Navigating the golden labyrinth:
A tale of legitimacy amidst deception and danger
by Brandon Largent and Paul Q. Goyette
Gems. Diamonds. Gold. All such sparkling precious gems and metals have lured many into their dazzling abyss. Gold, in particular, has proven its value over time by virtue of its liquidity, diversification, and scarcity. From Columbus to the Spanish exploration, to Indiana Jones – history and pop culture demonstrates that gold is the undisputed heavy weight champ as a store of value for high wealth persons. The lessons that history (and pop culture) have also demonstrated is that the journey from gold mine to a final destination can be fraught with a myriad of pitfalls and bad actors. From the deepest mines in far off places, to the polished surfaces of international trade, gold’s journey is a trek laced with potential threats.
For those brave enough to venture into this realm, this blog aims to enlighten the reality of the gold industry, exposing its shadowy corners and illuminating the pathways to safe and legitimate dealings. Additionally, in line with the mission, vision, and values of the Financial Policy Council, this blog seeks to provide the essential tools needed to maneuver this labyrinth, as there simply must be access to such rare earth gems, and gold, for the economic security and viability of sustained wealth – and new wealth creation. Together, let’s explore how best to keep gold safe from the grasp of thieves and your deals free from the taint of dishonesty and deception.
As a threshold matter, to assist in highlighting some of the dangers in gold deal making, a brief discussion on native gold is necessary. Doré is unrefined gold, extracted at a mine site. Unrefined refers to the gold being less than pure, as doré will consist of a mix of gold, silver, and a number of other mineral/metal components. Some mines can be highly sophisticated where they conduct certain refining processes on site. However, many mines operate only to extract the native product, where the doré must then enter a complex logistical chain to complete its refining process before its pure gold comes into the hands of the investor.
As a practical matter, this makes perfect sense. The mine itself, its owner, and any related partners, handle sensitive chemical processing and machinery required to extract native gold. Indeed, the owner, and any partners are specialists at what they do. However, they do not possess a robust book of business that gap fills the multiple points along the distribution chain from mine to refinery, to investor. This is precisely why a necessary space exists for qualified brokers, and intermediaries (i.e., cargo transporters, security agents, etc.). The problem is this necessary space is concurrently occupied by disingenuous, if not outright fraudulent parties. The result is that the gold’s journey is a trek laced with potential, and actual threats.
Amongst several global hot spots, Ghana and Uganda are consistent destinations for doré investments. Although the following numbers fluctuate depending on the currency, and specific market, one kilogram of doré is approximately $40,000 (U.S. dollars), and one kilogram of pure gold is approximately $61,000 (U.S. dollars). Let us assume an investor seeks to purchase twenty kilograms of doré. After refinement, this $800,000 investment will sell at a price of approximately 1.25 million. That is a $400,000(+) investment gain, coupled with the condensed investment term of weeks or a few months versus other long-term market investments, you may now be wondering just how fast as you can to enter into such a transaction. A few considerations before you do. An investor must realize, to properly safeguard this precious cargo, one needs to outmaneuver not only natural obstacles and political instability, but also a legion of unscrupulous actors bent on siphoning the fruits of your investment. What follows are three recent, real-world accounts of doré investments.
(1) Investor engages two local agents in Kenya, who travel to mines in Uganda. Agents secure a deal for ten kilograms of doré. Agents organize safe separation post extraction, and place with designated transportation company. Agent 1 occupies the transport vehicle while Agent 2 follows in tow, to the preferred airport, where the cargo is set to be transported to a separate continent for expert refining. Upon reaching the airport, Agents are unable to physically accompany cargo through all security and verification procedures before loading. Agents boarded the plane, later discovering the cargo never made its way onto the airplane.
(2) Investor’s partner accompanies Agent 1 with the vehicle borne self-transport of five kilograms of doré. While enroute to the airport, a rogue and hostile vehicle closes the distance and opens gunfire upon the transport vehicle and occupants. In an effort to disengage from the rolling gunfight, the partner ultimately discards the bag containing the product in an effort to preserve life.
(3) Along with Agents 1 and 2, the investor’s partner successfully transports five kilograms of doré to the airport. Upon arrival, while physically walking with the bagged doré, a local miscreant who presents as a security official, attempts to detain the partner in an effort to separate him from the product. This detention results in a physical altercation where the partner successfully defends himself from the violent, attempted robbery.
Based on the above incidents, one can quickly understand that the voyage of transporting native gold from its source to a shipping location is a high-stakes game of subterfuge and strategy. Every step is riddled with the constant threat of detection, heists, and the malicious intent of those who covet the doré. Amid the excitement and condensed timeline of a highly profitable investment in doré, it is easy to overlook the grueling battle fought behind the scenes in order to keep the investment safe. Simply put, an investor cannot do this five-thousand miles away and hope for positive results. The question becomes, can you navigate your way to a more secure transaction resulting in a prosperous venture?
Pathways to safe and legitimate dealings:
Although not exhaustive, taken in turn are a number of methodologies an investor ought to consider ensuring the safety and security of the product throughout the entire chain:
Secure Transportation Services: Employing reputable secure transportation services can significantly mitigate risks. These companies specialize in the safe transportation of high-value goods and use armored vehicles, trained security personnel, and advanced tracking technology. Selecting a company with a proven track record in the industry and good client references can further reduce risk.
Escort Security: It may be advisable to use a security escort in certain high-risk areas. These can be local law enforcement officers or private security firms who are familiar with the area and potential threats. This will not only provide an added layer of protection but can also deter potential bad actors.
Chain of Custody and Verification Systems: Establishing a robust chain of custody and verification system is crucial. This might include tamper-evident containers for the doré, Global Positioning Satellite (GPS) tracking, and accompanying documentation. Consideration should also include having verification systems in place at each step of the transport, including security checks at the mine, during transportation, and at the refining facility.
In addition to these steps, it is essential to conduct a comprehensive risk assessment before transport, considering the specific threats and vulnerabilities associated with the region and the transportation route. Depending upon the region you may conduct business within, there are a number of local, tribal, and/or foreign/local conflicts that increase the threat level. Your security assessments should include a broad due diligence process that includes vetting of all intermediaries and partners involved in the deal. Establishing relationships with local legal counsel who are well-versed on the local influences that may become a threat is key, and their input becomes invaluable in this regard.
Long-range solutions for consideration include technological resources. For example, our Firm is exploring further successful opportunities via the use of blockchain supported transactions. By virtue of the ledger, such transactions are nearly fraud proof, are self-executing, and may include unavoidable self-imposed penalties. One may look to emerging use cases in the past few years, such as the “TrustChain Initiative.”
The TrustChain Initiative is a collaborative project among several companies, including IBM, and leaders in the precious metals industry, which aims to track and authenticate diamonds, precious metals, and other valuable goods using blockchain technology. “[S]till in proof-of-concept stage […] TrustChain targets both gold and diamonds” to increase transparency and ensure the ethical sourcing of materials throughout the supply chain, from the mine to the end consumer. This initiative leverages the power of IBM’s blockchain platform, which is renowned for its robustness, security, and scalability, to provide a decentralized and immutable record of transactions.
The implications of the TrustChain Initiative for commodities, such as gold, are significant. By tracking the journey of gold from the mine to the final product, the initiative promotes ethical sourcing by ensuring that the gold has been mined and processed under fair labor practices and environmentally friendly conditions. It also serves to reduce fraud and illicit activities by providing an immutable and transparent record of transactions, making it nearly impossible for bad actors to introduce counterfeit goods into the supply chain. For consumers, TrustChain means greater confidence in the provenance and ethical status of their purchases. For businesses, it translates into enhanced reputation and trust in their products, potentially leading to increased sales and customer loyalty. This marks a paradigm shift in the gold industry and other commodities sectors, redefining industry standards for transparency and ethical sourcing.
In conclusion, as we continue to collectively step into a new and ever emerging technological arena, full of transparency and human and economic health and wealth, we must approach gold with renewed reverence. The promise of gold’s prosperity is perpetual and its value undeniable. Yet, as we partake in the pursuit of this precious metal, let us not be blinded by its gleam. Instead, let us remember that the quest for gold is more than just a pursuit of wealth; it must also be a test of our resilience, our ingenuity, and above all, our commitment to integrity. Not only is access to gold a must, so too is a commitment to the sourcing methods which include the health and welfare of the laborers unearthing such investments. As we unravel the complexities of the gold industry and strive for legitimate and safe dealings, a reflection of our own journey emerges. A reflection demonstrating our capacity for growth, innovation, and the relentless pursuit of a brighter, more transparent future.
 Calvão, F., & Gronwald, V. (2019). Blockchain in the Mining Industry: Implications for Sustainable Development in Africa. South African Institute of International Affairs, 74, 5. https://www.jstor.org/stable/pdf/resrep29530.pdf?refreqid=excelsior%3Ab6796085d4b2456c8c4b4a019fd46e6b&ab_segments=0%2Fbasic_search_gsv2%2Fcontrol&origin=&initiator=&acceptTC=1