The financial sector

We usually relate gold consumption to golden jewellery and watches. However, in 2010 over one third of the demand for gold was determined by the financial sector.

We usually relate gold consumption to golden jewellery and watches. However, in 2010 over one third of the demand for gold was determined by the financial sector.

 

Commercial and central banks invest heavily in gold due to its being the ‘safest’ investment. Astronomical quantities of gold are held by banks giving the Northern economies a relatively safe reserve to fall back on in harder times. In 2010, the official sector laid in 73 tons of gold globally, which constituted a turning point in a long period of gold sales. The Belgian central bank possessed gold reserves of 227 tons at that time. But, throughout the history of gold, what has been the impact on the South caused by the attempts to create a relatively stable situation in the North?

In addition to this, commercial banks promote investment possibilities in mining multinationals to their clients as one of the safest and most interesting investments.

It is probably unrealistic to imagine a world without gold as a financial buffer. Our principal goal is to convince consumers of the importance of investing in projects which are more sustainable than gold mining.

Even the World Bank and the European Union are guilty of investments in detrimental mining projects. The Montani Copper Mine in Zambia was granted a €48 million loan by the European Investment Bank (EIB) to advance the country’s development. Even though the development of the mine has had mainly disastrous effects on the environment and has been criticized for its weak social policies. The World Bank has invested millions to asphalt the road that leads to the notorious Marlin Mine in Guatemala. This road, which runs through several villages and is used daily by many heavy trucks, is responsible for big cracks in the walls of the houses on the roadside.

The discourse of gold investment is partly based on image and myth; due to historical circumstances gold has always been the victim of greed blinded by ‘gold fever’. This image partly determines the current role of gold in the financial world, for example, gold is a lot less profitable than shares in the long term, and the gold price does not rise slowly and steadily. We are currently in a period where the gold price has sharply risen. Such was the case in the eighties (albeit to a lesser degree), but in the aftermath it was an illusion for the gold feverish investors who saw the gold price drop and then stagnate for about 25 years.

The part played by the financial world must not be underestimated in the context of the problems related to gold mining. During the past decade gold has proved to be an excellent investment now that gold prices are soaring. In times of crisis, the situation in the Middle East, the Euro crisis, growth markets in Asia etc, gold becomes a safe choice. People will therefore, in the absence of a comparable alternative, always continue to invest in gold. The financial world will consequently always continue to be a stakeholder in the problems related to mining.