New opportunities for gold in uncertain times
At a time when investors increasingly worry about climate change, the precious metal is positioning itself as a green asset
Having been a store of value since ancient times, it’s rather strange to think that gold would need to assert itself as an asset class.
But that is the job of the World Gold Council, a membership association of 25 of the leading gold mining companies operating across the world. In Africa, they have 35 operations across 11 countries.
“Our primary role is really thinking about how gold plays a meaningful role as a financial asset,” says the council’s CFO, Terry Heymann, speaking on the sidelines of the Investing in African Mining Indaba this week. “What we are here to do is to support the effective functioning of the global gold market.”
So is gold losing its relevance then?
In the minds of some, it already has. Gold makes up a very small portion of most investment portfolios — the general advice is to never have more than 10%. It’s certainly been done no favours by the long-held (and well-aired) view of business magnate Warren Buffett, considered by some to be the greatest investor of all time, that investing in gold is “stupid”.
Buffett argues that gold simply doesn’t do anything. He has said: “It’s a lot better to have a goose that keeps laying eggs [equity in a profitable company] than a goose that just sits there and eats insurance and storage and a few things like that.”
But the world is changing rapidly, and in the mining industry a variety of minerals and metals are vying for a spot in investor portfolios. Gold risks being left even further behind, but Heymann says the uncertainty investors face presents new opportunities for the precious metal.
“Gold is likely to be significantly less volatile than bonds, equities and other forms of assets just by being in a turbulent world that is going to be affected in ways we don’t know by climate change.”
Awareness around climate change and climate risk is growing among investors, and Buffett’s argument that the commodity “doesn’t do anything” may now actually work in its favour.
Like other miners, gold companies are implementing solutions on site that reduce their carbon emissions. But as a product, it’s also significantly less carbon-intensive than, for instance, industrial metals
“Once you’ve produced a bar of gold, the incremental emissions are basically zero,” says Heymann. “So for investors increasingly thinking how to construct a portfolio from an emissions perspective, holding gold essentially reduces the overall emissions of that portfolio.”
Climate change is just one of the environmental, social and governance (ESG) aspects which have become key for investors as the question of sustainable investment comes to the fore. And it’s important for gold to clearly articulate how it is performing in this space in order to access investors looking for investments with impact, Heymann says.
“In the area of responsible mining in particular, it has been something the mining community and our members have been working on for a very long time. What’s new is investors coming to the party and saying, quite rightly, ‘How do I factor ESG into my overall investment portfolio?’”
Here, Heymann believes, investors should think about mines as instruments for driving development in the countries where they operate, which often are very poor.
“I think gold has been enduring. I don’t see that changing anytime soon,” says Heymann. “It is important that the gold industry clearly sets out the role it plays in advancing society.”