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Is Buying Precious Metals Socially Responsible?

Question:

“While I have interest in precious metals investments, I also have significant concerns about the environmental degradation associated with mining, as well as unfair trade practices (poor conditions and treatment of workers). How, if possible, can I acquire precious metals while tending to these ethical concerns?” —Rob

Dear Rob,

I share your concerns about the adverse effect of mining on the environment and the treatment of mine workers. But I am afraid there is no easy answer to your question.

I have followed the mining sector closely for the last 11 years. While there are still abuses and incidents in some areas of the world, I can tell you that all the major mining companies have adopted much higher standards in the past 20–30 years.

For the most part, mining operations today are safe for the environment and their workers. Even in third-world countries, workers employed by large multinational mining companies work in relatively safe conditions and receive decent wages.

There are several reasons for these changes:

  1. Many institutional shareholders, such as endowment and pension funds, have forced management to pay attention to work conditions and the environment. They do not want to have their name tied to any environmental or social disaster.
  1. Most irresponsible international mining companies would be sued in the US, even if the disaster happens in the Congo or Peru. The costs of litigation and remediation have skyrocketed and can threaten the existence of even the largest mining company. That is especially true when accidents could have been prevented if the company had followed internationally recognized standards of operations. Punitive damages can, in this case, be staggering and put any company out of business.
  1. Most countries have dramatically raised the bar for safety standards. While it is still possible to bribe officials in many countries to bypass safety regulations, most larger companies don’t do that to avoid serious legal risks.

However, I’m not saying that all mining is 100% environmentally friendly. Nor am I saying that all mining workers are working in safe conditions.

Many small domestic companies conduct illegal mining operations that do not comply with workplace safety and environmental regulations. Some mining sites are real disasters both environmentally and socially—with barefoot children working in chemicals and runoffs full of arsenic.

The good news is that the bulk of the metals we sell come from socially responsible mining companies. And the percentage from these types of companies continue to trend upward.

Unfortunately, there is no chain of custody in place that could guarantee that a gold coin or bar has been produced from an environmentally and socially responsible mine.

One of the challenges is that most precious metals are recycled. Refiners get ore and recycled metals from so many sources, that it’s impossible to trace the origin of each bullion piece.

Also, note that the annual production of gold is only a fraction of the world’s reserves of gold available for investment. Some of the gold you purchase in a coin may have been mined 50, 100, or even 1,000 years ago—nobody really knows.

Hope that answers your question.

Olivier Garret

Olivier Garret, CEO
Hard Assets Alliance

 

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11 years ago, I became the CEO of Casey Research, a leading publisher of investment newsletters. Like me, many of our subscribers where precious metals investors, and we shared the same challenge: How do I safely buy and store precious metals? Read More...

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