Gold Fever

From before the time of the ancient Egyptians till date, gold has remained a measure of value. Ever wondered, then, what the supply chain of this most precious metal is like?

Did you know that the majority of the gold which is refined annually around the world is recycled material as opposed to newly mined material? In simple words, you probably possess something Nefertiti owned.

“Gold stays around forever,” says Corey Keller, General Manager, Al Ghurair Giga Gold Refinery. “It’s there on the periodic table along with silver, platinum and palladium. It’s not going anywhere as it’s always held value and people are careful to maintain it. It might get found at the bottom of a pyramid, but regardless of where it’s found, once it is, off it goes into the recycling chain,” he says. “If it was found once, it’s probably still in the market.”

Corey Keller, General Manager, Al Ghurair Giga Gold Refinery

It is a wonder then why prices are so high these days if so much gold is circulating in the market with more being mined daily. Supply surely has to be overshadowing demand. “About four to five years ago, the gold market was responding to the basic principles of supply and demand. As gold mines were mining large quantities, supply was more than demand hence prices were low,” says Keller.

In the last year or so, however, exchange traded funds have allowed more people to buy the physical metal easily. Before one would have to visit a gold refinery or a bank to purchase gold and then find a place to store it. And if you wanted to sell, you’d have to do so only at a discount to the banks or the refineries. Other options such as mutual finds were more profitable to invest in. Now, though, the exchange traded fund works much like a mutual fund, where you just pick up the phone and a trader will buy the gold for you, store it, sell it when you want to and send you the money with the profit or charge you for the loss. This easy access to the gold market has sent prices through the roof.

The entrance to the refinery

The supply chain The supply chain of gold essentially starts when someone owns a lease for a piece of ground which has gold in it. The owner of the land then invests hundreds of millions of dollars to put an infrastructure in place to mine the gold.

There are two places where gold is found: Usually, either a historic river bed where you dig up the dirt and gold comes up in the form of little flakes or nuggets, or mountains of rock with gold in it. These mountains are run through a cyanide leach which picks up the gold out of the rocks and the rocks are returned where they were found, minus the gold. These are the two kinds of gold that show up in gold bars.

After gold is found in mines, some mine owners melt the gold on site to determine the quality and value by weight and the metal’s percentage of gold. Alluvial gold from a river bed usually comes out looking like regular gold – nuggets or flakes. Those flakes or nuggets are then sent for a test to determine quality which is fairly consistent all through the river bed.

Transportation How the gold is transported from the mines depends largely on the size of the mines. Most of the huge, international mining giants who are present in places like Ghana, West Africa, have their own helicopter service from the mine site to Accra, the capital city, where the international airport is located. They also use the services of international security freight forwarding companies like Brinks or G4S who use armoured vehicles to transport the gold.

At the airport, the gold is loaded on to a commercial or private plane if the owner has delivered it by his own helicopter. If it has been assigned to Brinks or G4S, from the point the security company is signed off, they ensure completely the safety of the material to the doorstep of the refinery. In either case, the gold is insured for its value before being sent out anywhere. Without the security company the owner has corporate insurance protect the gold and in case of the security company, they always provide the kind of solid insurance policy a shipment of such high value needs. “Transportation and insurance is where all the money is made in the gold business,” says Keller.

A furnace inside the refinery

Refining “It doesn’t matter what form it shows up in at our doorstep,” continues Keller, “because it all goes into the melt sample area.” This is a place in the refinery the customer can come into as well. He is allowed to witness the melt and sample of the material. It’s basically where the gold is cleaned up from the dust and melted and poured into a nice, clean bar. A sample is sent to the lab and another sample is given to the customer to get it checked out in an independent laboratory. Values are then cross-checked. Once the client is satisfied of the accuracy, the refinery purchases the material from the client.

Once the gold has been acquired, it is converted by the refinery from an unusable metal to one that is usable and of investment grade, which is as close as it can get to liquidity or money. Customers of the refinery are anyone who wants the gold bar for investment purposes (to sit on till the price increases) or industrial purposes. Categories that fall in the industrial purpose of gold are: jewelers who melt the gold again and bring it down to 22 carat, 18 carat or 14 carat gold, depending on what kind of jewellery they are planning to make; as well as manufacturers of satellites or computers.

Biggest market Africa, particularly South Africa has the largest gold refineries in the world, which tend to be government run operations. South Africa is on the top of the list for the amount of gold being mined. Canada, too, is on the list for mining as well as China and Russia.

In terms of recycling jewellery, India is by far the biggest market. Keller says, “Going by gold sales, Dubai is somewhere near the top of the list. The Dubai Multi Commodities Centre (DMCC) – a regulatory authority we work under – suggests that 10 to 15 per cent of the annual volume of the metal is run through Dubai, so it’s certainly becoming a big player.”