The gold market - France

1.1 Introduction

Gold can be defined in different ways. It is both a chemical element (atomic number 79, symbol Au), a precious metal used for its colour and its ductile and soft material unalterable to water and air and a valuable item became a currency in ancient times. These three definitions of gold correspond to the three most important uses of gold:

• The chemical element where the material gold has applications in several industrial sectors;
• The precious metal is essential to the jewellery industry;
• The valuable object is the object of hoarding, investments, financial investments.

The gold market therefore includes several sectors of activity, from the most material (gold mining, processing, industrial use, jewellery) to the more intangible (financial market speculation). The gold market is therefore a very concentrate which is made up of the businesses surrounding the raw material (mining, gold production) but also all the players who derive directly (jewellers, jewellers) or indirectly (stock market speculation) from the underlying asset.

Through the production of gold, the entire gold industry is adapting to changes in the price of an ounce of gold, as it has always been a countercyclical safe haven. Nevertheless, the entire industry must adapt to new rising production costs, which are expected to have a significant impact on market growth. In addition, gold producers are facing the stock speculation (the "paper gold" market) and try to find alternatives in order to maintain price levels that reflect the reality of supply and demand and not the speculation of certain players. The gold production sector is highly concentrated because the barriers to entry are high, especially to operate gold mines. Production costs are increasingly high, forcing players to produce very large volumes to be profitable.

Africa holds 40% of the world's gold reserves. It is therefore a rich continent with great potential. The African gold market is worth more than $65 billion and South Africa is the leading producer country in Africa and the 7th largest in the world, with 140 tons produced in 2016, despite its declining power (it is followed by Ghana, Sudan and Mali). Gold accounts for 70% of Mali's export earnings and the 2nd largest contributor to GDP. The second-largest gold producer in the world behind China and before the United States, Australia is the global leader in industrial mineral resources, with an average annual production of over 270 tonnes of gold, representing 20% of the world's gold production.

In France, several players are positioned on this market. While large-scale players are active in the gold mining segment, more and more players are moving into the segment of gold trading with individuals. In France, for example, players such as Gold by Gold and SMAAP generate most of their turnover in the gold recycling and processing segment. Trading networks, such as Or en Cash or Le Comptoir National de l'Or, are also increasingly present, thanks to a rapidly developing network of franchises.

Despite being a safe haven, the COVID-19 crisis has had a negative impact on the gold market. Indeed, the gold market did not withstand the health crisis: the demand for gold experienced a decline of almost 28% in the fourth quarter of 2019. The gold market has not seen such a large contraction in demand since the 2009 financial crisis, marking the unprecedented nature of the COVID-19 crisis.