Investors don’t care enough about recycled gold

Published Date: October 22, 2024 | Author: Jake Coulson

Gold has long been a symbol of value and remains essential to investors today. While it no longer serves as currency, it remains a key portfolio diversifier. However, as sustainable investing grows, investors face a dilemma: gold is valuable, yet mining it can have environmental and social impacts. One solution is increasing the use of recycled gold in exchange-traded commodities (ETCs), reducing gold’s environmental footprint while maintaining its role in portfolios.

The pitfalls of mining

Gold mining can be a dirty business. It entails moving vast quantities of rock. A standard gold bar (400 troy ounces) requires digging up about 5,000 tonnes of earth. As Ed Conway notes in Material World, “That’s nearly the same weight as ten fully laden Airbus A380 super-jumbos, the world’s largest passenger planes – for one bar of gold.” Next, the rock is ground down into tiny granules and mixed with a cocktail of toxic chemicals.

Needless to say, all of this exacts a toll on the earth, be it through potential for chemical leaks or the energy required to (quite literally) move mountains. And indeed, the amount of earth that needs to be shifted is increasing. Each year, gold grades (the ratio of gold to rock) are declining, which means more earth must be dug up to get the same amount of gold as before. It now takes around 1.25 million kilograms (kg) of natural material to produce 1 kg of pure gold. This can have a profound impact on ecosystems and landscapes.

Mining is also energy intensive – the extraction and grinding of ore requires almost 90,000 kilojoules (KJ) per gram of gold produced. That is equivalent to about one day of electricity use for the average American home.

Image sourced from Quintent. For illustrative purposes only.

Enter recycled gold

Recycled gold, by contrast, is estimated to be around 90% less carbon intensive than mined gold. As a society, we are increasingly preoccupied with sustainability, and corporations are being pressured to demonstrate their commitment to net-zero targets in order to remain competitive in the market.

When it comes to gold, this has been the driving force behind greater focus on recycled gold among jewellery firms. This potential for a reduced carbon footprint has attracted many players to the recycled gold scene – last month, the world’s largest jewellery company by volume, Pandora, completed its transition to 100% recycled gold. Other major names such as Tiffany & Co., Apple, Samsung, and Dell – are also making, or have made, the switch.

The basic argument is that, given recycled gold accounts for around a quarter of new supply, this avoids a significant amount of extra mining. While gold mining is on the lower end of carbon emissions (compared to the likes of aluminium, steel, coal, and zinc mining), it still produces around 0.9kg of carbon dioxide (CO₂) per USD of mined value.

Mine production adds around 3,500 tonnes per year, representing around three quarters of new supply – and recycled gold accounts for the rest, around a quarter on average since 2013. Now, recycled gold is growing around three times faster than mining, rising 12% in 2024 so far, versus 4% for mining.

Are investors behind the times?

But while jewellery companies and tech giants are largely leading the charge, where we are seeing lag is in financial services. Partly, this is because of the different nature of jewellery demand. As Michael J. Kowalski, the former CEO of Tiffany has noted: “Jewellery is an emotionally laden product, and you want to feel absolutely secure in its origin story.”

Another reason, perhaps, is the criticism of certain elements surrounding the recycled gold trend. The phrase, “gold laundering”, has become prevalent – in essence, it refers to gold sourced unethically or irresponsibly, being turned into “clean” gold, with its questionable origins erased. Indeed, the UK’s National Economic Crime Centre Red Alert flagged the risk of “new Russian gold enter[ing] the supply chain as mislabelled recyclable gold.”

But the solution to this is ensuring recycled gold is sourced from companies that have the advantage of close control over their supply chains.

The Royal Mint, which uses a growing proportion of 100% recycled gold for its four physical gold ETCs, recycles gold from scraps in its manufacturing processes, creating a circular economy over which the Mint has full control. In this instance, only pre-approved, responsibly sourced gold scraps are recycled into new bars. The Royal Mint Gold ETCs are the only ETPs in Europe which provide access to recycled Gold

The sources of recycled gold

Some argue that gold is never truly a waste product (unlike, say, plastic bottles) and therefore is not truly being recycled. But there is a big exception to this: electronic waste, of which around 20% is currently being recycled.

Ultimately, gold is finite. Choosing not to recycle it in any form means that mining will need to provide 100% of supply, and the environmental implications of this are significant. By placing a preference on recycled gold over mined gold, a signal is being sent. While gold mining will always play a role, this demand preference can help facilitate greater demand and growth of the recycled gold industry.

This is being recognised by both the technology and jewellery sectors. Financial services should also move in this direction.

“Mines are giant behemoths carved into the Earth’s crust that belch dust and toxins. But they also birth treasures,” writes Ernest Scheyder in The War Below. Perhaps, then, we should also make sure we are using as much of the treasure already above ground where possible.

The Royal Mint Responsibly Sourced Physical Gold ETC (RMAU) tracks the spot price of physical gold and offers an opportunity for investors to access recycled gold. Around 50% of the gold held by RMAU backed by 100% recycled gold bars. Uniquely, retail investors can redeem for physical bars and coins stored at The Royal Mint’s secure vault in Llantrisant, Wales. 100% of the gold custodied is backed by London Bullion Market Association (LBMA) post-2019 Good Delivery bars.

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