Gold draws investors seeking a ‘trustless’ asset: Phair

Gold is attracting central banks, wealthy investors and businesses seeking an asset independent of governments and counterparties as confidence in economic data and global trade erodes, Scottsdale Mint CEO and owner Josh Phair says.

Buying patterns are shifting as investors increasingly treat bullion as a treasury asset, Phair told MINING.COM host Devan Murugan on the latest Top of Mine episode.  He pointed to continued central-bank purchases and growing interest among private investors and companies holding gold on their balance sheets.

“I don’t think people trust the government-issued data from any nation, they don’t trust each other in trade and what’s going on,” Phair said. “They’re going to a trustless asset and I don’t think we’ve seen this before.”

The shift could broaden gold’s role beyond a traditional store of value as buyers seek exposure to an asset that does not depend on another party’s promise to pay. Phair says that demand is also contributing to sharper moves in precious-metals markets.

Phair argues that this shifPhair said wealthy investors and businesses are buying bullion, with some companies borrowing against gold held on their balance sheets. Central banks are also increasing their exposure, he said.

“I would say very well-heeled investors, even businesses are putting gold on their balance sheets and then they’re lending against it,” Phair said.  

He pointed to China’s sustained purchases and said central banks with little or no gold exposure are considering allocations of 1% to 3%, while those already within that range are looking at 5% to 7%. Poland, he said, is targeting an allocation in the upper 30% range by year-end.

The changing demand profile is coinciding with greater volatility in gold and silver, according to Phair. Price movements that once took place over much longer periods can now unfold within hours.

“I see it as the volatility is growing in gold and silver, and gold is being used as a treasury asset now,” he said. “We’ve seen, I would say, decades of periods of time where metal does not move at all. Now, we’re seeing it in an hour.” 

Refining bottleneck

While demand for precious metals is evolving, Phair sees refining capacity as one of the mining industry’s biggest constraints. Years of insufficient investment in exploration and development have compounded the challenge, he said.

“We could say that while the mining sector’s had a nice cash flow it’s been underfunded, underdeveloped, underexplored for over 20 years,” he said.  

For Phair, that is why so many mining projects are being consolidated and mining companies continue to grow. However, region-specific challenges affect production.  

Even in the US, developing a mine can be difficult, Phair said, with reclamation bonding and permitting requirements changing with government policy. Approval processes can stretch for 10 to 20 years, increasing the pressure to develop deposits in jurisdictions including South America and Africa.

“So, you’re having to go to tougher places,” Phair said. “And then you’ve got geopolitical risk.” 

Watch the full episode here: