Gold Mining

Gold Mining

Gold Mining is relevant and important in global economy for many reasons. Gold explorers have been conducting geological surveys that target concentration levels that are usually 1000 times higher.

Gold Mining is basically done by evacuating gold and than use it in different forms. When seen globally the supply of gold is the mixture of gold scrap, recycled gold , mined gold . More than 50% of the gold supply is fulfilled by mined gold. China is the largest producer of mined gold.

Karnataka is the primary source of gold reserves in India. Other gold reserves are in Jharkand, India. More than 50% of mineral resources are located in Karnataka. 33% percent is located in Rajasthan , 5% is located in Andhra Pradesh , 6% of mineral is located in Bihar, remaining 6% of mineral resources are spread across further eight states.

Gold Mining can be a source of Substantial economic growth in rural parts of India.

Global gold supply is a mixture of mined gold, recycled gold and gold scrap. More than half of gold supply worldwide comes from mined gold. China is the largest producer of mined gold. It overtook South Africa in terms of gold production volume. As per the USGS minerals information, India’s rank in mining does not feature amongst the top 50 producers globally

India has a long history of gold mining, but current production levels are very low; in 2016 India mined less than 2 tons. As of March 2012, there were 12 mining leases granted for gold across India. However, as of 2014, mining was only undertaken at Hutti Gold Mines, located in the Raichur district of Karnataka. The other source of gold in India, extracted as a by-product, is from Birla Copper’s copper smelter at Dahej, Gujarat, which processes imported copper concentrate.

The contribution of gold mining to India’s GDP has been quite negligible as production has hovered below 2 tons. The mining industry, by its very nature, impacts a wide variety of stakeholders, triggers various downstream economic activity and, therefore, has a multiplier effect on the economy. Gold mining can provide substantial sustainable socioeconomic development to India, more so to rural India as mines are located mainly in rural India. Mining can provide significant employment opportunities to rural areas. Furthermore, mining helps bring infrastructure investment to a region and helps initiate and support associates

With India currently home to only one active gold-producing operation, a competitive global benchmark exercise would not be representative of the potential cost benefits of producing gold in the country. However, what can be assessed is the relative prices of the main operational cost constituents in India versus other major gold producing regions

Global demand for gold is for diverse uses. It covers jewellery fabrication (54 percent), technology and industrial purpose (10 percent), investments in financial products like ETFs backed by gold and other physical gold investments (30 percent) and those held by central banks (6 percent)

Gold Mines produce a form of rough gold known as Dore, it is basically 80% pure gold. Dore is sent to gold refinery where the gold is refined into gold of different forms with purity.

In global gold refining Swizerland plays an important role. Refined gold is purchased by bullion bankers, central banks. India is very much dependent on gold imports, 80% of its gold from five countries that are Peru, the Dominican Republic, Tanzania, the U.S.A.

Gold mines produce rough gold, called doré, which is typically about 80 percent pure gold. This gold doré is then sent to a refinery, where it is refined into gold of different forms and purity. This refined gold is mostly purchased or financed by central banks and/bullion banks, who are the main link between wholesale buyers, jewellers and consumers. India is dependent on gold imports, either in refined or doré form, to meet its needs. India imports doré from approximately 17 countries spread across the Americas, Asia and Africa, with the latter dominating doré supplies into India. Nearly 80 percent is sourced from five countries: the United States, Ghana, the Dominican Republic, Tanzania and Peru46. Gold imports account for around 85 percent of total supply, and the refining sector plays an important role in taking these imports and putting them in a form suitable for India’s gold industry.

By processing or refining more gold, India can benefit from value addition. Buying the raw material from miners and selling processed gold provides a value addition that gives saving of approximately US$ 25 million for every 100 tons of raw materials48. If India can have more refineries and long-term doré availability, there will be a substantial benefit in building the supply chain and physical availability of gold in India.

Global Jewellery Market – US $ 350 Billion (Fiscal Year 2020)

Global Jewellery Market is estimated to be around US $ 350 Billion. As per the progression it is estimated to increase with each passing year. Plain Gold Jewellery and Diamond Studded Jewellery have the highest weightage in the global jewellery market. Plain Palladium Jewellery is also in demand in global market.

India’s gems and jewellery sector is one of the largest in the world, contributing 29% to the global jewellery consumption. The sector is home to more than 300,000 gems and jewellery players. Its market size will grow by US$ 103.06 billion during 2019–2023.

India’s demand for gold reached 690.4 tonnes in 2019. In FY21, exports of gems & jewellery stood at US$ 11.62 billion. In the same period, India exported cut and polished diamonds worth US$ 18.66 billion, thereby contributing 52.4% to the total gems and jewellery export.

The gems and jewellery sector is witnessing changes in consumer preferences due to adoption of western lifestyle. Consumers are demanding new designs and varieties in jewellery, and branded jewellers have managed to fulfil their changing demands better than the unorganised players. Moreover, increase in per capita income has led to an increase in sales of jewellery as jewellery is a status symbol in India.

Gold Hedging against risk

Gold is known to be playing an important and special role as a financial instrument for hedging against financial risk in the market many investors hold the view of gold to be safe for more investment and also universal protective asset and a rise is seen in the demand of gold and in value with instability going in the international market. Hedging of gold with international market instability can protect against market vulnerability and probable losses.

Hedging of Gold is considered as an important instrument to tackle financial instability and financial risk. Hedging is said to be applied with the exposure driven approach. Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years. Hedging allows gold fabricators and dealers to lock in prices and reduces exposure to price risk. Hedging allows gold fabricators and dealers to lock in prices and reduces exposure to price risk.The benefits of gold hedges came into clear focus during the 2008-2009 financial crisis and did so again during the subsequent European sovereign debt crisis, the 2018 December stock market pullback and the most recent COVID-19 pandemic.

Edited by : Priyal Rastogi
(MBA Finance Intern)