Setting a gold standard in the global economy

Gold price

Australian Mining talks with The Perth Mint to find out why Australia’s gold industry has maintained its importance to the national economy over the past two years.

Throughout the COVID-19 pandemic there has been little in terms of stability throughout the world. 

However, one thing has remained relatively constant despite the growing uncertainty that has gripped economies – gold. 

While the price of other commodities has fluctuated depending on factors including market demand and political power plays, gold has bucked global trends to not only survive during the ongoing pandemic, but also thrive. 

Perth Mint listed products and investment research manager Jordan Eliseo says gold has been one of the safest commodities of the past 24 months. 

“Last year, gold had one of its strongest years on record, rising by approximately 25 per cent in US dollar terms, as the COVID-19 pandemic, and the associated fiscal and monetary response saw real bond yields decline, and investors gravitate to bullion,” he says.  

“This was best evidenced through inflows into gold exchange-traded funds, including Perth Mint gold, which saw record inflows at the height of the pandemic. 

“This year, gold prices have been more subdued, though the precious metal can continue to play an important role in investor portfolios, especially given the rising inflationary risks evident in the market.”  

In September, The Perth Mint reported an underlying pre-tax profit of $56 million on turnover of $26.35 billion for the 2020-21 financial year. 

This is a record in the mint’s 122-year history and cements the East Perth institution as one of Western Australia’s largest exporters of gold and silver.  

Eliseo says the gold industry is responsible for providing more than 30,000 jobs to Australians, as well as supporting more than 200,000 indirect jobs.  

“It’s also an important source of export revenue (more than $25 billion per annum), and generates billions in royalties, which governments use to fund infrastructure and community services,” he says.  

“In this way, the gold industry helps support the economy and the prosperity of Australian citizens at both a state and nationwide level.”  

The Perth Mint delivered a further $41 million in taxes and dividends to the state government in the 2020-21 financial year, taking the total paid to Western Australians to more than $230 million over the past decade. 

The mint refines the vast bulk of newly mined gold from across Australia, transforming it into cast bullion bars and minted precious metal products for sale to investors worldwide. 

According to Eliseo, multiple factors impact the price of gold, from inflation and interest rates, movements in currency markets, stock market strength or weakness, central bank activity, as well as geopolitical developments.  

“As a general rule, whenever investors are wary of risk in the markets, they will turn to gold, given its safe haven status, and this typically results in higher prices,” he says.  

“The last 20 years have demonstrated this clearly, with a range of high-profile events (The NASDAQ Crash, September 11, the Global Financial Crisis and the COVID-19 pandemic) all contributing to the rise in the price of gold from below $US300 ($412) to more than $US1700 per troy ounce.” 

According to Surbiton Associates, Australian gold production during the first half of 2021 was four tonnes more than China’s figures for the same period. 

From January to June, Australia produced 157 tonnes of gold, with 74 tonnes in the March quarter and 83 tonnes in the June quarter. China produced 153 tonnes of gold for the same period. 

Eliseo says Australia is in a blessed position when it comes to its gold industry.  

“We have typically been the second or third largest producer on an annual basis, with output of more than 300 tonnes last year, and indeed in 2021 overtook China to be the world’s largest gold producer,” he says.  

“Australia also has almost 20 per cent of the world’s economic demonstrated gold resources, which is more than any other nation.”  

Perth Mint listed products and investment research manager Jordan Eliseo.

Australia’s 12 per cent increase in gold production from the March to June quarter of 2021 can be put down to new and existing operations increasing their output. 

Eliseo says gold has a number of unique characteristics that set it apart from other commodities.  

Firstly, from a supply perspective, there are already vast stockpiles of gold (more than 200,000 tonnes) of the precious metal that are already owned by households, investors and central banks in bar, coin or jewellery form.  

“This means that the total supply of gold is very stable, growing gradually every year due to the work of the gold mining industry,” Eliseo says.  

“Gold also benefits in that it has dual drivers of demand – pure investment demand for bars and coins by people wanting to own gold in their portfolio, and jewellery demand driven by people who want to wear gold as an item of extreme beauty and display their wealth.” 

These factors feed into gold typically being less volatile than other commodities over the long term. 

Eliseo says Western Australia remains one of the nation’s major contributors to the gold industry.  

“While gold is mined Australia wide, there is no doubt that Western Australia is the beating heart of the Australian gold industry, with circa 70 per cent of gold mining production taking place in WA,” he concludes.

This article appears in the November edition of Australian Mining.

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