The gold prices used in this table and chart are supplied by FastMarkets. Where the gold price is presented in currencies other than the US dollar, it is converted into the local currency unit using the foreign exchange rate at the time (or as close to as possible).
2018 was a very active year across all of our key programmes with many significant events occurring in the market. From major policy announcements through to renewed gold buying from particular quarters, the year was a true reflection of the diversity of what we strive to achieve.
Responding to the imperative of ESG responsibilities
Given the increasing importance placed on demonstrating environmental, social and governance (ESG) credentials across all industries, we established a taskforce together with members and led by our Vice Chair, Gary Goldberg, to demonstrate and enhance gold’s ESG credentials. Our first report on Gold and climate change, was released one year after the recommendations from the Taskforce on Climate-Related Financial Disclosure (TCFD). It focused on building understanding of the gold industry’s greenhouse gas emissions footprint, and demonstrating the efforts already underway to reduce emissions. It also highlighted the gold industry’s role in improving energy efficiency and developing low carbon technologies.
We also published our draft Responsible Gold Mining Principles following an extensive public consultation. Once finalised, the principles will set out clear expectations for all stakeholders as to what constitutes responsible gold mining. The responsible gold mining industry already operates under a large number of standards and codes that define specific aspects of good practice. The principles will consolidate and frame the multitude of existing approaches under a single framework, which will provide confidence to refiners, trading markets, investors and consumers that gold has been mined responsibly. Conformance with the principles will also demonstrate the continuing commitment of the responsible gold mining industry to operate to high ESG standards. Looking ahead, this will be an ongoing area of work that seeks to position our members as highly responsible corporate citizens.
Ensuring best practice in our standards
In 2013, we developed a Guidance note on non-GAAP metrics – all-in sustaining costs and all-in costs to provide further transparency and greater consistency in the way that mining organisations report their costs. Since then the metrics have been widely adopted by gold mining companies as part of their overall reporting disclosure. This year, we released an updated version of the Guidance Note, which included incremental enhancements in light of new accounting standards to support further consistency of application.
Increasing central bank appetite for gold
Demand for gold as a reserve asset strengthened considerably in 2018, rising by 74% compared to 2017, in response to the geopolitical and macro-economic environment. It also broadened. Our flagship training programme for reserve managers, held in conjunction with the National University of Singapore, received a record number of applications from central banks globally keen to learn how gold can help them meet their safety, liquidity and other objectives. Our mid-year central bank survey reported that one fifth of central banks surveyed intended to increase their gold holdings over the next 12 months, with none planning a decrease.
This was borne out by events, with over 20 central banks purchasing gold in 2018. This included many new buyers or central banks that had been dormant in the gold market for several years. Even some European central banks bought gold, with the national banks of Poland and Hungary both making sizeable purchases. The central banks of Russia, Kazakhstan and Turkey also remained prolific buyers. The desire to de-dollarise foreign exchange reserves, in response to deteriorating geo-political relations in some parts of the world, fuelled some purchases. While other central banks bought gold for diversification reasons and, in Hungary’s case, partly as a hedge against structural changes in the international financial system. We expect all three influences to strengthen this year.
The Common Accounting Framework for Central Banks, which was launched early in 2018, was awarded Central Banking’s inaugural Professional Services Initiative Award for the concerted effort to support constant accounting of monetary gold in order to boost transparency and improve central bank gold reserve management. Looking ahead, we will be co-hosting our next executive training programme on reserve management with the PBoC’s prestigious school of finance: Tsinghua University.
Bringing Shari’ah compliant solutions to Islamic investors
Following the launch of the Shari’ah Standard on Gold, which was developed to open up a new asset class for Islamic investors, new Shari’ah compliant gold-backed products were launched in Dubai and Malaysia this year, catering to both the institutional and retail investment markets. To further facilitate the growth of the Islamic gold market we collaborated with the International Islamic Finance Market (IIFM) to develop standardised documentation for gold products and transactions.
To complement our marketing of the Shari’ah Standard on Gold to Islamic financial institutions, we provided them with research on consumer perceptions of gold and Islamic finance. This is being used by Islamic banks to better understand consumer preferences, inform product design, and support the growth of the Islamic finance sector currently valued in excess of US$1.5 trillion (tn).
Changing the global dialogue on gold
We held our inaugural Investment Summit on 25 April 2018 in conjunction with NYU Stern Business School. Aimed at raising the global conversation on gold, both in terms of its role in addressing critical long-term investment challenges, as well as its broader relevance in society, attendees included leading industry experts, asset owners, academics, official institutions and central banks, many of whom had no prior involvement in the gold investment markets.
The debate centred on the macro socio-economic changes ahead, including: the shift in economic power from West to East; the rise of fintech and cryptoassets; ESG issues and their implications for the gold market and the impact of rising emerging-market incomes and the widening deficit in pension funds in western markets. The macro-economic shift from a primarily dollar-based to a multi-currency-based reserve system was also considered. Following the success of our first summit, two will be held in 2019 in Beijing and New York.
Dr Alan Greenspan, former chair of the Federal Reserve, is an admirer of gold and the gold standard, however he did note that flexible exchange rates have a similar effect as the standard achieved in its day. Today, gold is perceived to have an intrinsic value, which is why the world’s central banks, the IMF and other financial institutions hold over US$1tn of gold.
Furthermore, Dr Greenspan pointed out that the change in the price of gold historically parallels the change in the general price level for goods and services; in other words, it has an inherent stability when looked at across decades or even centuries.
India’s evolving gold market
India holds a strategically important position as the second largest consumer of gold and the holder of the largest stock of gold, yet its policies on gold in the past have not kept pace with the needs of a dynamic industry. Over the last five years, we have been advocating the need for a comprehensive gold policy to make gold a mainstream financial asset and part of the organised sector of the Indian economy. As a consequence of our efforts, 2018 marked a significant shift in government policy.
India’s Finance Minister indicated the government’s commitment to define comprehensive gold policies that would establish gold as an asset class, together with the creation of a gold exchange.
In February’s Union Budget, India’s Finance Minister indicated the government’s commitment to define comprehensive gold policies that would establish gold as an asset class, together with the creation of a gold exchange. This reflected a profound change in approach. Leading on from this commitment, the government’s think-tank, NITI Aayog, released a gold policy report with 84 recommendations to transform the gold market over the coming years. We were a core member of this committee.
Transitioning from policy considerations to implementation, we established a steering committee made up of 27 participants from financial institutions and trade associations, to develop a blueprint for a spot gold exchange, which will reform current practices that include private bilateral transactions, fragmentation, opacity, lack of price transparency and inconsistent and unreliable quality standards. The blueprint has been completed following wide consultations with policymakers and regulators, giving specific recommendations on operating platforms and regulatory changes. During 2019, a syndicate will be established to work with the policymakers to drive implementation.
In November we launched India’s first assay institute, in collaboration with MMTC-PAMP.
Finally, in November we launched India’s first assay institute, in collaboration with MMTC-PAMP. To support and sustain this initiative, six large national trade associations came on board as patron members in an unprecedented fashion. The institute will be transformative for the industry, as a new generation of skilled assayers will help eliminate the systemic under caratage of gold jewellery and bring integrity to the gold market, thereby instilling trust and confidence in consumers.
The growing role of gold in China
In 2018, we presented policy recommendations to the Chinese government and the PBoC to help strengthen its domestic gold industry and enable it to take an increasingly international role.
As reported last year, a new paper, Recommendations for the further development of China’s gold market, was released at the 2018 China Gold Congress, which we co-hosted with the China Gold Association. This report set out a five-year plan to help the market drive efficiency, increase transparency and take a greater role in the global gold market. Since then, the PBoC has started working on guidance for three new areas of gold investment: internet investment businesses, asset management and GAP products, which should stimulate new markets for gold in China.
With the restructuring of the China Banking and Insurance Regulatory Commission (CBIRC) during the year, we have resumed our activities with IAMAC, SGE and leading insurance funds by submitting a proposal to CBIRC to enable insurance companies to make an allocation to gold. The assets currently held by insurance companies exceed US$3tn. If approved, it would open a new channel for demand in China.
We also began preparations to establish a new ‘China Gold 50’ group, which is made up of the key stakeholders in the gold industry in China, including regulators, the CGA, SGE, SHFE, top mining companies, bullion banks, leading jewellers and other associations. This group will gather on an annual basis to discuss issues facing the Chinese gold market and how to help it strengthen its international role.
Extending the gold ETF market
Since its inception nearly 15 years ago, the US physical gold-backed ETF industry continues to experience an average of 27.3% AUM growth per year in US$ terms.1 This is driven by diverse factors including the rapid adoption of robo/self-directed solutions, a wide range of options for exposures, management fee compression, and ease of use relative to other investment vehicles.
In response to evolving market preferences SPDR® Gold MiniShares (GLDM) was launched in June in partnership with State Street Global Advisors (SSGA). Immediately embraced by key investor channels, including retail and platform driven models, GLDM grew rapidly, closing 2018 with US$397.4mn in assets. GLDM is currently the largest low-cost gold-backed ETF in the US market. SPDR® Gold Trust (GLD®) continues to be the market-leading gold-backed ETF, with US$32.5bn assets, representing approximately 70% of the US ETF market. Rounding out the GLD suite of ETFs is “SPDR® Long Dollar Gold Trust (GLDW), which offers investors an innovative way to access the gold market by removing the potential negative influence of a strong US dollar (USD) on the price of gold.
Fintech’s growing role in the gold industry
2018 saw a heightened level of interest in the gold market by the fintech community, with a myriad of different digital investment platforms and products having been launched worldwide and many more under development. Many of these seek to introduce new business models and disruptive solutions to redefine the current gold industry value streams and potentially significantly increase gold demand. In addition, blockchain has rapidly gained traction in the fintech space with a number of providers leveraging the technology in seeking to ensure provenance and integrity in the gold supply chain.
Given the profound impact of fintech on the mining industry and the potential new channels of gold demand this could create, we established a Fintech Gold Working Group with our members to explore these opportunities.
Subsequently, we decided to take tangible steps to help the gold market organise and advance initiatives in the space, and so we shifted our focus to honing our understanding of how technology and market infrastructure could be enhanced with improved process. One significant outcome was publishing the Internet Investment Gold (IIG) Investor Guidance document which highlights critical questions and structural requirements investors should be cognisant of and prioritise when evaluating online offerings of gold investment products. Since publication of the guidance, feedback has been overwhelmingly positive from the broad range of recipients including regulators, investors and product providers.
Looking ahead, fintech gold solutions are expected to become a significant market driver and one such example is Safegold, a digital platform in India that allows customers to buy, sell and receive vaulted gold. We made a minority investment in it in order to increase the breadth of vaulted digital gold products in India.