HISTORY OF GOLD IN AUSTRALIA & FUTURE TRENDS

By Nicholas Frappell, Global Head Institutional Markets, ABC Refinery

Australia’s relationship with gold began in the mid-19th century, marked by a monumental gold rush centred in the Victorian gold fields. This event fundamentally altered Australian society – an impact later historians deemed revolutionary.

The magnitude of this gold rush was only surpassed by California’s gold rush, which occurred roughly three years earlier. Economists, including British economist William Stanley Jevons, were skeptical about the value of gold digging, viewing it as “almost a dead loss of labour as regards the world in general – a wrong against the human race”.

Yet, the residents of Melbourne, both then and over 170 years later, as well as the nation of Australia, would strongly contest this view. Today, the gold industry thrives, having invested A$1.6 billion (S$1.42 billion) in production in 2021 and generating A$25.80 billion in revenue in 2022.

Karl Marx worried that these new discoveries would bolster markets, provide new homes, and open investment opportunities, potentially postponing the inevitable crisis of capitalism. His bleak outlook proved to be one of the most prescient among his peers, for all the right reasons. Despite the skepticism from some European intellectuals, there are numerous tales of entire ship crews, from the captain to the deckhands, deserting their posts to venture inland in hopes of striking it rich.

Australia is estimated to have produced approximately 95 tonnes of gold in 1856, and around 1,898 tonnes over the forty-five years spanning from 1851 to 1896.

SOCIAL CHANGE

The gold rush not only brought prosperity but also ignited a rebellion among miners against British rule, an event commemorated by ABC Bullion’s “Eureka” minted coins and tablets. This period also catalysed significant social changes that led to enhanced parliamentary democracy in Australia.

Additionally, this era marked the first significant collaboration between Australia and China in the gold sector, with over 30,000 Chinese miners participating in the rush. Some of their distinctive mineshafts are still visible in the countryside today, notable for being cylindrical in shape, so that evil spirits would not be able to find a convenient corner to lurk in and then leap out to snare an unwary miner.

Gold production decreased after the fervour of the 19thcentury gold rushes subsided.

THE TWENTIETH-CENTURY BOOM

Heading into the late 20th century, Australia witnessed a significant resurgence in gold production, starting in the late 1980s.

Australian Gold Production 1975-2022

The boom in gold production that began in the late 1980s continues to this day in Australia. This surge was accompanied by innovations in banking and risk management that allowed producers to secure capital through associated hedging. The 1990s are often seen as a golden era for banks providing facilities to miners, enabling them to sell their future production forward. This was encouraged by high nominal Australian yields, creating a favourable environment for selling forward production into a contango.

This period of innovation sometimes led to unforeseen financial exposures. As spot gold prices rose towards the end of the 1990s, some producers were harshly exposed, leading to a more cautious approach to hedging among producers seen today. Additionally, the belief that the bear market, which began in 1980, ended with the start of the new century, influenced the industry’s strategies.

Australia now ranks as the third-largest gold producer globally, producing well over 300 tonnes annually, as per the latest World Gold Council data. Australian gold producers benefit from robust environmental protections, strong workplace and investor safeguards, and competitive all-in sustaining costs (AISC). Geological surveys indicate substantial undeveloped gold reserves, suggesting a sustained future for the industry.

In an era where consumers are increasingly conscious of the impacts of extractive industries, Australia stands out for adhering to best practices in mining and processing ores. This, combined with positive domestic public sentiment towards gold mining and its benefits to local communities, positions Australia favourably compared to its global peers. The industry’s public support is crucial, as opposition can hinder the granting of new permits and the expansion of existing or development of new projects.

RETAIL INVESTMENT

Gold has become an increasingly popular investment in Australia, driven by several factors enhancing its appeal. The trading, vaulting, and access to clear and reliable information about gold as an asset have significantly benefited the retail gold market. ABC Bullion capitalised on this trend by opening its flagship store in the heart of Sydney’s CBD, enhancing the customer experience in purchasing precious metals.

Additionally, gold and silver investments are popular choices for Self-Managed Super Funds (SMSFs). Australia’s pension savings, known as superannuation, represent a substantial and growing sector. The SMSF sector alone is projected to expand by A$1.5 trillion over the next two decades from its current size of approximately A$900 billion, reflecting a growing trend toward including precious metals in retirement portfolios. This growth underscores the increasing integration of gold into diverse investment strategies.

Projected Growth Self-Managed Funds 2023-40 in A$ Billions

As awareness grows of gold’s unique attributes – a liquid asset that holds no liability and is weakly correlated with a variety of other assets – the interest in incorporating gold into long-term savings and investment plans is expected to increase. This trend highlights gold’s role as a stable and attractive option for diversifying and safeguarding portfolios against economic fluctuations.

FUTURE TRENDS

Gold is poised to benefit from increasing acceptance and awareness across all classes of investors, from retail buyers to sophisticated family office investors. A key trend driving interest in gold is the focus on provenance. This appeals to buyers who are conscious of the origins of their gold holdings and wish to ensure their investments are sourced from environmentally and ethically impeccable sources. As such, exchange-traded funds (ETFs) are increasingly requiring verifiable provenance of their gold holdings.

ABC Refinery is responding to this trend by developing gold provenance technology, aimed at providing customers with assurance that the gold they purchase has been responsibly and ethically mined and refined.

Regionally, there’s a trend towards regularising domestic sales of gold bars and jewellery, ensuring retail buyers can trust the sourcing and purity of their purchases. This movement is evident in various Asian countries and is expected to lead to more efficient and trustworthy markets. Singapore is emerging as a key hub in this respect within the ASEAN community, not only in terms of volume and sophistication but also through its thought leadership in the industry. This regional focus is likely to enhance the overall market for gold by ensuring higher standards of transparency and ethical practices.

Gold has a deeply rooted and esteemed history in Asia, arguably one of the longest and most celebrated worldwide. Advancements in the production, processing, and supply of gold in Australia are set to strengthen the ties between Australia and the Asian markets, promising mutual benefits. This closer collaboration is likely to enhance the exchange of technology, expertise, and economic gains, contributing positively to both regions’ gold industries.

NICHOLAS FRAPPELL is the Global Head of Institutional Markets at ABC Refinery. He has extensive experience in precious metals trading, having worked in London, Tokyo, Singapore, Hong Kong, and Sydney. Nick holds a Masters in Finance from the University of London and is the Chair of the LBMA membership sub-committee. He also cohosts the ABC Refinery “Pod of Gold” podcast and will speak at the 7th APPMC 2024 Conference on the Precious Metals Price Outlook Panel.