Fair Trade Gold Enters The Market In 2010
Our Exclusive Interview with Patrick Schein, Part II
Patrick Schein is an Executive Board Member of the Association of Responsible Mining (ARM) as well as the President of S & P Trading, a precious metal trader and refiner based in Paris.
Anyone interested in the fair trade gold issue will want to read this entire interview, which covers a wide range of social and economic issues.
Part I covered the issues related to product development and fair trade certification. Part II below about bringing fair trade gold to market.
~ Marc Choyt, Publisher
Marc: How much more will fair trade gold be sold to the manufacture over current spot?
Patrick: Well, besides the premium of 10% of the London Gold Price which goes directly to the mining organization for development investments, the manufacturer will have to pay for the traceability costs.
Segregating the Fairtrade & Fairmined gold all along the different processes of the supply chain bears a cost. For example, a refining batch in a large refinery can be between 100 and 200 kilos, so when you have to isolate 5 or 10 kilos, the unit cost is automatically higher. The same phenomenon occurs in the logistics and in the other fabrication processes.
In addition, a license fee for the use of the Fairtrade & Fairmined label will be paid in order to support the system. All that implies additional costs compensated by the fact that the gold bears a social value, is respectful of the environment, and offers development value for the miners since it complies with high social, labor and economic requirements.
This additional immaterial value, well known in the jewelry and luxury industry, is a marketing advantage for the jeweler and will surely allow him to save on marketing costs. I would say that in the end, the extra cost the manufacturer will pay for the gold will be around 15-17% including the premium.
The volumes will also have implications on the extra costs and we expect them to decline as volume will ramp up. It is important also to position the fair trade premium outside the markup that manufacturers and retailers do. Nobody along the supply chain should make an extra profit on the premium and if so, the final price will be only impacted by a small percentage.
If plain gold jewelry sells for 3 times the price of gold as a finished piece, 10% premium on the gold represent only a little more then 3% on the shelf price. That is not much for having responsible artisanal gold.
Marc: I’m interested in carrying fair trade gold for my customers. How do I sell it over recycled gold, which is so much easier to understand and still is a good choice?
(Patrick, helping to amalgamate some ore)
Patrick: The values conveyed by those two golds are quite different. Recycled gold is easy to get. In 2008, US generated more than 3 million ounces of gold from fabricated old gold scrap (this number does not include the private and official sector eventual sales of gold holdings). It is easily understandable by the consumer, at least simpler than mining, and it is better than dirty gold. All US jewelry manufacturers could use 100% recycled gold with almost no effort.
Recycled gold is a FACT not an OBJECTIVE. The planet’s above the ground stocks end of 2008 (gold that have been mined since the origin), the recycling gold reserves, were estimated at 5.2 billion ounces of gold or 75 years of 2008 jewelry fabrication or 67 years of mine production. It will not prevent mining to occur for a simple reason: you do not need a customer to sell gold, you go to the market, it is a commodity.
Recycled gold does not aggregate value and it has no development impact. Mining has allowed countries or states to become regional or world powers. Look at California, South Africa or Australia. The only way to stop mining is to not give gold, a metal used only to put in a safe or around a neck, its value.
Recycled gold does not bear any social value and does not prevent mining to occur. I defend recycled gold, the refinery I manage in Europe is the first one who signed the NoDirtyGold campaign, but before promoting it, I am campaigning for Fairtrade & Fairmined gold.
It is a good complement of responsible artisanal gold, but it could eventually end up competing with it in the market once it is accepted by consumers.
Marc: What insights or lessons did you learn from this process of bringing the notion of fair trade gold into existence?
Patrick: I will answer you with a quote from George Bernard Shaw:
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”
Since this fair trade gold adventure, a lot of my mates which became for majority friends are unreasonable.
Marc: Any final thoughts?
Patrick: This work was made possible thanks to ARM donors, who I want to warmly thank here in the name of our organization. Finally, this could not have been done without our executive team work led by Cristina Echavarria, and the committed members of ARM´s Board and the Technical Committee. Many people have altogether done a great job and are starting to rewrite the history of gold mining!
