Recent Developments

Regardless of their impact on the broader economy, inflationary pressure and Cedi depreciation have helped create favourable market conditions  for local gold traders throughout June and July. At the time of writing, Energy and Resources Company (ERC) - a subsidiary of Two Lakes - saw gross trading profits grow 150%/66% from GHS 2.77/USD 0.33 per gram in June to GHS 4.17/USD. This has been helped in part by the fact that the decline in the Cedi has not coincided with a corresponding crash in the global gold price. Local production costs have actually dropped in relative US dollar terms, with smaller scale mines opting for less advanced but cheaper production alternatives that can be purchased and operated in Cedi.

As such, trading firms like ERC have been able to turn the "double-whammy" of inflation and depreciation into a "double bonus" of relatively lower Cedi costs and relatively advantageous conversion rates. By purchasing gold in Cedi and selling for dollars, traders capture a Cedi bonus - thanks to depreciation - which can immediately be flipped into larger purchases. 

In general, domestic Cedi trading allow traders to more quickly increase their volume of gold, whereas USD export trading generates the dollars wanted by investors and logistics companies. 

Such conditions are, of course, unsustainable in the long-run, and the Ghanaian Central Bank is expected to pursue more aggressive monetary policies in order to curb general inflation and currency depreciation. Moreover, a drop in the global gold price to below USD 1,700 per ounce would greatly lessen the impact of the USD-GHS 

Regardless of their impact on the broader economy, inflationary pressure and Cedi depreciation have helped create favourable market conditions  for local gold traders throughout June and July. At the time of writing, Energy and Resources Company (ERC) - a subsidiary of Two Lakes - saw gross trading profits grow 150%/66% from GHS 2.77/USD 0.33 per gram in June to GHS 4.17/USD. This has been helped in part by the fact that the decline in the Cedi has not coincided with a corresponding crash in the global gold price. Local production costs have actually dropped in relative US dollar terms, with smaller scale mines opting for less advanced but cheaper production alternatives that can be purchased and operated in Cedi.

Market Characteristics and Trade Process

Gold production and trading are very mature sectors in Ghana, with the country officially known as the Gold Coast prior to independence in 1957. Ghana remains one of Africa's largest gold producers, with 30 to 40 percent being extracted by small-scale miners. Over USD 5.38 billion was exported from Ghana in 2020.

Compared to neighbouring countries, the Ghanaian gold sector is well-regulated via a licensing system administered via an online platform. Under the Minerals and Mining Act, 2006 (Act 703), all firms dealing in minerals require separate licenses for local purchasing and export. Institutions such as the Precious Metals Marketing Company (PMMC) also provide a public sector alternative for grading, dealing, and assay. 

This and other "field figures" are widely used as standard during assay, with nearly all local producers and traders favouring the water density method. Laser gun and fire assay are also available, but not favoured for most transactions except in special circumstances (dispute or large transaction) or for export with larger buyers. 

Such conditions are, of course, unsustainable in the long-run, and the Ghanaian Central Bank is expected to pursue more aggressive monetary policies in order to curb general inflation and currency depreciation. Moreover, a drop in the global gold price to below USD 1,700 per ounce would greatly lessen the impact of the USD-GHS 

In practice, nearly all local trading is conducted using local transaction standards that are likely to have been used for the past century or more. Gross weights are considered in Ghanaian pounds - a non-standard unit of measurement approximately equivalent to 5 pennyweights, or one-quarter of a troy ounce. 

LOCAL INSIGHT

Gold trading profits hold steady despite inflation and currency depreciation

29 JULY 2022

Further Reading

Profile - Energy and Resources Company

Two Lakes launched a new gold (dore) trading fund in Q1 2022 in partnership with its sister company Energy and Resources Company (ERC) in Ghana. Since then, ERC has secured its domestic and export trading license, in addition to a service provider license from the Ghanaian Petroleum Board. The 2LG Ghana AU Fund is currently seeking additional LPs seeking stable and reliable monthly USD returns, with a target fund size of USD 3.0 million. 
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