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Gold Refineries – Another Swiss Money Spinner

Recently it was reported that a Swiss mountain village had voted against the mining of gold in their quaint little spot.

The massive cash windfall that it would have brought to the residents was deemed inadequate, in order to balance the potential damage it may cause to their surrounding environment and existing culture.

Refineries, on the other hand, are quite another matter.

Amongst the peaceful and tranquil Swiss villages, two-thirds of the world’s gold is produced.

Indeed four of the world’s biggest gold refineries are located in Switzerland, with three of them being in the same region, in the south of the country.

Why Switzerland?

The existence of gold producing on such a scale has its roots in history.  As a result of the large quantity of gold being stored in Switzerland, during the Second World War, the large Swiss Banks decided to begin producing their own bullion, and thus established their own refineries.  The Banks and the refineries have since become detached, but still the process of gold production in the country is high.

gold refineries

The BBC recently took a peak inside one of the refineries, which is a factory full of riches, with just one 12.5kg, in today’s prices, being worth an eye-watering $680,000.  Although they were unable to establish the extent of production at the plant, recent statistics suggest that over $100 billion-worth of raw gold was imported into the country, in 2011 alone.

Gold Popularity Boom

As a result of the recent economic downturn, gold has received the renewed status of being a highly sort after investable, and thus the gold market is booming.  A new found level of insecurity and doubt, regarding both banking systems and state financial institutions, has led individuals to seek an alternative store of wealth, and gold seems to be coming out on top as the preferred option.

In this respect, gold is seen primarily, but not solely, as an investment for hard times.  During war, civil dispute, economic turmoil, or any other such socio-economic or political situation, gold is seen as an insurance policy.  It is bought as a store of wealth rather than an investment, as such, but with prices rapidly rising, it is possible, too, to make a profit.

Although it is a mistake to consider gold’s value as being tied directly to the economy, it is true that with currency currently weakened, gold’s purchasing power has drastically increased.  To add further weight to this, the expectations of numerous experts that the value of gold will continue to grow into 2014, also add to its attraction.

Problems at the Source

One concern in the gold industry is the process of mining, and strict new procedures are in place to assess the suitability of mines.  It is the refineries responsibility to ensure that the mines it deals with are upholding human rights, not contributing to conflict, complying with high standards of anti-money laundering and combating terrorist financing practice.

The London Bullion Market Association’s Responsible Gold Guidance (LBMA) is paving the way forward with this initiative and it is based on the same lines as the Kimberley Process, developed to ensure the legitimate and morally rich supply of diamonds.

Despite such measures, some human rights groups are calling for increased transparency within Switzerland’s gold dealings and there are concerns that neither the source nor destination of the gold is recorded.  Fundamentally the industry is not overly transparent, and this has led to suspicions over what they have to hide.

Eternally Attractive

The major factor that makes gold so attractive as an investment, however, is intangible and is, rather, based on its eternal appeal, which although attributed to a range of influencing factors, is too, largely a mystery.

Even those working directly with the production of the bullion, in Switzerland’s refineries, are confused by its appeal ahead of other commodities.  It has seemingly cast a spell over humanity, which has maintained its appeal over thousands of years.

Historically, culturally, rhetorically and spiritually, gold is engrained on all of us in some way, and this is what maintains its popularity and, thus, demand.

Although, not many of us will be rushing to splash out close to $700,000 on a 12.5kg bullion bar, many do invest in the metal in one way, or another.  Whether it is through jewellery, ornaments, coins, or other such collectibles, many of us are secret hoarders of gold and, within tough economic times, it is crucial to remember that we do have an additional store of wealth.

Even if the recent talk about gold is based on purchasing, selling gold during tough economic times is also a key tactic in surviving a recession, and it should be noted that with the current gold per gram rate so high, you may well be surprised at just how much bang you can get for your buck.

Michael is a junior economist and investor. Follow him on Twitter @goldmike for the latest gold and investment news.

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