Recently the World Gold Council released a report on the relationship between gold and the natural environment. As the threat of ecological impact and global warming loom large, mining operations are seeking more efficient methods of sourcing gold. One company, Goldencorp, is at the leading edge of this trend with the “goldmine of the future.”

With new investments in technology, the company is preparing to open a mine designed to be the first all-electric underground operation. The plans include a significant departure from traditional diesel-fuelled equipment which will be replaced by Battery Electric Vehicles (BEV) which are three times more efficient. Changes like this are expected to reduce annual GHG emissions by 70 percent. Moreover, without the exhaust from diesel, Goldencorp’s newest mine will require half the ventilation of a traditional mine.   

Goldencorp represents a continued shift to more ecologically responsible solutions. Other mining operations are sourcing their power from large solar panel arrays. Others have reduced their reliance on energy by using naturally-occurring geothermal properties. Mines designed this way require less heat. The Hemlo mine in Canada is an impressive example of how these designs can yield lasting results; even as the mine has expanded, it has seen relatively little change in levels of energy intensity.

Meanwhile, other mines have found ways to reduce dependence on energy with operational changes. The Kinross mining company has minimized fuel consumption with route optimization and more efficient driver training. As a result the company has saved over 15,000 hours of haulage since January of 2017.

These sweeping changes are part of an effort to align economic and ecological goals. Companies are motivated to seek energy efficiency which offers considerable savings and increased profitability. At the same time, the environmental impact from mining drops. One goal serves the other and vice versa.

Consider that for some mines fuel represents more than 20 percent of the commodity and service purchases. Even for operations that use electricity in lieu of diesel need sustainable ways to help generate wattage. The Kumtor mine in Kyrgyzstan uses hydropower supplied by local reservoirs. The result: “the mine’s specific GHG emission footprint resultant from electricity is relatively low,” according to the World Gold Council. Other companies aim to replicate this approach because analysts project the cost of solar, wind, and battery storage to drop by 50-70 percent by 2040.

With so many mining companies taking the initiative to develop more environmentally conscious methods some are hopeful that other industries will take note and introduce similar measures. In the meantime, companies like Goldencorp are leading the way.

These changes should buoy gold investors’ confidence that their decision to own the metal has favorable influences on the planet. As experts at the World Gold Council concluded, their research “suggests gold may have positive implications for long-term investors in helping them manage the carbon footprint of their portfolios over time.”

You may be familiar with an old market saying: “Don’t Fight the Fed.”

Since the Federal Reserve bumped interest rates higher at its meeting today – tugging the fed funds rate to 1.75-2.00% – it’s valuable to consider the true meaning of that statement.

Warning! Dial Back on Stock Exposure

“Don’t fight the Fed” is a recommendation to stock investors to “pare back” on stock holdings as the central bank pushes interest rates higher. Why?

• The Fed hikes interest rates toward the end of a business cycle to prevent overheating (inflation).
• Historically, that precedes a bear market in stocks and a recession in the economy.

Essentially – Don’t Fight the Fed is a warning to stock investors – get out while the going is good!

• That may be truer than ever today! The current U.S. economic expansion cycle turned 9 years old in May. That is the second-longest expansion going back to the 1960’s.

What It Means for Gold

But, interest rates are going higher isn’t that bad for gold? Nope. Not now. Here’s why.

There are extremely low odds the Fed will truly be able to “normalize” its monetary policy before the next recession hits. Interest rates have been historically low for a DECADE now – since the 2008 global financial crisis. There is nothing normal about these conditions.

Higher interest rates are bad for stocks (it makes everything companies buy on credit cost more). When stocks turn down, history shows time and time again, that gold prices turn up – usually significantly.

Gold climbed 179% from the 2008 low into the 2011 high. We are getting close to the tipping point in that cycle now.

• Don’t Fight the Fed means a bear market and recession could be just around the corner.

This is a rare opportunity to accumulate gold – perhaps one of the safest assets known to mankind at a relative bargain price. Buying gold coins and bars is one of the best way to protect your assets at this point in the business cycle.

The Fed is making moves. Are you? Call Blanchard today at 1-800-880-4653 to take steps to protect your assets.

In recent months something has reinvigorated China’s demand for gold. In fact, 2017 was the first year since 2013 in which China experienced a growth in jewelry demand. This increase marks a reversal of a worrisome trend that began just a few years ago.

Recently, the World Gold Council reported that demand for gold in China shrank by one-third between 2013 and 2016. What precipitated this drop? Decreasing gold prices drove accelerated buying. However, this fervor led to an over supply. Stores appeared everywhere. Merchandise piled up. This trend gave rise to price wars in which purchases fell with each year representing less than the one before. Despite the signs of a classic supply and demand problem, there was another underlying culprit to the downfall.

Too many sellers mistakenly believed that consumers only wanted gold jewelry for its valuable metal. Retailers accepted consumers as a purely pragmatic group. As sales dropped, merchants were forced to rethink their assumptions. They began understand that consumers want style. In time, retailers began to offer a wider array of gold products thereby appealing to the consumer’s aesthetic leanings.

This concept makes intuitive sense. Increasingly, China’s economy is driven by middle-class consumers. This group is seeking luxury goods. As more people enter the middle class the demographic is changing. More younger consumers populate this tier than ever before. This change means that sellers have had to expand beyond traditional 24ct products which appeal more to an older demographic.

Younger buyers want 18ct and 22ct gold which is considered, in China, more fashionable and is also more affordable. These lower ct offerings give the jewelry a distinct color that is more in keeping with younger tastes. This diverse product selection is the ultimate win-win. As the World Gold Council explains, “these products offer fatter profits for retailers. 24ct jewelry is usually sold by weight, with slim margins. K-gold is sold by piece, which allows the retailer to boost profit margins.”

Technology has also entered the picture. Makers now have the capability to use a chemical process to manufacture “3D” gold which is up to four times harder than 24ct gold while using only one-third of the amount of gold found in a traditional piece of jewelry that is the same size. Manufacturers and artists have designed new pieces that resonate with the growing consumer base.

Retailers are wise to react swiftly to changing times. Research shows that more than three-quarters of the urban population in China is expected to be middle-class by as soon as 2022. Consider that in 2000 only 4 percent of the urban population was middle class. These new households have greater income and more disposable wealth. Not surprisingly, spending from this group is projected to increase by 9 percent per year through 2020.

These figures illustrate opportunities not only for gold sales in China, but also for gold investors in the U.S. As demand increases, prices will rise and investors will be poised to capitalize on the rising tide.

To understand the future of gold you need to look at where the action is, and experts agree, the action is in emerging economies. Emerging markets are important when forecasting gold demand because these are the regions positioned to see the greatest population growth over the next decades. Research from Brookings projects that within the next 17 years, approximately 170 million people will enter the middle class every year.   

The World Gold Council (WGC) suggests that the engine of this growth will be technological growth, institutional reform and organizational changes. People lead this change; therefore, demographic shifts will be critical to spurring the innovation necessary to deliver on these bold population forecasts. For example, the WGC expects the share of citizens to be of working age in Africa will rise from 13% to 40% by 2100 making the country a dominant player on the world stage. Interestingly, these projections don’t reflect the popular belief that China’s status as an economic powerhouse will continue unabated. In fact, they expect the country’s economic growth to shrink by 1% per year starting in 2050.

As the middle class grows, purchasing power grows with it. McKinsey expects that annual consumption within emerging economies to reach $30 trillion. The purchasing power of this group will be staggering. McKinsey continues, “As a result, emerging-market consumers will become the dominant force in the global economy. In 15 years’ time, almost 60 percent of the roughly one billion households with earnings greater than $20,000 a year.”

Middle class growth in these countries has implications beyond gold purchases as a status symbol of conspicuous consumption. Governments will likely increase their demand for the metal as technological developments increase. The same body of research shows that China’s commitment to technology will account for 50% of its economic growth by 2030. Gold will continue to be a major component in technological devices like tablet computers and smartphones snapped up by a growing base of voracious consumers. This trend will present an interesting phenomenon in which more people have access to technology which, in turn, gives them greater ability to buy gold.

Additionally, investors in many of these countries will opt to store their household wealth in gold. This choice comes from a long-standing belief that gold is a safer store of wealth than local currency or financial instruments like stocks and bonds. As globalism continues to advance, more citizens are likely to choose gold because it is valued and respected around the world unlike many paper currencies.

Moreover, citizens of developed countries are also likely to opt for gold more than they do today. Why? Because as emerging economies become more established there will be less variance between emerging market and developed market equity funds which will only spur investors to seek diversification in other areas like precious metals.

The emergence of a more populous middle class will be a significant influence over the future of gold and investors who seek to capitalize are starting to invest now.