In Africa, most gold mines typically adhere to the established world spot price set by the London Bullion Market Association, unless alternative commercial arrangements have been made. Gold mining companies may occasionally extend discounts through Gold Forward Sales Contracts, where they pre-sell a portion of their anticipated future gold production, accompanied by contractual obligations and stipulated penalties for non-compliance.
Typically, buyers remit payment in advance at a reduced rate and commit to receiving physical delivery at a future date. The timeline for delivery varies, commonly spanning one year but subject to adjustment based on offer acceptance, and this may deviate from the norm on a case-by-case basis.
Small and very small-scale miners regularly offer their gold at approximately 5% below the spot price. Their urgency to monetize their gold often stems from the need to sustain their livelihoods. These miners exclusively transact with buyers in close physical proximity who can provide immediate cash for gold. Typically, each miner possesses only a modest quantity of gold, usually limited to a few grams or ounces at most. For individuals engaged in small-scale gold buying and selling, security takes paramount importance. The potential risks associated with this trade cannot be understated; the loss of life over a relatively small amount of gold is a grim reality. In certain circumstances, even a few dollars’ worth of gold can determine life or death. Engaging in this industry requires resilience, as gold mining in general entails numerous hazards. Acquiring tools, equipment, and machinery can prove challenging, and theft remains an ever-present and pervasive danger.
Buying gold from Africa can be risky due to various factors such as smuggling, illegal activities, and ethical concerns. Here are some of the risks associated with buying gold from Africa:
- Smuggling and illegal activities: According to a Reuters analysis, billions of dollars worth of gold are smuggled out of Africa every year through the United Arab Emirates, often at a high human and environmental cost. Some African governments have also complained that gold is being illegally produced and smuggled out of their countries on a vast scale, sometimes by criminal operations.
- Ethical concerns: There are concerns about the ethical sourcing of gold from Africa, including the risk of human rights abuses and environmental damage associated with gold mining. The Sentry highlights the money laundering risks stemming from the flow of conflict gold from four sub-Saharan African countries affected by armed conflict and corruption.
- Legal compliance: The gold market in Africa can be complex due to various regulations and legal requirements. Investors need to be aware of these risks and consider working with established and reputable sellers that offer transparency, quality assurance, and legal compliance.
- Safety concerns: Gold mining in Africa can be dangerous, with risks of injury from breaking rocks, ground subsidence, water infiltration, erosion, and mine collapse. Investors need to be aware of these risks and take necessary precautions to protect their investment.
- Lack of transparency: Transparency in the gold sector with respect to relationships between sub-Saharan African countries and the principal direct export markets for refining of gold remains limited.