As Good as Gold: an Inimitable Commodity

Gold is inimitable.

Humans, it seems, have a very special relationship with gold. Indeed, gold is the earliest recorded metal to be used by humans, having been found in caves in Spain, dating back to c40,000 BC and gold artifacts have been found in Bulgaria dating back to the period around 4,400 BC.

Gold is, of course, a chemical element (with the symbol Au, from the Latin ‘aurum’ and atomic number 79 on the Periodic Table) that is orange-yellow in colour, dense and malleable. The name ‘gold’ probably derives from Proto-Germanic and Indo-European languages meaning glow or shine. It is naturally occurring in rocks and alluvial deposits as nuggets or grains as well as alloyed with other metals. It is estimated that the World’s oceans hold some 15,000 tonnes of gold, but at 13 billionths of a gram of gold per litre of seawater it is uneconomical to recover.

It is thought that gold was produced in the origins of the universe from colliding neutron stars. Consequently, most of the gold to be found in the early Earth is thought to have sunk to the planetary core – some of which has later been returned to the surface through tectonic movement and volcanic activity. The bulk of the gold to be found in the mantle or the Earth’s crust is believed to have been delivered by asteroid impacts during the so-called Late Heavy Bombardment (around 3 billion years ago).

Gold is a relatively rare earth element (its scarcity imbuing it with value and as an entity capable of holding value) and is classified as a precious metal (naturally occurring?metallic?chemical elements?of high?economic value). One cubic metre of gold weighs over 19 tonnes.

Best estimates are that there are currently around 184,000 tonnes of gold in bank vaults, government reserves and personal collections – just enough to cover a football pitch in a layer one metre thick. It is estimated that three-quarters of this gold has been extracted since 1910, two-thirds since 1950.

Gold constitutes a few parts per billion of the Earth’s crust, making up, in total, about a million tonnes of gold in the top kilometre – much of this gold, however, is uneconomical to recover using currently available methods.

For over 100 years South Africa has been the World’s largest source of gold, accounting for nearly 80% of the global supply in 1970, until it was overtaken by China in 2007 (followed by, in order of magnitude, Australia, Russia, the USA, Canada, Peru and South Africa – other significant gold producing countries are Ghana,?Burkina Faso,?Mali, Indonesia and Uzbekistan). It is, however, estimated that up to one-quarter of annual global gold production originates from artisanal or small-scale mining.

?Gold remains in high demand as an investment, a status symbol and as an essential component in many electrical products. Gold is, however, a finite resource. A total of 3,531 tonnes of gold were mined in 2019, 1% lower than in 2018 (World Gold Council) - the first annual decline in production since 2008.

The US Geological Survey estimates that there are approximately 50,000 tonnes of gold reserves yet to be mined (190,000 tonnes of gold having already been mined), about 20% of currently available reserves. This figure does, however, change as more gold resources become economically available due to advances in technology (including robotics, AI, big data and so-called ‘smart data mining’).

Gold mining on a large scale is extremely capital intensive, although smaller mines have higher operational costs. Most mining today (around 60%) takes place in surface mines. Gold mining, like any kind of mining, is fraught with danger. These days, of course, the mining industry is more sensitive to its death rate (both in practice and in pubic). Mining rates third in the global ranking of deaths per 100,000 (at 10.3 in 2020) behind agriculture (at 20.5 in 2020) and transportation and warehousing (12.6 in 2020). The deaths per 100,000 in the global mining industry was almost 30% lower in 2020 than 2019 (all data from the National Safety Council). Environmentally gold has a challenging record. Approximately 16 tonnes of CO2 is produced in mining a kilogram of gold, whilst 53 tonnes of CO2 is produced in gold recycling (at present around 30% of global gold supply is produced from recycling). Cyanide is necessary for gold processed from mining and gold mining is the source of a range of highly dangerous (to humans and the planet) heavy metals. Recycling gold, for example from e-waste, is also associated with high environmental and human health costs. Environmental pollution remains a real and potential threat.

Whilst mining (all mining activity including gold mining) can have positive benefits, economically and socially, it is frequently accompanied by significant adverse human rights impacts – due, predominantly, to the regions where mining takes place. The United Nation’s ‘Guiding Principles on Business and Human Rights’ (2011) requires businesses (all businesses) to respect human rights. To this end, mining companies are required to secure acceptance from local communities for their operations; set out in a so-called ‘social license to operate’. Despite this and the enhanced perceived need to pay greater attention (reputationally and economically) to a range of ESG factors, the mining industry has extremely variable performance across a range of indicators: environmentally, working conditions and community wellbeing, with no one company performing exceptionally well and many performing extremely poorly (Responsible Mining Index 2022).

As a commodity, however, gold remains highly attractive. Indeed, as the chart below illustrates, although there are daily fluctuations, the price/value of gold has been steadily increasing over the last 50 years; reaching its highest ever price in 2020.

Despite the challenges associated with producing gold, it retains its special place in finance and human sentiment. Gold really is, it seems, inimitable.

Professor Kevin Haines :?Head of Social Policy?at Bedford Row Capital PLC