18 November 2019

Gold has many special properties, that make it one of the most precious metals in the world.

What Is Gold?

Gold, is one of the most useful, if not the most useful metal, among all the metals extracted from the Earth. This is because it contains a variety of special properties. It conducts electricity, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, it does not tarnish and has a bright color. It is therefore an important metal, which occupies a special place for man, being considered one of the most precious metals in the world.

Current and Future Use

The jewellery field is the principal sector in which gold is used and the main source of demand (Figure 1). This material also has good properties as an asset class. Over time, investors began to exploit gold as a reliable and tangible long-term reserve of value, using it in their portfolios in order to protect purchasing power, reduce volatility and losses in negative market periods. The attitude of central banks regarding this material has also changed in the last ten years. Official purchases by emerging market central banks have increased and the sector is now a source of demand. Gold wires are the backbone of the Internet and layers of gold help NASA protect its astronauts and equipment from radiation and heat. It is used in catalytic converters. Gold nanoparticles are the focus of millions of diagnostic tests each year. Gold-based drugs have been developed and used to treat diseases.

Figure 1: Gold demand by sector (Source: ICE Benchmark Administration, Metals

Focus, Refinitiv GFMS, World Gold Council)

From an environmental point of view, gold nanoparticles are used to improve the efficiency of solar cells. Gold-based materials show promising results in the search for new more effective fuel cell catalysts. A thin coating of gold planting in windows reflects heat radiation, helping to keep buildings cool in summer and warm in winter, thus reducing energy costs and carbon emissions. In addition to the consolidated ones, other technological uses are being developed. Gold nanotechnologies offer functional advantages for visual display technologies, such as touch-sensitive screens, and can be used in advanced data storage technologies such as advanced flash memory devices. The yellow metal is also helping to bring the fields of advanced electronics and medicine closer. The circuits’ flexibility has opened a vast range of applications, including implantable electronics that can monitor the vital signs of patients and warn of potential health problems; and extendable solar panels that can be integrated into clothing.

Figure 2: 2019 gold producing countries (Source: USGS)


China is the largest producer of gold, with around 12% of global production. However, this is 6% lower than 2017 and marks the fourth consecutive year of declines. The downtrend is largely due to tighter environmental policies imposed by the government. On the contrary, Australian production, second only to China, recorded an increase for six consecutive years, growing by 6% in 2018. About 83% of European production is in the hands of Russia, the third country globally, which has been increasing its production every year since 2010. Russian output grew about 2% in 2018, as policy makers are focused on growing the industry. In United States, the fourth country for production, gold output rose 10%, marking the fifth consecutive year of growth. They are then followed by Canada, Indonesia, Peru, South Africa, Mexico and Ghana (Figure 2). In 2019, global production increased by 7%. The offer is experiencing a moment of growth. In fact, the estimates indicate that in the last six years only three quarters have recorded annual losses and foresee for the end of the year a further growth in production of 2%, for a total of about 3,403 tons.

Gold Price Evolution

In 2019, the price of gold rose considerably, reaching a peak of $1.543 an ounce in September. The situation of uncertainty, due to factors such as the war on duties between China and the United States or the Brexit, and the lack of economic confidence have pushed investors to secure their capital by investing in this material, known for some time as a safe haven. Data provided by the World Gold Council also indicate an increase in the demand by central banks. In the first half of 2019, central banks bought around 374 tons of gold. This was the largest net increase for the first half of the year since 2000. In addition, gold and interest rates have traditionally a negative correlation. This is not guaranteed, but usually the price of gold increases when interest rates fall and decreases when rates rise. The increase in interest rates makes stocks, government bonds and other investments more attractive to investors. Lower interest rates make these assets less attractive thus pushing investors towards gold. The recent choices made by central banks to reduce interest rates have therefore contributed to the rise in gold prices.

Figure 3: 2019 gold production by region (Source: GFMS, Refinitiv)

To Conclude...

The value of gold is universally recognized and shared. It is a stable asset over time, able to withstand periods of crisis and market fluctuations. From the point of view of production there is a significant diversification (Figure 3). It is produced in all regions of the world, not deriving from one or a few areas. It is therefore a resource not linked solely to the risk of shock and instability that could characterize a country. In addition, its uses are many and varied. Although most technological applications use low volumes, their impacts are very different and far-reaching. There is therefore diversification also from the point of view of demand (relatively stable in last years), and this further reduces the risk associated with gold. In 2019 most of the major producers recorded a mining costs reduction, mainly due to increased production and process optimization. The recent decrease in costs, together with the diversified application and in fields of wide interest for man (such as new technologies, environment and medicine) bode well for the future usefulness of this material.