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The investment case for gold and gold miners is supported by two megatrends affecting the investment environment in the coming years (and decades). These megatrends are “monetary inflation” and “the transformation to a green world”.
The first megatrend, monetary inflation, is not a new phenomenon but has been a recurring topic throughout history. Large empires, such as the Roman, and the Chinese dynasties, and many more, have fallen after becoming victims of their own money printing and monetary inflation. Since the financial crisis in 2008, money and debt creation have gone into overdrive. Monetary inflation can now be seen in many financial assets. The global debt is just growing and can at these levels not cope with higher interest rates resulting in a continued environment of negative real rates. The price of gold will, over time, reflect the megatrend of unabated money printing and growing debt. When the price of gold rises in a bull market, it can dramatically impact the profitability of a gold mining company.
The second megatrend is the transformation to a green world. Gold and other precious metals have unique properties that make them indispensable in this transformation. Precious metals enable us to breathe clean air, as they are a core component of the catalytic converter used in petrol and diesel cars to reduce toxic gases and pollutants. In the coming years, traditional vehicles will be replaced by electric vehicles. This shift requires the elements with the best electric conductivity but also the ones that are most durable, bendable, and non-corrosive. This is the perfect use case for metals, such as gold, silver, and copper.
As the mining sector is a part of the global greenhouse gas emissions, it is important to be conscious of ESG aspects when investing. Impact investing within the industry promotes environmentally friendly miners to be on the grid, build solar farms on-site, use fuel-cell mining trucks, and restore sites post-project, leaving reusable infrastructure (roads, water, electricity) for other projects.
The focus on ESG has increased among gold miners in the past years. This is a consequence of external pressure from investors, but also due to the mining companies themselves. When gold is produced with high social, environmental and safety standards, it can have a transformative effect on the socio-economic development in the countries where the gold is found. Many gold mining companies have their own social responsibility programmes and focus on following different global directives such as the Responsible Gold Mining Principles and UN Global Compact. Mining is often portrayed as an industry that you do not want to have in your community. But a responsible gold mining company is often welcomed as they bring jobs, training and often make social investments in the community.
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To learn more about ESG gold mining and our gold miners ETF, visit the fund page.