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Our Vision for the Gold Market

By Andrew Naylor, Head of ASEAN and Public Policy, World Gold Council

Covid-19 has brought the role of gold into sharper focus. Profound economic uncertainty has led to a renewed interest in gold’s safe harbour properties. This is why, for example, we saw unprecedented investment interest in gold as demonstrated by record inflows into physical gold exchange-traded funds.

But the past 18 months have also brought up some issues: consumer demand was severely impacted by market lockdowns, and logistical constraints at the beginning of the pandemic led to a temporary disconnect between the New York and London markets. While we quickly overcame these challenges, we can avoid many of them in the future by grasping the opportunities of the digital revolution.

Environmental, social and governance (ESG) issues have been top of mind among investors for many years, but Covid-19 has led to a renewed focus on sustainability. Sustainable investing has increased in popularity for several reasons including an increased consumer and investor consciousness, and because sustainable businesses are viewed as better able to weather external challenges such as pandemics.

we should be doubling down on our efforts to increase the sustainability of our industry

A recent report by Cicero Group showed that 69% of people believe protecting the environment is growing in importance following the pandemic.1 The same report suggested that nearly three-quarters of respondents (73%) do not believe that brands are transparent about their supply chain. Protecting the environment, and enhancing supply chain integrity, have been two major priorities of the gold market for many years and the survey shows that we should be doubling down on our efforts to increase the sustainability of our industry.

Opportunities of the digital revolution

We are at the cusp of the fourth industrial revolution. All sectors of the economy, and indeed the way we live our lives, are being impacted through advances in digital technology.

The gold market is not immune. To ensure that gold continues to meet the needs and aspirations of individuals and investors in the 21st century, the market should fully grasp the opportunities that new technologies provide. That is why the World Gold Council has set out a broad vision for the gold market, focusing on integrity, accessibility and fungibility. This builds on the work we have collectively achieved so far, and leveraging the latest technological developments and financial market innovations.

Enhancing integrity across gold’s value chain

The gold industry has been working hard to ensure that our practices are sustainable and, where possible, exceed the expectations of investors, consumers and policymakers. Work to date includes the launch of the World Gold Council’s Responsible Gold Mining Principles (RGMPs), setting out clear expectations for consumers, investors and the downstream gold supply chain as to what constitutes responsible gold mining. The RGMPs recognise and consolidate existing standards such as the UN’s Guiding Principles, the OECD Due Diligence Guidance and the ICMM performance expectations into a single framework. This drives awareness of how gold producers are meeting ESG expectations and enhances reporting.

Other areas of work include analysing the carbon footprint of the gold industry, and raising awareness of how our industry is contributing to the UN’s Sustainable Development Goals.

Last year we launched the Retail Gold Investment Principles. These are designed to increase trust in the retail gold market, a sector accounting for US$50 billion annually. Trust is a significant barrier to the growth of the sector and the Principles are designed to enhance the integrity of the retail market through more robust best practice covering everything from responsible business conduct to transparency.

One area where a global, industry-wide solution is required is supply chain integrity. We need common agreement on a single system to trace the source of all forms of gold – including kilobars – throughout the entire supply chain. We should build on existing standards to develop a whole-of-market, global solution. While we have high standards on the responsible sourcing of gold, there is an opportunity to leverage new technological developments to create a truly global system of supply chain integrity covering gold in all its forms.

Of guaranteed provenance & integrity

  • Universal, ethical sourcing standards, ESG
  • Bar security technology applied across supply chain
  • Larger ecosystems of gold good delivery
  • Respected intermediaries enforcing rules, incl. financial crime

Accessible to all

  • 24/7 access, anywhere, for everyone
  • Frictionless customer experience
  • Full investor transparency on price, costs, volumes, and liquidity
  • Market practices clear, documented, well understood by market users

Fully fungible

  • A trading unit for gold agnostic of bar and brand
  • Ledgers providing legal title, processed instantly
  • Deposit or withdrawal of physical at any global location
  • Gold useable as an asset across the financial system
Ensuring universal access to gold

A second priority for the gold market should be maximising accessibility to gold. Consumers, investors, and end-users of gold should be able to seamlessly transact and trade 24 hours a day and execute at best price. The World Gold Council has already worked to promote access, be it supporting the creation of new trading venues in India or acting as a catalyst for new product development in China, India and Japan. The gold market can benefit from the digital finance revolution by developing global market infrastructure that facilitates access to physical gold through online or digital platforms.

Gold is a hugely important household financial asset in many markets, especially in Southeast Asia. The model of purchasing physical gold from a jewellery or bullion shop will still exist, but we should work to facilitate the development of new channels of access. This is key if we are to ensure that gold plays an optimal role in the individual finances of younger, tech-savvy consumers.

Enabling gold’s fungibility

Finally, and going hand-in-hand with accessibility, we want to ensure that gold is fully fungible. This means we should be working to reduce fragmentation and ensure that local and regional gold markets are fully interoperable. Through a combination of harmonised standards, smart regulation, and technology it should be possible to deploy gold across the global financial system, including depositing or withdrawing gold across a network of global locations.

This would be beneficial for several reasons, not least engendering trust through transparency and legal certainty, as well as broadening participation in the market due to increased liquidity, new use cases, and lower trading costs in all markets.

A diverse market

All of this can be achieved through common agreement on standards, technologies, and regulation. The gold market is global and diverse. Different forms of gold meet the varying needs and preferences of consumers, investors and end-users.

But to be successful in delivering this vision, the entire supply chain must come together to develop an interoperable and harmonised solution to the challenges of the 21st century, and opportunities afforded to us by the digital revolution.

Notes
1The Great COVID Reset Creating a More Sustainable Tomorrow (Cicero AMO, May 2021) https://cicero-group.com/wp-content/uploads/2021/05/The-Great-COVID-Reset.pdf



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