The old lessons from the new existential crisis in gold ::

Photo: Bloomberg

In the world of sustainable investment, being called socially useless is very difficult to accept, writes Helen Thomas for the Financial Times.

But this was the challenge posed to the gold sector by one of the most prominent investors in mining companies. Evi Gambro of BlackRock said the gold industry needed to do a better job of justifying the environmental costs of digging the precious metal out of the earth, given its limited industrial and technological use.

On the other hand, the extraction of copper, nickel and other metals for batteries is easier to justify, he said, given their crucial role in electrification and decarbonization.

Wondering where this ESG investment can end (taking into account environmental, social and managerial factors.) Nearly 60% of annual gold demand comes from central banks or other investors; about a third comes from jewelry, where, especially in emerging economies like India, it is actually used as a means of storing value.

Those who mine gems are probably wondering when someone will wonder if digging holes is worth something that can be done in a laboratory. But why limit ourselves to the mining industry? The luxury goods sector also needs to start thinking about its usefulness. All this skin!

But the comments had an effect, because gold is already in the midst of something like an existential crisis. It once had a reliable tribe of followers eager to evangelize its role as a defense against bad governments and weak currencies. Gold bars are now an analog product in the digital world.

The World Gold Council can rightly point out that gold and cryptocurrencies are different and can coexist peacefully. Gold has a long and relatively stable history in investment portfolios; it is essentially a scarce natural resource, but its production and ownership are diverse. No one is saying that investing in gold is a wild west that needs an aggressive, coordinated global regulatory response.

The huge electricity used in the extraction of cryptocurrencies also means that they are clearly not an environmentally friendly option: it is estimated that the carbon intensity of bitcoin mining is 15 times higher than that of gold mining. Unlike some other raw materials, most of the harmful emissions of gold are at the site of the mine, where renewable energy plus electric or hydrogen vehicles offer the opportunity to significantly reduce them.

However, it is difficult to say that the crypto has not encroached on the place of gold in the spirit of the times, if not in the wallets. As Humbro said, “Gold companies need to articulate their relevance in the future.” Children do not trade gold through their phones in classrooms. And none of this has been helped by a year in which the world went crazy over inflation and gold traded sideways.

One possibility – and something Gambro is defending – is to try to bring gold into the digital age and make its rather symbolic position as a medium of exchange far more obvious. This, industry says, is something that is already happening in Asian markets, where gold in digital form is well understood and used.

The other argument the industry relies on is that gold has a social role, one that is underestimated and lacking in crypto. Much of the gold mining takes place in remote regions of developing countries. The World Gold Council says its members (part of the global sector alone) employ nearly 200,000 people plus another 1.2 million jobs through local suppliers; The Council estimates that more than 60 percent of the value of gold mined remains in the country of origin in one form or another.

There is a certain irony in seeking asylum in an area where the extractive sector as a whole has long gained publicity: its connection to local communities and its contribution to emerging economies, especially in the form of higher-paying jobs and on-site processing or refining.

The official line is that the industry needs to explain what it is doing better. In private, some mining companies and investors acknowledge that certain practices, such as stability agreements that guarantee tax advantages or trade concessions, or the overuse of foreign labor, are becoming more difficult to justify in a world where industry is more highly valued. in terms of its ability to leave a lasting economic and social legacy in the places where it works.

In other words, the answer to the crypto and climate-induced existential crisis in the gold sector may be for mining companies to do more than they should have done anyway.


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