijing to lead the way in storing its wealth in assets that are not simply the liabilities of other countries.
  10. 10. Rising aspirations Luxury is being restyled. Demand is on the up. Following years of decline, 2013 was the first year that jewellery demand in the US rose - on an annual basis - since 2001. New consumers in Asia are inspiring new designs and innovations in jewellery buoyed by the shift in global economic power toward the East. For this market, the only way is up – to the high end – where beautiful craftsmanship and value justify status purchases. Asia’s millennial generation – the new consumer power The bottom line is this: a new force in gold is growing in the East and has already eclipsed the West. This is the new world. If you want to understand how it is changing, both socially and economically, then the rising interest in gold in the world’s fastest growing economies is a good place to look. In these countries, a firmly rooted cultural affinity for gold is being reshaped and reinvented by affluence and the social power of the millennial consumer (aged 16-31). Connected by social media, and enjoying new spending power their parents never had, this increasingly influential generation is building on a rich heritage to shape events in their personal image. Research commissioned by the World Gold Council into consumer attitudes in the US, China and India reveals a cultural shift is taking place. Across the luxury goods market, the ‘millennials’ are driving a re-interpretation of luxury in keeping with their distinctly national visions of modernity. New affluence driving growth 10
  11. 11. Rising aspirations Annual jewellery demand in India and China vs US and Europe* *Europe comprises four major markets: Italy, UK, France and Germany. Source: Thomson Reuters GFMS, World Gold Council The two biggest markets for gold jewellery, India and China, together generated 58% of total annual (jewellery) demand in 2013. In China, over the last five years jewellery represented an average 68% of gold demand. As well as being seen as a sign of prosperity, beauty, a currency and an integral part of Chinese religion, gold jewellery has always been seen as an investment. Demand for gold jewellery in India accounted for 28% of the global market in 2013. In India, as in China, demand for jewellery is tied to the investment qualities of gold. The motivation behind a jewellery purchase is linked as much to its value and role in wealth preservation as it is to its pure aesthetic beauty. A cultural shift is taking place that offers new growth opportunities. The 2012 World Gold Council consumer attitudes study confirmed that women aged 20-30 have the greatest influence on this gold jewellery market. They have moved from buying or receiving jewellery only on special occasions such as weddings or Diwali, to “self-gifting” to create a look, especially in non-traditional dress. Beautiful, modern designs allow younger women to stand out as individuals, and express their own identity. China has seen the emergence of a more confident cohort of 20-30 year olds who increasingly want jewellery that is home- grown in terms of design, produced by upcoming Chinese designers. In India, 75% of women say they are constantly searching for new designs. This extends to the bridal category, which accounts for over 50% of gold jewellery sales; consumers are looking for gold jewellery that they will want to wear beyond the wedding day. Wedding necklaces that use modern designs and can be detached to create smaller jewellery pieces respond to the need for more playful, flexible designs. Asian women create a new market of annual gold jewellery demand comes from India and China 71% of women in India say they are searching for new designs 75% 11
  12. 12. Rising aspirations Generation trend: Percentage of women who bought or received gold – stays the same as currently: Source: World Gold Council, Gold Jewellery, Usage and Attitudes Survey, June 2012 The “millennials” are ready to adapt and build on tradition. In so doing, they are opening a new market. And crucially, they are sharing their thoughts and experiences online. There is a digital revolution in gold, too, in which bloggers and other social media users spread the news about new designers and pieces they discover. They – as much as conventional editors or advertisers – are shaping opinion and influencing trends. “If I no longer have my luxury items, I’d be like any other person on the street – so ordinary people wouldn’t take a second glance at me.” By 2020, there could be around 1 billion new urban middle class consumers who think – and shop – like the university student in Shenyang quoted above. This is a colossal opportunity. The challenge for the jewellery and luxury goods industry is to engage in these new digital conversations, and design and market the high-end products that a billion eager new customers will be aspiring to. 12
  13. 13. Actress Esha Gupta wears Azva The Azva collection, launched by the World Gold Council in 2012, combines tradition and modernity to re-imagine gold wedding jewellery. Inspired by the Saat Pheras (or Seven Vows) of Indian weddings, it has been brought to market by top Indian designers and retailers Nothing could be more traditional than an Indian wedding, surely? The coming together of two families, the joyous feasting, the crowds, the ceremony, the celebration. And yet here, too, the modern face of gold and the changing expectations of young, affluent Indian consumers make their presence felt. Azva is a bridal jewellery collection that reconsiders gold jewellery for India’s young generation of brides seeking to suit their personal style beyond the big day. Azva is a collection of jewellery designed for life not for the locker. Today, brides and grooms are making the wedding day more personal, and even more fun. With this increased creativity and freedom there is an increased demand for a wider range of jewellery designs. The World Gold Council introduced Azva in 2012, in part as a response to the continuing cultural shifts being seen in the country. Azva jewellery designs are inspired by the Saat Pheras or “Seven Vows” of the Indian wedding and encourage the couple to make their own vows. Derived from the Sanskrit word ashva, and brought to market by India’s most respected designers, ‘Azva’ is rooted in Indian culture, and at the same time distinctly modern. This combination of heritage and modernity is clearly making an impression. Since its launch, Azva has gone from having a presence with top retailers in four cities to over forty across India. Azva – reinterpreting tradition “Redefined through the years, there is nothing that adds royalty, glamour and fire to a design like gold. Its magic lies in lending timelessness to design that can never go out of style.” Tarun Tahiliani, leading bridal couturier in India. Rising aspirations 13
  14. 14. The past ten years have seen a consolidation in demand for gold in western developed economies at the top end of the luxury market. A 2012 study by the World Gold Council into global consumer attitudes revealed a shift in the market segmentation among consumers of gold in western developed economies. In response to this, the World Gold Council created LoveGold, designed to inspire and seek out the world's most beautiful gold jewellery, the designers creating it and the people wearing it. LoveGold.com and its social media platforms bring you captivating stories, exclusive features, unusual and unexpected jewellery pieces. Status and aspiration Rising aspirations Among high net value individuals, from the exclusive boutiques of New York and Los Angeles, to the refined shopping arcades of London, Paris and Milan, gold is about status. The price of gold can be a further justification for purchasing it because it is more clearly defined as an aspirational product with implied accessibility only to the most successful. But even among those who are not the highest earners there is a desire to buy fewer but better pieces, to avoid compromising quality at all costs. Gold’s timeless appeal plays into this, if you are buying something for ever then you should buy the best. While gold wedding rings remain an ever-present phenomenon in the West and leverage this timeless value, gold jewellery to be worn on other occasions is proving increasingly popular. The higher concentration of gold in luxury products has been accompanied by a new wave of creativity in the design of gold jewellery. This has broadened the range and potential of jewellery items. Celebrating gold’s most captivating pieces The World Gold Council created LoveGold, designed to inspire and seek out the world’s most beautiful gold jewellery, the designers creating it and the people wearing it. 14
  15. 15. Rising aspirations Gold’s timeless red carpet glamour Angelina Jolie shines in bezel set yellow gold 42 carat diamond earrings by Robert Procop at the Academy Awards. A lifetime's relationship with gold “Gold does not decay, and is purified when exposed to fire. Endowed with all these special characteristics, it is the natural symbol of beauty and power.” Elena Votsi Gold is not confined to a single event. Today’s twenty- something consumers are exhibiting a new fascination with gold jewellery, and an appetite to rediscover gold as a gift item across a lifetime of memorable events. Again, this doesn’t just happen on your wedding day. Gold jewellery is often given to mark other milestones in a couple’s life together. Gold is an aspirational product with deep cultural heritage. Yet it offers the creative flexibility to express a lifetime of important moments, both formal and informal. The relentless rise of luxury branded gold design, and the work of emerging creative talents, who are finding new meaning for it, will be features of the future growth of this global industry. 15
  16. 16. Rising aspirations The rise in gold’s popularity in Asian markets, and the boost for designers that comes with it, may have a knock- on effect further afield. Designers in the West will have to rise to the challenge being set in the East. Investing in top designer talent If London, New York, Paris and Milan are to remain focal points of the global multi- billion dollar fashion and design industries, they will have to embrace this renewed and fast-developing market for gold. In the precious metals design industry, even design professionals with proven success in luxury goods markets face a financing challenge to break into the top of the market in precious metals. To create beautiful products, gifted craftsmen must first obtain high value raw materials to craft an offering to display. Only those with serious financial backing can break through. The World Gold Council is supporting the most talented and skilled craftsmen with loans of gold. Given the metal to work with, these designers are reinventing gold jewellery for generations to come. Designers such as Tarun Tahiliani, Pamela Love, and Shaun Leane are putting gold at the cutting edge on the fashion and design catwalks. As consumers aspire to the best quality, fostering and investing in the talent to satisfy that need is essential to the creation of a thriving industry for the decades ahead. Supporting today's talent As consumers aspire to the best quality, fostering and investing in the talent to satisfy that need is essential to the creation of thriving industry for the decades ahead. The World Gold Council supports designers such as Tarun Tahiliani and Pamela Love with loans of gold. "Redefined through the years, there is nothing that adds royalty, glamour and fire to a design like gold. Its magic lies in lending timelessness to design that can never go out of style." Tarun Tahiliani, Designer 16
  17. 17. At the nanoscale, gold displays unique properties which scientists around the world are still unraveling. While the bulk metal is one of the most stable and durable substances known to man, nanoparticles of gold can act as a catalyst making chemical reactions work hundreds of times faster. Gold is also at the heart of diagnostic kits for diseases such as malaria and HIV/AIDS, and its biocompatibility makes it ideal for delivering drugs inside the human body. Little wonder that patents for nanotechnology research using gold continue to soar. Scientific breakthroughs Gold, desired for its beauty since ancient times, is now helping shape the future of technology. At the ‘nano-scale’, gold has newly discovered properties and is one of the most promising nano-materials. Of the approximately 81,000 research papers on ‘nanoparticles’ listed in PubMed since 1978, more than 16% relate to gold. The majority were written within the last five years. Gold nanoparticles are less than 1 billionth of a metre in diameter. At this size the metal takes on a completely different set of properties. It can help accelerate chemical processes through catalysis, and may help fight deadly diseases such as cancer, HIV/AIDS and malaria. A catalyst for improved health and environment 17
  18. 18. Scientific breakthroughs Targeted drug delivery minimises side effects Because gold nanoparticles demonstrate excellent “biocompatibility”, there are even greater opportunities for the metal in improving human health. These particles are showing great promise as vehicles for drug delivery, with a number of companies actively pursuing new therapies enabled by gold. One example of this work is AstraZeneca’s collaboration with biotech company CytImmune to develop a potentially game-changing approach to treating cancerous tumours. Gold particles coated in cancer-fighting drugs accumulate naturally in the unusually porous blood vessels that feed tumours. Cancer drugs delivered accurately in this way generate far fewer side effects in surrounding healthy tissues. Other drug companies are researching similar targeted drug delivery methods for other difficult to treat diseases. Capturing the power of light Potential applications for gold nanoparticles extend beyond just healthcare into environmentally friendly energy solutions. For example, studies have shown that the efficiency of photovoltaic solar cells can be improved by adding a nano-layer of gold. Materials physicists at the University of California, Los Angeles have developed a novel solar cell technology in which nanoparticles are added to a thin film of polymer that could be coated onto windows to generate electricity, without the need for rooftop installations. Working with gold in this way promises future solutions to billion dollar health and energy problems. Little wonder applications for patents involving gold continue to soar. Faster diagnosis saves lives Gold is at the heart of hundreds of millions of Rapid Diagnostic Tests (RDTs), as described on the World Gold Council’s video ‘Gold for Health’. Caroline Asiimwe works for the Foundation for Innovative New Diagnostics (FIND) in Uganda, where malaria is one of the Ministry of Health’s biggest priorities. For her, the importance of diagnostics is clear: "In a remote place, where a child is exposed to malaria or pneumonia … having a test (that gives a result immediately) will save a life that would have died by morning." However, the next generation of diagnostic technologies is gradually coming online. A good example of this is the FDA-approved Verigene detector, manufactured by Nanosphere. It uses specially treated gold nanoparticles to detect a dozen dangerous bacteria within 2-3 hours. This means tests can be performed on the spot, negating the need to transport potentially infectious samples to distant laboratories. In 2013 researchers at Imperial College, London continued developing an ultra- sensitive test designed to detect a range of viruses and cancers. These kits also rely on gold, with the colour change on the test driven by the presence or absence of specific chemicals in the samples. Number of published patents including the words 'gold' and 'nanoparticles’ Source: Johnson Matthey, World Gold Council 18
  19. 19. Scientific breakthroughs Air and water purified by gold Until relatively recently, the technological potential of gold was being exploited only by the electronics and dental industries. But nanotechnology has changed all that. The discovery, in the mid-1980s, that tiny particles of gold can speed up chemical reactions was startling for scientists. Gold is used to make jewellery precisely because it is inert and will not tarnish, as it does not react with water or oxygen. Initially, simple systems were investigated (such as the efficient removal of the poisonous gas carbon monoxide), but now more complex issues, such as water purification, are being tackled. A multi-disciplinary team of researchers from Rice University, DuPont and Stanford University are developing ‘PGClear’ – a system based on gold nanoparticles coated with palladium - to clean a range of chlorinated compounds out of groundwater, including trichloroethene (TCE), a suspected carcinogen. TCE is present in 60% of the US Environmental Protection Agency’s priority Superfund clean-up sites, and is one of the most widely-found pollutants associated with industrial activity. Chlorinated compounds, once widely- used as solvents, contaminate water the world over. Both are extremely expensive to treat with conventional technology. "We didn't believe it at first, because the gold-palladium nanoparticles were just so much more efficient — a hundred times more efficient," Professor Wong, the lead researcher from Rice University, said about the efficiencies observed when compared to the conventional technology. This promising solution is now being piloted to treat chloroform at a site in the US state of Kentucky. The first large-scale PGClear unit, designed to treat groundwater contaminated with chloroform, has been installed and is due to go into service in 20144. Years in the planning and supported by the World Gold Council, the team pioneering this approach looks forward to a successful trial. Operating at full- scale, this technology could rid the world of some of its most persistent and problematic pollutants. Technology revolution Until recently, the technological potential of gold was being exploited by the electronics industry and dentists. Nanotechnology has changed that. New applications include solar power generation, air purification and groundwater clean-up.
  20. 20. Investing in gold has become a possibility for many more people in the last decade. Formerly restricted gold markets have been liberalised. Affordable investment products have emerged for lower to middle income families. This trend provides new business opportunities for go-ahead organisations. They can tap into latent demand for reliable savings vehicles across the developed West and the powerhouse economies of the East, by developing new channels and products to bring gold to investors and consumers across the world. Putting gold to work The gold market has opened up dramatically to investors in recent years, thanks to liberalisation in countries where gold sales were once restricted, and the emergence of a growing range of investment products affordable to lower and middle income families. This provides new opportunities for financial institutions and partners to work with the World Gold Council on developing new channels and products to bring gold to consumers. Today, any investor can buy gold. As well as gold coins and bars, physical gold exchange-traded funds (ETFs), internet gold investment channels, retail gold investment options in Asia are innovations that have responded to growing demand in the market over the last decade. Democratising' gold investment products 20
  21. 21. Putting gold to work Creating business opportunities The opportunities for investors have continued to grow. Working with the World Gold Council, a number of countries have developed gold products and savings plans to make gold more widely accessible. The result? ICBC Gold Accumulation Plans (GAPs) now give Chinese investors a monthly savings plan, regularly purchasing small amounts of gold over an extended period. There are currently over 9 million accounts in China and Taiwan, giving people more ways to own gold. In Europe, high storage and handling costs have made gold products uneconomic for many banks in spite of customer interest. In response, Munich- based precious metals dealer pro aurum and the World Gold Council have partnered to establish a new online platform enabling banks to offer gold investment and savings products. German banks can now easily offer their customers securely vaulted gold bars and coins without the banks’ requiring any existing gold dealing capabilities. The rapid uptake of these gold investment products is a sign of the opportunities that exist: to tap into demand for gold products among consumers of diverse nationalities and income levels. The opportunities globally are significant. Gold investment today across institutions and the privately wealthy remains at about 1% of assets under management. In addition, US and Japanese institutions, primarily pension fund providers, are a hugely valuable market that to date remains largely under- invested in gold. Financiers and others looking for new business opportunities should take note. Broadening gold's accessibility The World Gold Council has worked with financial groups across the US, Europe, India and China to reach a widening consumer base hungry for gold-backed investments, all part of the ‘democratisation’ of gold as an investment. SPDR® Gold Shares (GLD) was listed on the New York Stock Exchange in November 2004 and became the first physically-backed gold exchange-traded fund (ETF) to trade on a regulated exchange in the US. GLD offers investors a cost-efficient and secure way to access the gold market. In just over eight years, GLD has become the largest physically - backed gold ETF in the world. SPDR® Gold Shares also trade in Singapore as well as Tokyo and Hong Kong. Global gold allocation Debt & money market Equities Alternative investments Gold Source: BIS, Thomson Reuters GFMS, Hedge Fund Research, J.P. Morgan, Prequin, World Federation of Exchanges, World Gold Council Total bar and coin demand in tonnes 2012 2013 Source: Thomson Reuters GFMS, World Gold Council 21
  22. 22. You cannot buck the market, and in the East the market is growing fast. Demand does not stem from any sense of nostalgia. New consumers in both India and China are exploring the potential for gold in a contemporary setting. This is all part of a familiar global trend, of course. The growing powerhouses of China and India are driving demand for many different goods and services. Gold is no exception. To understand the two largest markets for gold in the world, you have to bear in mind their particular investment cultures and the impact of liberalisation and modernisation. Asia rising: gold in India and China Putting gold to work Middle class population growth* Source: McKinsey Global Institue * China: disposable household income greater than 79k RMB,2005 prices India: household income greater than 200k INR, 2000 prices Chinese preserving new wealth Up until 2002, the market in China was tightly regulated, from production through to retail distribution. Now the market is more open. Many consumers are better off, and higher savings rates amongst private individuals are generating strong demand. Chinese consumers are looking to gold to protect new wealth in a world of fluctuating and uncertain currency movements. China is now the largest consumer of gold in the world, demanding over 1000 tonnes in 2013. Demand for gold has risen at an average rate of 22% for the last 5 years. Gold in the new financial architecture The financial crisis triggered by Lehman Brothers’ collapse in 2008 not only shocked the markets but left governments and regulators with some of their most difficult challenges for a century. Beyond calming the markets, top of their list was how to prevent a crisis of this scale ever happening again. Regulators from the G20 countries acted quickly. They required financial institutions to “de-risk” their activities, making them trade in open and transparent marketplaces via central counterparty clearing houses (CCPs) so any significant risks could be seen and controlled. But this alone wasn’t enough. For banks one of the biggest concerns is liquidity: the lack of it triggered the market collapse in 2008 so regulators want to see that a financial institution even though trading in a monitored marketplace has plenty of high quality liquid collateral that can be quickly deployed in times of stress. The nature of gold lends itself well to this task, and it is being increasingly used as a source of high quality liquid collateral. Its lack of credit risk and countercyclical characteristics make it ideal for this purpose. Recently the European Parliament voted unanimously to accept gold as collateral and other supranational regulators like the International Organisation of Securities Commissions (IOSCO) have recommended using gold as collateral for certain trading activities. “One of the reasons we particularly like gold is because it’s countercyclical: typically in times of stress gold is in high demand… regulators want central counterparties to hold collateral which is easily liquidated and will hold its value”. Paul Swann, President and Managing Director, ICE Clear Europe 22
  23. 23. Putting gold to work Financing requirements* Source: Bloomberg, World Gold Council, Europe Economics * Two year financing requirements are full year 2013-2014 23
  24. 24. According to a recent report by PwC commissioned by the World Gold Council, gold contributed an estimated US$210 billion to the economies of the largest gold-producing and consuming countries in 2012. Of that total, large-scale commercial gold mining added an estimated US$78.4 billion, and nearly 530,000 direct jobs. Large-scale mines are significant contributors to economic and social development, providing national infrastructure, healthcare and business opportunities that can have a highly positive impact on communities. The gold mining industry is working with governments to ensure that the benefits of natural resources deliver for generations to come. Boosting growth There is a continued appetite for gold. This gold should be responsibly produced, to meet high environmental, health and safety standards and not fuel unlawful armed conflict. At the same time, investors and consumers of gold are increasingly recognising that responsible gold mining can be a major driver of social and economic development. Responsible mining delivers for developing countries 24
  25. 25. Understanding the economic impact created by responsible gold mining is important to support equitable returns across stakeholders. In an industry first, World Gold Council Members have worked together to combine their data and provide a comprehensive, country- by-country study of where money is spent to support responsible gold mining and how much of that expenditure is incurred in the country of operation. The study found that more than US$55bn was paid out by responsible gold miners in 2012. From that spend, US$35.2bn went to suppliers and US$8.3bn (15%) on wages. An additional US$8.4bn (15%) was paid in taxes and royalties and US$3.4bn in payments to providers of capital (including dividends and interest). More than 80% of that total spend (US$44.6bn) was incurred in the country of operation. Gold mining companies are increasingly looking to source from national suppliers and help build up local supply chains. A study of four major gold mines in Peru showed that the four largest gold mining companies purchase 90% of the goods and services they need from Peruvian- based companies. Non-mining districts had on average 17% more poverty and 12% more extreme poverty compared with gold mining districts. Boosting growth Supporting national wealth creation According to the World Bank’s Oil, Gas and Mining Unit, mining can help provide social services to remote communities, improving access to healthcare and basic utilities. Gold mines are frequently operating in remote locations, so mining companies often invest in transport and power infrastructure which benefits the surrounding region and local economy. Companies may also invest in partnerships with regional and national governments, non-governmental organisations and aid bodies to support local economic development. In Peru, for example, Yanacocha works with the Clinton Foundation, International Finance Corporation and USAID to support training for more than 200 local businesses so that they can compete for larger contracts. Healthcare is a priority for mining companies, too. In addition to HIV/AIDS and malaria, remote and impoverished communities can also suffer from diseases that have been all but eradicated in the developed world, such as rickets. Mining company support for healthcare initiatives for workers and their families is a key aspect of developing sustainable local gold mining and is beneficial for both the gold mine and the community. Laying foundations that will last 25
  26. 26. Securing a broader, stable and growing economy is a shared goal. The gold mining industry, governments, international organisations and local communities all have important roles to play in contributing to sustained development. Gold mining companies directly and indirectly improve conditions for communities during the lifetime of a gold mine. But what happens when the life of a mine comes to an end? Will the benefits endure? Are local communities and national governments prepared for life after a mine? To ask this another way, how can we all help create the next San Francisco, where the legacy of the gold mines creates a vibrant and sustainable community, long after the mining itself has ceased. Boosting growth Ensuring a legacy Gold map: Unmined gold Source: www.goldfacts.org, US Geological Survey * United States Geological Survey data shows significant untapped potential in developing economies of the global South. Gross National Income per person* $35,000 + $10,000 – $35,000 $2,500 – $10,000 $500 – $2,500 26
  27. 27. Gold is the ultimate recyclable material and it has a totally distinct supply-chain. To explain more about gold’s journey and the impact it can have, we have developed a responsible gold sourcing tool which explains the economic contribution made across the supply chain. Regrettably, some of gold’s characteristics, including its intrinsic value and portability, have made it a potential source of finance for illegal armed groups involved in civil wars and insurgencies. Whilst the proportion of newly-mined gold tainted by such conflict is very low, it is important that responsible actors take steps to exclude gold misused in this way from entering their supply chains. At every stage in the journey from mine, through refineries, banks, investors and consumers, buying with confidence in the provenance of gold is important. The Conflict-Free Gold Standard provides a common approach through which gold mining companies can confirm their gold has been extracted in a way that does not cause, support or benefit unlawful armed conflict, or contribute to human rights abuses or breaches of international humanitarian law. Work on the Conflict-Free Gold Standard began in 2010, and was designed to ‘operationalise’ the OECD Guidance on Responsible Sourcing of Minerals for gold miners. Setting the standard: conflict-free gold Boosting growth Conflict-Free Gold Standard The World Gold Council started work on the Conflict-Free Gold Standard in 2010. Whilst the proportion of newly-mined gold tainted by conflict is low, it is important that responsible actors take steps to exclude gold misused in this way from entering supply chains. The Standard helps gold miners to: • Assess whether they are operating in a ‘conflict-affected or high risk’ area • Ensure that they have the right corporate processes in place to be able to mine responsibly and that they have sufficient controls to prevent the misuse of gold • Conduct due diligence in their purchase of gold from external sources • Provide a statement of conformity to the next party in the chain of custody • Publically disclose conformance with the Standard, which needs to be externally assured The Standard is designed to codify responsible mining in conflict-affected areas. If companies can demonstrate that they are operating responsibly, their activity should be encouraged so that the broader social and economic developmental benefits associated 27
  28. 28. We know that gold is valuable. But how much added value does it offer to the rest of the global economy? To find out, the World Gold Council commissioned PwC to measure the value that gold adds directly to the economies of the largest gold producing and consuming countries. Together, these nations account for three- quarters of global gold production and around four-fifths of gold demand. US$210 billion gross value added Boosting growth PwC estimates that gold’s overall global economic contribution is worth over US$210 billion in 2012 – equivalent to the (2011) GDP of Pakistan, and substantially bigger than the economies of Peru, Kuwait, Hungary, Vietnam and New Zealand. In the same year, the investment purchases of small bars and coins generated an estimated US$38 billion, and gold jewellery fabrication and consumption another estimated US$70 billion across the top 13 gold consuming countries. Approximately US$4 billion more was generated by technology applications for gold. Gold mining also leads to jobs, foreign direct investment and foreign exchange – in 2012 it accounted for 36% of all Tanzanian merchandise exports and 26% of exports from Papua New Guinea. Jobs in the gold mining sector have a significant multiplier effect. In South Africa, for example, 138,000 people are directly employed in gold mining. Responsible gold mining is part of a wider ‘value chain’ of activity which is adding significant value to national economic development and, ultimately, the global economy. Benefits of large-scale formal gold mining PwC estimates that formal gold mining in the top 15 gold producing countries employed nearly 530,000 people in 2012, and added US$78 billion to national economies direct jobs in large-scale in gold mining 528,000 added value per tonne of gold mined US$36 million 28
  29. 29. Partnership Advancing the case for gold – our track record We live in an interdependent world. No institution can strike out on its own and expect a hearing. The World Gold Council has taken this to heart, developing commercial and educational partnerships with top organisations and institutions that create structural shifts in demand for gold. At the centre of the world’s financial markets you find gold. Our global research provides leading edge investment insights, illustrating gold’s strength as an asset class and a preserver of wealth. We engage with governments and supranational organisations. We work with central banks to demonstrate how gold can help meet their strategic investment objectives. Half of the global demand for gold is driven by the jewellery market. But this is no nostalgia trip. The future is being made now. Gold is attaining new relevance and allure for younger generations. We support top designers whose creations cater for the rising aspirations of new consumers around the world. In technology, we work with world-class organisations who use gold to break new ground in areas such as nanotechnology, medical diagnostics, automotive emission controls and the innovative delivery of drugs. We have a voice. Our involvement in seminars, think tanks, finance meetings and events attended by global leaders puts us centre stage in informing and shaping the case for gold. The world’s appetite for gold remains strong. Gold mining in many developing nations contributes to the national economy and local communities, enabling investments in infrastructure such as schools and transport. Our Members, who comprise the world's leading gold mining companies, work to ensure that gold mining continues sustainably and responsibly, reinforcing the trust that people place in this precious metal. Working in partnership “The world of gold is dynamic, resilient, varied, and complex. It is our privilege to play a part in a world advanced by gold.” • Conflict-Free Gold Standard, the first industry-led code on conflict-free gold • SPDR® Gold Shares (GLD), the largest physical bullion-backed exchange-traded fund (ETF) • ICBC Gold Accumulation Plan gold- backed savings accounts, with over 9 million accounts in China • Azva, the new Indian wedding gold jewellery brand, now in distribution with top retailers in 40 major cities across India • UC Berkeley executive education, training 27 of the world’s senior central bankers • Pioneered the use of gold in automotive emission control with leading industrial innovators • Seed-funding for technology start- ups and support for cutting-edge research • Leading-edge research, including Gold Demand Trends, Gold Investor and Gold Bulletin • pro aurum - a new online platform allowing banks to offer gold investment and savings products in Germany 29
  30. 30. World Gold Council 10 Old Bailey, London EC4M 7NG United Kingdom T +44 20 7826 4700 F +44 20 7826 4799 W www.gold.org

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