An exclusive ECJ interview with Matt Graydon of the World Gold Council

DGC-industry, that is considered to be a father of e-finances, directly depends on the market of real gold which determines account balances in DGC payment systems. Due to this fact alone it is necessary to watch the developments on the gold market while managing your electronic finances in order to keep the track of events and to stay with a positive account balance backed by gold  in any given electronic payment system.

With its unbelievable and never seen before price curves, the attention drawn to gold became overwhelming recently. In an attempt to understand what is happening to the gold market and where it is heading in the near future, the ECJ managed to get an exclusive interview with Matt Graydon, the Head of External Relations for the World Gold Council.

According to its website http://www.gold.org/ the World Gold Council was founded in 1987 as an organization "formed and funded by the world's leading gold mining companies with the aim of stimulating and maximizing the demand for, and holding of, gold by consumers, investors, industry, and the official sector". It is aimed at commencing various marketing initiatives to raise demand for gold and to lower regulatory barriers for gold ownership. It is also working on the advancement of distribution systems and the promotion of the role of gold as a reserve asset of various governmental entities such as central banks, monetary unions and national reserves. It holds 10 globally located offices with its headquarters in the United Kingdom uniting gold mining companies of all sizes which operate on all six continents.

Here is the exclusive interview:

Marianna: Tell us a little bit about yourself and your position within the World Gold Council.

Matt Graydon: I am the Head of External Relations for the World Gold Council. Based in London, I head the global communications activity and am responsible for designing, developing and delivering the PR and media strategy across the whole organization. This includes managing all PR requirements generated by the jewellery, industrial and investment divisions and working in conjunction with the teams in our regional offices across the globe.

Marianna: What are the main functions of the World Gold Council pertaining to gold production and distribution in the world?

Matt Graydon: The World Gold Council was founded in 1987 and is funded by the world's leading gold mining companies with the aim of stimulating and maximizing the demand for and holding of gold by consumers, investors, industry, and the official sector.

In addition to marketing initiatives to drive demand, the World Gold Council is also instrumental in working to lower regulatory barriers to the widespread ownership of gold products, helping to develop distribution systems and promoting the role of gold as a reserve asset in the official sector.

Marianna: According to your website, one of the WGC's ongoing goals is to market gold. How would you market something that is already highly desired by the majority of the world population? Is there a research that looks for other possible uses for gold in various industries?

Matt Graydon: The World Gold Council's raison d'etre is to promote the demand for gold in all its forms, be it investment, jewellery, industrial use or the official sector. While a key objective of the WGC's investment programme is to make gold more accessible to investors, the World Gold Council has promoted initiatives in the growing jewellery markets. Jewellery consumption has been facing competition from other sectors, and the WGC has been instrumental in developing promotional campaigns in all the key jewellery markets of US, India, China and the Middle East.

The WGC is continuously undertaking/ commissioning research to support gold's investment attributes. The WGC's investment research programme provides investors around the world with key information about gold. This includes the publication of a wide range of research papers - by acknowledged academics and in-house experts alike - looking at gold's investment characteristics, as well as a wealth of information on the structure of the market, demand and supply flows and regular updates on gold market statistics.

Gold's unique physical and chemical properties make it a distinctive material. The use of these properties in certain industrial and medical applications make it irreplaceable, thus replacing gold for cheaper alternatives is not always possible. Gold ranks among the most high-tech of metals, performing vital functions in many areas of everyday life. The ability of gold to efficiently transfer heat and electricity is bettered only by copper and silver, making it indispensable in electronics for semi-conductors and connectors in computer technology. The corrosion resistance of gold is perhaps one of its most useful properties.

Furthermore, a key area for gold's use in industry has been the development of gold catalysis in diesel engines. Gold's main competitor in this area is platinum, which is nearly twice the price of gold. At the end of 2007, the WGC and Nanostellar Inc, a leading-edge developer of emission control technologies also agreed to a long-term strategic partnership to enable the introduction of gold into the auto catalyst market. This will facilitate the commercialisation and marketing of the gold based technology.

Marianna: Commodities are sensitive to supply and demand. Being a highly desirable commodity the demand for gold continues to rise. In your opinion, what are the major factors effecting gold prices on the world market?

Matt Graydon: The gold price hike has been a result of a combination of factors. Recently, inflationary fears as a result of high oil prices have contributed to the increase in gold prices. Gold is seen as a hedge against inflation; while its real value can vary in the short term, its purchasing power has remained stable over centuries.

Continued weakness in the dollar has also contributed to the rise in gold price. Gold is a statistically proven hedge against fluctuations in the US dollar, the world's main trading currency.

While these factors have played a significant role in pushing the gold price to the highs we are seeing today, unstable financial conditions in the light of recent and ongoing credit crisis have been a significant cause. Gold is not matched by a liability. It can help to provide insurance against extreme movements in the value of traditional asset classes that can happen during unsettled times.

These short-term factors have, however, occurred on top of longer-term movements in supply and demand fundamentals that have supported the rise in the gold price since 2001.

Demand and supply fundamentals for gold have remained robust. Strong economic growth and sustained promotion in the key gold jewellery markets of India, China and the Middle East are leading to strong demand for gold jewellery. Both institutional and retail investors are increasingly familiar with gold's portfolio diversification benefits, whilst the introduction of gold ETFs have been instrumental in providing easy access to investing in gold. ETFs have stimulated demand because it has become as easy to trade gold as it is to trade any stock or share. Investor interest in gold has grown in value terms by over 450% since the same period in 2001.

Marianna: From 2001 to 2007 gold has experienced a vivid growth. Since 2007 the gold prices have rocketed. During the past year what had happened in the gold mining history and what is this hike attributed to?

Matt Graydon: The gold price crossed the $1000/oz mark in March after sailing through previously uncharted territory since the start of the year. The rise translates to an annual increase of more than 52 per cent on the average price in March 2007, which sat at $655.89/oz. The record achieved follows a sustained six year rise in the price and was built on a combination of strong investment and jewellery demand.

On the other hand, the supply of gold is relatively constrained. The gradual reduction of mine output in recent years, with only a small number of major gold finds by the mining industry, is constraining gold supply. The cost of extracting gold has also increased substantially in recent years.

Moreover, over the last year, gold production has fallen further in South Africa due to nation wide power shortages. China is today the largest producer of gold, having overtaken South Africa.

Marianna: We all know that mass media has a tremendous impact on the general public's mind. Do you associate the recent record 4-digit gold price hike to the persistent, continuous and extensive coverage of the rising gold prices?

Matt Graydon: There certainly has been more widespread coverage of gold since the increase in price, but this comes off the back of the gold price rise, it does not cause it. Gold has been a safe haven in turbulent times. The recent uncertainty in the financial markets, inflationary pressures due to high oil prices and global political uncertainty have all been contributory factors in gold's recent price rally.

The price rally in gold has in fact been supported for the most part by simple economics. It is important to understand the lack of correlation between risk and return on gold and that of other assets has its roots in the gold market's fundamentals. Supply has simply not managed to keep pace with a continuing strength in demand for gold. Global demand for gold has risen steadily over the past three years. Consumer and industrial demand has continued to grow. Investor interest in gold has grown in value terms by over 450% since 2001. Most recently, the widespread loss of investor confidence in the banking system and traditional investments has led to a ‘flight to safety'. The recent record highs in the gold price have stemmed from a combination of safe haven buying in the face of geo-political tension and the continuing impact of the credit crisis. These have been a supportive factor for investors seeking the assurance of a safe haven asset.

A sustained price rally is positive for any asset because it creates investor confidence, raises public interest in learning about the asset, and generally results in greater understanding.

Marianna: How big is the black market for illegal gold mining and sales? Does it have a significant impact on the world's gold mining industry and gold prices?

Matt Graydon: The WGC represents the official gold mining sector. The above is not an area we have information or figures about. We are not able to comment on this.

Marianna: The gold history knew some conspiracies carried out not just by private groups or companies but by multiple governments, like the Washington Agreement, when the gold prices were significantly influenced by various state policies. What are the ways to prevent gold price fixing and promote free market trade?

Matt Graydon: I think for most people it is hard to believe that the combined might of the US and other governments, together with the world's leading gold mining companies and the community of powerful investment banks and bullion dealers involved in the gold business throughout the world, are engaged in some giant conspiracy to depress the price of gold. If you look at how the gold price has risen between $255 in 2001 to over $900 today, it would not appear this conspiracy has worked!

Marianna: An exchange-traded fund (or ETF) was a controversial investment vehicle when it was first adopted in the US in 1993 and in Europe in 1999. It was suggested that ETF was designed to support gold price manipulation as there was no binding guarantee covering the physical gold. Now over a decade later, how do you think ETFs affected gold prices and the gold mining industry in general?

Matt Graydon: Firstly, the WGC only tracks ETFs that are backed by physical gold. One of WGC's missions is to make gold more accessible to investors across the globe. The gold ETF does exactly that and this has been a huge success. However, it is not the ETF market that has caused the price rise, but a whole combination of factors including strong economic growth in key gold jewellery markets, sustained gold jewellery promotion in these markets, investor uncertainty in the financial markets and the gradual reduction of mine output in recent years which is constraining supply.

Marianna: Gold is recovering its role as an alternative currency. The popularity of some digital currencies backed by actual gold stored in vaults is vast and continuing to climb. What is your opinion on the developing market of digital gold currencies and where do you see this industry going?

Matt Graydon: This is still only a very small area of demand. To put into perspective, it accounts for just over 2.42 tonnes, 0.07% of total gold demand for 2007.

Marianna: Some companies issuing digital currencies backed by gold and other precious metals are experiencing a lot of legal battles with the government (particularly in the USA) due to a perceived threat to the value of the national fiat currency and the uncontrolled money streams flowing over the Internet. As a major advocate for gold consumption in the world what is the WGC's position and role in the advocacy and the promotion of gold as an alternative currency?

Matt Graydon: The WGC is not involved in the promotion of digital currencies backed by gold, and hence is unable to comment.

Marianna: Looking into the future, which industry/market has a better potential to increase the demand for gold?

Matt Graydon: Although current gold price conditions for the industrial and jewellery market are not favourable, gold's unique attributes suggest that the market fundamentals remain strong. Strong economic growth in the key gold jewellery markets of India, China and the Middle East mean that the demand for gold remains strong, whilst increased WGC promotion supports the desirability for gold jewellery within society.

Uncertainty in today's financial markets has urged investors to seek exposure to gold for a range of reasons. With gold's role as a portfolio diversifier, a hedge against inflation and exposure to the dollar, there are several compelling arguments for investing a portion of one's portfolio in gold. The real value of gold is not that it provides a quick, speculative fix, but its capacity to provide a sure and steady means of protecting wealth and to enhance risk-adjusted returns.

Gold's unique physical and chemical properties mean it is the only material that can be used for certain industrial and medical applications, thus replacing gold for cheaper alternatives will not always be possible. Gold ranks among the most high-tech of metals, performing vital functions in many areas of everyday life. The ability of gold to efficiently transfer heat and electricity is bettered only by copper and silver, making it indispensable in electronics for semi-conductors and connectors in computer technology. The corrosion resistance of gold is perhaps one of its most useful properties. Furthermore, a key area for gold's use industry has been the development of gold catalysis in diesel engines. Gold's main competitor in this area is platinum, which is nearly twice the price of gold.

We would like to thank the World Gold Council and Matt Graydon, in particular, for making this interview possible. All of us at the e-commerce-journal.com wish the World Gold Council success in carrying this important role in the development of gold market