As gold prices continue to soar to long-lost highs, many individuals may consider melting down their precious wedding bands.
This gold boom - unlike the one that sent our parents scrambling for spare pieces of the metal in the early '80s - was not caused by mounting uncertainty in the market. It has instead increased global consumer demand that appears to be the cause of the 17-year high in prices. This unique scenario represents a significant opportunity to reform and develop within the gold industry.
Consumer demand has accounted for a significant majority of global consumption ever since most central banks moved away from the gold standard. Demand, after years of stagnation, is enjoying healthy rates of growth, primarily because of ballooning sales in the Far East. Chinese and Indian residents with newfound wealth want gold - and lots of it.
As the industry enjoys the windfall of these new consumers, they will maximize sales by paying close attention to the culture role of gold in these new countries. In the West, gold is traditionally presented very conservatively, and designs have not changed significantly over several decades.
Asian customers are different. The newly-minted Chinese and Indian middle class consumers want a way to express their new found wealth. Designs that Europeans and Americans would consider gaudy are very popular. Thus, it would seem ideal for gold designers to follow the customer in their designs.
The gold industry should take a cue from the diamond and platinum industries. It needs to make a concerted effort to link different steps in the production chain. If the sector were to collaborate on advertising efforts, retailers would benefit from increased volume and miners would have the cash to explore new efforts.
Producers and retailers of gold can also find new applications for gold in industry. Funding research for the development gold usage in the medical and electronics field could open another important future source of revenue.
With these new, long-term sources of demand in place, the time is ripe for the mining industry to tackle major reforms in how they obtain their supplies. Anti-mining groups have been pressing the industry for years for governments to ban cyanidation - a common way of extracting gold from the ground. Major mining interests have taken steps to prevent this. This is a wise move, because a policy of self-regulation is logical for a worldwide industry. But even if left to police themselves, the fact remains: it is in the gold industry's best interests to phase out cyanidation.
Improving standards in production will ultimately be beneficial to the producers. Not only will they benefit from an improved image, but they will escape potentially expensive legal costs and costly restoration to the environment.
Cyanidation is representative of an older, swashbuckling industry. Extraction through this method is extremely wasteful. It takes nearly 30 tons of rock doused with cyanide to extract only one ounce of gold. With rising costs of gold, the industry has the unique opportunity to invest in new extraction methods. Not only would the environment benefit from lack of pollution, but additional sources of gold could be tapped.
Ultimately in this highly fragmented sector, the major body - the World Gold Council - needs to encourage a unified transformation. It will only be through synergies in supply chain integration, improved exploration methods and self-regulation in environmental standards that the sector will be able to benefit from price rises and sustain development. Profit margins may fall in the short-term, but with guaranteed demand from the Far-East and the threat of environmental lawsuits diminished, the overall forecast for the industry will be much brighter.
