GOLDEN AGE OF GOLD

Over the past year, the global price of gold rose by 15%, or $189.6 compared to the beginning of the year, and reached $1,470.9 per Troy ounce. According to experts, this is far from the limit, as the growth trend will continue in the near future. Although Citigroup Inc. lowered the forecast by 5.7% (from $1,755 to $1,485) by the end of 2019, bank experts predict an almost record price of gold in the medium term. This forecast is based on the growth of global crisis risks, as well as the increase in the demand of central banks.

Merrill Lynch International also expects an increase in gold prices up to $2,000. Therefore, investments in this precious metal are also increasing.

Protective asset

The global price of gold, like most other strategic goods, is highly dependent on geopolitical factors. In 2019, its value mostly varied amid the announcement of the 'trade war' between the US and China. However, after a certain rapprochement between the countries and the weakening of hostile mood the price of gold immediately began to fall by the end of November. But experts believe that this is a short-term decline, since the 'truce' is quite unstable.

But regardless of slight decrease in gold price, analysts note that this year has been the best for gold exporters since 2010. The peak indicator was reached on September 4 ($1,560.4/oz), which was a powerful incentive for investors to continue to invest free capital in gold. According to statistics, the current level of investment in gold was last recorded in 2012.

According to the World Gold Council, net purchase of gold by central banks during the first half of 2019 reached 247.3 tons, which is 73% more than in the same period of 2018.

Central banks of top ten countries are especially active in building up their reserves. The largest import of gold was recorded in Russia (more than 75 tons), China (more than 60 tons) and Turkey (about 50 tons). Kazakhstan and Uzbekistan bought 10 tons of gold each. The remaining volume was purchased by India, Ecuador, Qatar, Colombia and Kyrgyzstan.

According to analysts, the policy of central banks hints private investors that gold has an important function in preserving long-term savings, unlike paper currencies, which are prone to inflation and lose their purchasing power over time.

Due to negative indicators on the profitability of securities, stock exchanges and hedge funds also buy gold. In August 2019, investment in gold reached almost $6b increasing the volume of gold at their reserves by 4.7% (2,733 tons). Compared to the beginning of the year, the growth was 10.4%.

Meanwhile, analysts believe that the demand for precious metals from investors will remain at high level, given the unstable geopolitical situation in the world, as well as trends in financial markets. In fact, the monetary policy of central banks is increasingly inclined to depreciate paper currency by lowering rates and printing new money.

Traders note that gold is still the major secure asset for global economies. In a number of countries, the policy of de-dollarisation is also one of the reasons increasing investment in gold. Some countries, including Russia and Turkey, began to convert their dollar reserves into gold in order to reduce dependence on dollar.

Pessimistic forecasts on the growth of the global economy also confirm the increasing trend of demand for gold. Existing economic crisis and instability force many to recall the 'good old' tool for accumulating and storing free finances.

Double effect for Azerbaijan

Azerbaijan closely monitors the increasing trend too. As of September 30, the volume of gold reserves in the investment portfolio of the State Oil Fund of Azerbaijan reached 100.66 tons (approximately 3.2 million Troy ounces). The share of gold in the investment portfolio of the fund amounted to 11.4%, whereas on January 1 it was only 5.4%.

The fund has been investing in gold reserves since February 2012, buying weekly 25 gold bullions (10,000 Oz) for two years (30.18 tons). From the second quarter of 2018, SOFAR resumed gold purchases. Delivery of gold to Azerbaijan is carried out by the British company Brinks Global Service.

It was the purchase of gold that caused a significant increase in the volume of imports to Azerbaijan. According to the head of the State Customs Committee Safar Mehdiyev, the cost of Azerbaijani imports in the first 10 months of this year was 24% higher than in the same period last year, 85% of which were associated with gold imported by the Oil Fund.

In January-September 2019, Azerbaijan imported about 50 tons of semi-processed gold ($2.1 billion), while over the same period last year this indicator was 11.5 tons ($459.7 million). The import of gold to Azerbaijan during nine months of 2019 increased by 4.3 times, while its cost by 4.6 times. In general, Azerbaijan buys gold from Switzerland, Canada, the USA, Australia and Brazil. In addition, in January-September 2019, Azerbaijan imported 400.15 kg of gold entirely from Switzerland for the production of coins worth $15.8 million.

Apart from SOFAR, the Central Bank of Azerbaijan also increases the gold reserves of the country. There is no exact data on the volume of import for this year, however, it is known that the Central Bank is trusted to store gold mined in Azerbaijan.

Gold mining in Azerbaijan is carried out by two companies. On August 21, 1997, Azerbaijan signed a contract with Anglo-Asian Mining PLC for the development of six deposits: one in Nakhchivan, two in Gadabay and three in Kelbajar and Zangilan, which are currently occupied by the Armenian armed forces. Azerbaijan's share in the contract is 51%, Anglo Asian Mining PLC - 49%.

In addition, gold mining is carried out by AzerGold CJSC established by the presidential decree of February 11, 2015. The company is engaged in the study, research, exploration, development and management of the Garadagh, Chovdar, Heydagh, Dagkesemen, Kohnemeden and Kurakchai basin and gold ore deposits.

According to data published by these companies, gold mining in Azerbaijan in January-October 2019 reached 3,100 kg, which is 7.3% more than the same period last year. In 2018, the volume of produced gold was 4,200 kg, which is 31.7% less than in 2017.

The extracted gold is sent to Switzerland for processing and purification from impurities, and then the ingots are returned to the state treasury through the Ministry of Finance and sent to the Central Bank for storage. Last year, for example, 400.2 kg of gold was mined from the Gadabay deposit. This is a profitable share of Azerbaijan from participation in this project. Thus, last year, the total volume of gold reserves of Azerbaijan reached 73,700 Oz (2.3 tons), and the market value of gold reserves amounted to $91.7 million.

In addition to purchasing gold, Azerbaijan also exports it. Azergold ranks first in the list of state-owned companies engaged in export operations in the non-oil sector. The company started exporting its products in April 2017 and sold 154.5 thousand ounces of gold and 252.8 thousand ounces of silver by November 1, 2019. The volume of export operations reached more than ₼350 million.

In 2020, Azergold expects more than $75 million in revenue due to the sale of 55,000 Oz of gold and 99,400 Oz of silver. If prices continue to rise, it is obvious that Azerbaijan's profit from gold exports will increase significantly and turn into a significant source of state budget revenues. Thus, rising prices for precious metals in the current conditions will have a double effect for Azerbaijan.