The role of gold in an era of uncertainty Investment summit on gold Beijing, April 2019 About the World Gold Council Contents The World Gold Council is the market development Foreword 01 organisation for the gold industry. Our purpose is to Executive summary 02 stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market. 1: Economic outlook: trending East 04 Supplement – China in focus 05 We develop gold-backed solutions, services and products, based on authoritative market insight, and we work with a 2: China’s gold market, two decades of transformation 06 range of partners to put our ideas into action. As a result, we create structural shifts in demand for gold across key 3: Maximising the potential of China’s gold market 08 market sectors. We provide insights into the international 4: Central banks: risks, responses and reserve gold markets, helping people to understand the wealth- management strategies 09 preservation qualities of gold and its role in meeting the Supplement – Emerging market central banks social and environmental needs of society. and the role of gold 11 Based in the UK, with operations in India, the Far East 5: Institutional investors: asset allocation and the US, the World Gold Council is an association in a time of uncertainty 12 whose members comprise the world’s leading gold mining companies. 6: Making the case for gold 14 World Gold Council 10 Old Bailey, London EC4M 7NG United Kingdom T +44 20 7826 4700 F +44 20 7826 4799 W www.gold.org Visit www.goldhub.com for gold market data, expert research and interactive tools With thanks to our partners for this event: Cover picture, Central Business District, Beijing. The role of gold in an era of uncertainty | April 2019 Foreword The World Gold Council’s second Investment Summit was held in April 2019 in Beijing. The location was no accident. Economic power and influence are shifting from West to East and gold demand is moving in sync. Today, China is the world’s largest gold market and its exchanges David Tait Chief Executive Officer are a leading example of transparency, World Gold Council accountability and regulation. The Investment Summit was organised in conjunction We looked at the institutional investment landscape as with the Tsinghua PBC School of Finance and the China well, both in China and beyond. Investors face increasingly Gold Association, with co-organisers the Shanghai Gold harsh conditions, as growth slows and uncertainty Exchange and the Shanghai Futures Exchange. Our aim increases. We considered how institutions can meet was to consider global economic, financial and political these challenges and analysed the impact of gold on their uncertainties, the challenges these place on investors investment portfolios. and how gold can help. This Summit could not fail to mention central banks, We also delved more deeply into China’s gold market, as they have been purchasing gold at a rate not seen in the internationalisation of the RMB and the evolution of almost 50 years. We examined the political, economic and a multi-currency reserve system. strategic rationale behind these purchases and discussed whether that pattern will continue. The Summit was attended by more than 100 delegates, including industry experts, regulators, central bankers, Our Summit was designed to provide much food for academics and institutional asset owners, from the public thought. And it did. We intend to continue the debate in and private sectors. September, with our third Summit, returning to New York, where we held our inaugural conference last year. Discussions centred on China’s economy, markets, currency and the role of gold. There was recognition that current policies and reforms should support gold demand. But our Summit also suggested ways in which China’s gold market could become even more robust and influential. David Tait The role of gold in an era of uncertainty | April 2019 01 Executive summary The World Gold Council’s Investment Summit focused on the role of gold in an era of uncertainty. We also paid particular attention to China, reflecting the Summit’s location and China’s central and growing position on the global gold market. Our Summit covered six broad themes: But China faces challenges, both structural and systemic. Solutions are at hand but they require careful reflection • Global economic prospects, as growth trends East followed, in time, by action. The Global Financial Crisis and • The transformation of China’s gold industry, the role of subsequent events highlighted weaknesses in the Western its exchanges and their ambitions for the future approach to industry and markets. Now China needs to deliver reforms that marry the best of the West with • Maximising the potential of China’s gold market Chinese principles and a greater emphasis on social good. • Central banks, gold and the international monetary system The status and potential of China’s economy is mirrored by the gold market. Already the biggest producer, importer • Challenges facing asset owners at a time of slowing and consumer of gold, China could be an even larger and growth and rising uncertainty more influential player if certain changes were introduced. • The investment case for gold. First, broadening access to the market so institutional Key findings investors can benefit from gold’s attributes as a long- term savings tool. Second, allowing producers to sell their We live in a time of increasing uncertainty. Global gold abroad, so China can develop a robust import and growth has slowed, interest rates remain low across export market. And third, promoting internationalisation, the developed world and markets are increasingly introducing products, systems and processes that unpredictable. Against this unpromising backdrop, one encourage international trade. trend is clear: the economic centre of gravity is shifting East. Asia is developing fast, led by China. Over time, China’s power and influence will increase, with India coming close behind. Speakers at the World Gold Council’s second Investment Summit. The role of gold in an era of uncertainty | April 2019 02 Such moves will not only bolster China’s status and influence on the global gold market; they will also drive the internationalisation of the RMB. Central banks may already be anticipating a greater role for the Chinese currency. Their gold purchases in 2018 were higher than at any time since 1971. Many of the most notable investments in gold were made by countries along China’s Belt and Road Initiative (BRI), prompting suggestions that central banks are acquiring gold as a hedge against a shift to a new, more multi-currency reserve system. Some central banks are also buying gold as part of a deliberate policy of dedollarisation, while the heightened level of geo-political and economic risk, in both emerging and advanced economies, is underpinning demand for gold as a strategic asset. Mr Song Xin, Chairman, China Gold Association. In this regard, emerging markets may find gold’s safe- haven attributes particularly beneficial. Their allocation to gold has historically lagged that of advanced economies. In future, the gap is likely to narrow. Across the world, investors are striving to generate returns, reduce volatility, preserve capital and ensure liquidity. Gold addresses each of these challenges. As such, it can make a valuable contribution to investment portfolios, particularly at a time characterised by economic uncertainty, trade tensions, rising populism and market unpredictability. Institutional access to China’s gold market is limited today but asset owners are finding solutions, such as ETFs, Fund of Funds and Manager of Managers. They are innovating and they are likely to continue doing so, as they strive to help Chinese savers benefit from gold’s long-term attributes. China’s decision-making processes can sometimes be Mr Zhou Yanli, Former Deputy Party Secretary and Vice Chairman of China Insurance Regulatory Commission. hard to gauge from outside the country. Steps are taken slowly, results are tested, actions are adjusted. As recent decades have shown however, China is on a growth trajectory and its gold market is following suit. Now responsible for 30% of global demand, China’s role and influence on the global gold stage are almost certain to develop over the coming years. The role of gold in an era of uncertainty | April 2019 03 1: Economic outlook: trending East When the G7 was founded in 1975, its members were chosen because they were considered the most advanced economies in the world. This group – Canada, France, Germany, Italy, Japan, the UK and the US – were collectively responsible for well over half of the world’s net wealth. Their dominance dates back to the Victorian era. And There are demographic issues too – an ageing population even by the turn of this century, the group’s combined in China that may have a long-term effect on GDP growth; GDP significantly exceeded that of the 200 emerging a rapidly increasing population in India, that needs to be market nations. educated and employed. Over the past two decades however, a remarkable shift Trade tensions between China and the US are a serious has been underway, as emerging markets, led by China, concern as well. They have eased but they have not have delivered consistently stronger economic growth disappeared. Indeed, they can be seen as symptomatic than the G7. Today, for the first time in recent history, of the Eastward shift in economic power. As our Summit emerging countries’ combined GDP equals that of the G7. discussed, the US has dominated the global economy for more than 50 years. Changes in the balance of power are This is a pivotal moment on the global stage but it is more likely to create stresses and strains in multiple ways over than that – it is part of an inexorable trend.