The World’s Gold Trading Hubs and their Importance to Artisanal Gold Mining
By Shawn Blore - April 16, 2020
Africa sells to Dubai and Dubai sells onward to Switzerland. The Swiss sell to London (but also to Dubai and India) and London sells back to Switzerland and also onward to Hong Kong. International gold trade has many routes and inter-connections but as is evident from the COVID-19 crisis, it can come grinding to a halt when only a few of its interconnected elements cease to function. And that has exposed some its its vulnerabilities and who are its most vulnerable participants – artisanal gold miners.
The AGC’s recently published Gold Trading Hubs Dashboard shows the operational status of six of the world’s major gold hubs: the UAE (Dubai), Switzerland, the UK, India, the United States, and Hong Kong. The Dashboard’s colour coding shows the overall trading status of each hub as well as the status of six COVID-19 related factors that determine whether or not a trading hub is operational. These include border controls (who can or cannot enter), internal controls (is a country in lockdown or quarantine), domestic flights and transport, international flights and air freight, health status (type of COVID-19 transmission, preparedness) and the status of key gold infrastructure.
The Dashboard illustrates the status of any one trading hub at a glance. What the Dashboard can’t show are the intricate interconnections between these hubs, nor the complex connections within each hub required to keep them going. These are important, because these hubs act less as freestanding entities and more like links in a chain. When a key link breaks, the chain falls apart, or at least shuts down until a new link can be forged. For artisanal gold producers dependant on the trading network, a progression from red to yellow (stopped to restricted) is a cause for optimism because it is a sign that they may again be able to sell their gold into a formal market for a fair price. But it is not necessarily a sign that the gold chain has been made whole again.
To take one example, most of the artisanal gold from Africa and Central Asia makes its way first to Dubai, as a recent AGC article noted. The UAE, and Dubai in particular, have specialized in attracting and processing the kind of 20kg hand-carried gold parcel favoured by African and Central Asian gold exporters. In 2016, according to COMTRADE statistics, the UAE imported over 800 tonnes of gold of this type, most of it from artisanal gold producing countries in Africa and West-Central Asia.
That gold barely stops in Dubai before continuing its journey, to among other places Switzerland, which according to COMTRADE imported over 377 tonnes from the UAE in 2016. The Swiss take the Dubai gold as well as gold from many other places, and they pass it on –to the UK (488 t); India (326 t); and Hong Kong (320 t). Some of these places, like the UK, pass it back to Switzerland (311 tonnes coming back in 2016). Some, India especially, turn it into jewellery, a portion of which they ship back to Dubai for sale in the gold souk (in 2016 the UAE imported 46 tonnes of gold jewellery from India).
Behind all these numbers lies an important fact: no trader will buy gold unless they know they can sell it on quickly. The gold trade is one of small margins so the key to profit is moving large volumes quickly – much like the trade in money (FX trading). This has important considerations for those in either civil society or the commercial sector looking to re-activate frozen artisanal gold supply chains as a method to mitigate COVID-19 impacts and keep money flowing to remote rural communities.
Africa, for example, has been particularly hard hit by the closure of its main gold hub Dubai. Air freight could conceivably substitute for the former practise of hand-carrying gold parcels, but will Dubai still buy knowing that their biggest customer, the Swiss, are operating at only half capacity, or that India (customer number 2) is shut down entirely?
Or to take another example, the Colombian gold producing region of Choco has suffered a near total shut down of its local gold trade, with serious effects on artisanal miners and mining communities. The Choco region exports normally to the big gold refiners located in Switzerland’s Ticino Valley. These refiners have re-opened and are now operating at 50% capacity. Providing that the still-substantial local in-country barriers to trade can be overcome (barriers that include absent buyers, a lack of local buying capital, and domestic travel restrictions) the Choco situation should be solved. Unless the Swiss themselves lack clients because of their own logistical or capital or liquidity barriers, or because many of their traditional clients such as India remain in lockdown. And so even with a solution at the local level, the overall chain could yet remain frozen.
With gold now trading at near record prices (US$1715/oz or $55.14/g) it’s possible – perhaps even likely – that market forces will quickly bring together seller and buyer. But it’s also possible that those seeking to re-start frozen gold supply chains like the one in Choco may find themselves dealing not only with in-country challenges —with grounded flights and no local buyers and a lack of capital and bureaucrats wielding the approval stamp– but also with re-fashioning broken links of the gold trade that takes place between trading hubs.
This is challenging terrain, and yet well worth the climb. Certainly, these trading links should be made more resilient, possibly by making them shorter or else by creating redundant pathways. In retrospect, the reliance of Africa on a single gold trading hub is clearly not a strong gold supply chain. The effort to restart gold flows from Africa and elsewhere is thus an opportunity to make those gold trading chains more robust. At the same time, it’s an opportunity to make them fairer, perhaps better paying for miners, and more in keeping with modern sourcing standards such as those established by the OECD.
The effort to re-activate and improve artisanal gold supply chains will hopefully very quickly see the the squares in the Gold Trading Hub Dashboard, turn green.