How AI Is Impacting the Metals Market, Demand, and Access

00:08Welcome to NASDAQ Trade Talks.

00:10I'm Joe Melanino, Global Market reporter at NASDAQ.

00:13We joined with Louis Black,

00:15CEO of Almonte Industries and Joe C avatoni,

00:17market strategist with North America at the World Gold Council.

00:20We're here to discuss AI's impact on demand

00:23for metals and accessibility to obtain these resources.

00:27It is great to have the both of you with us. Welcome to Market Site.

00:29Welcome to Trade talks, and Louis,

00:31let's take a step back for a moment here before we get into the demand structure.

00:35Let's talk about the global Metals market structure.

00:37Give us an overview so we can have some context in terms of where the key areas are.

00:42Well, I think that we've seen definitely an imbalance as to where items are now produced.

00:50And this has happened over the last generation.

00:51This hasn't been any new.

00:53And I think that governments are looking at the fact

00:56that procurement is becoming more and more difficult.

00:59And it's not just because it's becoming more scarce,

01:03but also there's geopolitics involved.

01:06You know, supply chains can now be weaponized.

01:08There's all kinds of factors that have to be considered.

01:11And then you run into a block of

01:13a very different world that exists on one side of the fence,

01:16where you have a highly regulated,

01:18highly invigialistic sort of setup.

01:22And then on the other side, you have far less regulation and

01:24far more national security as a reason to evolve.

01:28And so, you know,

01:29trying to move from one system to the other is proving to be very difficult.

01:34Yeah, for the market generally.

01:36We think about these types of resources.

01:37These are industrial resources,

01:39when we think about Tungsten as an example,

01:41so, you know, phones and semiconductors and things that we take for granted every day.

01:46This all has to come from somewhere.

01:48It's not just an AI generated thing, and here's your phone.

01:50No, I mean, a lot of the critical metals cross over through industrial into technology.

01:55So they're across every part of the economy.

01:57Maybe on a little piece of it, but without it,

01:59you don't have you can't finish the product.

02:02So yes, I think people don't really

02:04understand in many ways that every single thing around

02:07them depends on a supply chain that can feed this growth.

02:14We saw that during COVID, right? Well, we had the supply chain constriction.

02:17So it's a more recent memory that we can relate to,

02:20but Joe Gold is a little bit different in terms.

02:22It's not necessarily used for

02:24industrial purposes relative to some of these other resources.

02:27Well, it isn't in a large scale way,

02:30relative to the other uses.

02:32So about, I'd say,

02:3493% of the gold demand is in the form of either investment,

02:39consumable goods like jewelry, et cetera.

02:42But the end there is that 7% that gets used in industry.

02:45Most of that is in consumer electronics,

02:47a growing component in supercomputer activities

02:51and chips and manufacturing of that type of activity.

02:55And then there's also medical health and science sciences

03:00and those aspects of where gold gets used.

03:02But again, that's a 7% of the overall profile of gold.

03:06And actually, within that,

03:08we've seen growth, about 10%,

03:10quarter on quarter, first quarter,

03:11second quarter of 2024,

03:13but again, a small element.

03:14But back to Lewis' point,

03:17we're still in the same dynamic in terms of

03:19the metals markets because getting gold out of the ground,

03:21whether it's for technical use or

03:23investment use or for just pure consumption in the form of jewelry,

03:27we're still facing a lot of the same challenges,

03:29whether it's the environment where we're looking in

03:32mine or the kind of supply chain issues that you might be facing,

03:35all these are woven in together.

03:37Yeah. And it's quite complex,

03:39especially when we think about it from a regulatory perspective

03:41with all these different type of jurisdictions.

03:42It's not like you pack up your wagon,

03:44go West and start digging for gold.

03:45It just doesn't work like that. It takes a lot for a mind to come online.

03:49It does. But you said something before where

03:51you said the supply chain disruption in COVID.

03:53But, in fact, we'd already had a warning sign about supply chains back in 2008.

03:57When the financial crisis hit,

03:59the first thing that we saw out of Tungsten is dominated by China and Russia,

04:03and China unilaterally canceled every supply agreement with Western companies at in 2008,

04:10citing national security concerns because the price was collapsing.

04:13They didn't know what the future held.

04:15And it sent a warning message out to say all my customers to say, well,

04:19wait a minute, This is how vulnerable we are. To a supply chain.

04:22And then things started to recover and the economy picked up,

04:26and everyone sort of got comfortable again with how it was.

04:29Oh, it won't happen again.

04:31But then COVID sort of reminded us that we're very vulnerable.

04:34Right to this.

04:35So it's almost a blessing and a curse,

04:36when you're considered an essential resource, right?

04:39And because those vulnerabilities are exposed.

04:42Of course, things kind happen every ten to 15 years.

04:44But I can understand what that would be.

04:47Our dynamic in 2008 was quite different.

04:49Our dynamic was that we were plentiful. We were available.

04:52We were actually used as a backstop for

04:54many sovereigns to actually defend

04:56themselves in terms of markets that were cratering around them.

04:59But during COVID, we had a much more extreme example of the supply chain impacting us.

05:04I think the futures markets, for example,

05:06traded at extreme premiums here in the US,

05:08because the need for financial instruments representing the ownership of gold,

05:12have the gold physically backing it meant that the instruments were

05:15trading at premiums because they were choked in terms of their ability to fully back.

05:19And so what was available,

05:20traded higher than what was actually being pushed over to actually back the instruments.

05:24So we were much more impacted in COVID than maybe some of the other metals.

05:29It still continued to perform

05:31Definitely performed, definitely accessed,

05:33but when you weren't able to move gold physically around,

05:36which is key and critical at the end of the day.

05:38So that is one of those assets where there is physical movement.

05:41It's not paper traded, but electronically traded.

05:44Every time people talk about paper instruments representing ownership in gold,

05:48I cringe because it's the wrong way to think about it.

05:50It's a financial instrument that's backed by gold,

05:52like an ETF that gives you the price performance.

05:55It's physically backed by gold.

05:56The futures are backed by the gold.

05:58They need to have the gold behind it,

06:00so they have to work that way.

06:01So it's paper in the sense that it's an instrument,

06:04but at the end of the day, it's physically backed.

06:06Those things aren't easy to carry around. Yeah, they are.

06:09In other areas of the metals market,

06:11is their price volatility relative to gold or is it more volatile?

06:15I think industrial metals are fairly more stable because they are less speculative.

06:20So therefore, you have a more of a demand supply dynamic.

06:24But because you have countries that dominate certain critical medals like China,

06:28they very much control the price of it.

06:30And this control the price is predominantly aimed at preserving market share.

06:35Hm. There's no other reason to do it.

06:39As long as the capital doesn't inflow into other territories,

06:42because it's not attractive, you maintain your domination.

06:46And this has been a very effective tool that's been used.

06:50Technically, they don't control the price,

06:52but as you have so much production, you do.

06:55Right. Well, and then you could see that becomes a geopolitical football.

06:58Then you're into a situation where you have purposefully

07:02brought bought the market share and

07:05discouraged other developments outside of your territory.

07:09But now you also control the game.

07:12And so you've ended up winning on both sides,

07:15cause you can't open a mine in a month.

07:18This is an eight to ten year, you know, journey.

07:21Right.

07:21By the time you go through the permitting, the regulations,

07:24the exploration, the development,

07:26the capital in the deployment, it's a decade.

07:30Right. And so this is a decision which is outside of an election cycle.

07:34Therefore, politically, you find not

07:36an awful lot of support for something that the next guy could take credit for.

07:40Yeah, especially in regimes such as the United States is

07:43an example where you might not have a lifetime you know, a president in.

07:47It's an example cause we're on a four year election cycle,

07:49whereas, you know, perhaps in other countries,

07:51there might be the expectation that

07:53this regime is going to be here through the next decade,

07:55so there's a lot of four d chess playing, is what it sounds like.

08:00Yeah, I would agree.

08:02Back to the point on prices and what

08:04Lewis has said about the industrial use of certain metals.

08:07I think you're spot on and that's actually very accurate,

08:09but quite different to what we see in the world for gold,

08:12what we see in the world for gold,

08:13because most of the consumption is in the form of

08:15financial instruments or money or savings or consumables.

08:19You see a lot more short termism in

08:21terms of what are the factors that are going to move the price today,

08:23a lot more volatility on the shorter term.

08:25But over the long term, those factors come into play.

08:28Can the mine production grow at a greater rate than

08:312% per year in the gold space alone, where is it coming from?

08:34We probably have a little bit more of a diversified source

08:36of supply than maybe some of the other metals,

08:39China We have South America.

08:41We have African nations that are producing,

08:43we have Canadian mines.

08:45We have a lot of different diverse sources.

08:47But over time, it still takes ten, 12,

08:5020 years to get the mine on site and get the mine up and running.

08:53So that choked supply plays into the price performance longer term.

08:57Lou, is there an alternative form of Tungsten as an example that can I mean,

09:03we talk about alternative energy resources all the time.

09:05This is probably a very elementary question,

09:06but are there alternative forms or another resource that can be leveraged?

09:10I think you can't substitute it,

09:13but what happened in the 50s Tungsten was actually more valuable than gold?

09:17I had to get that in there. What is it off camera.

09:21It's the same sort of makeup in the same density. Right.

09:24Density makeup.

09:25No, same density density. Really science is not.

09:28And what happened in the United States was obviously,

09:30Tungsten was used extensively in steel in steel production,

09:33and they pivoted to molybdenum, to Molly,

09:35because it was cheaper in order to be more cost effective.

09:40It doesn't have the durability or the tentile strength of Tungsten,

09:43but it has about 50% of its properties.

09:46So 50% is good.

09:48But what's happened now is that a lot of people switched to Molly,

09:53and Molly has ended up becoming more valuable than Tungsten.

09:56And Molly is actually very rarely mined

09:59independently as a byproduct of another production of say,

10:03copper, most of the copper mines.

10:04So, you know, metals when you make one action, there's always a reaction.

10:11And this is ultimately what's happened with Tungsten back in the 50s,

10:15but now there's no substitution if you want the durability that Tungsten.

10:20Is Molly predominantly in China as well,

10:23or is it more geographically diverse?

10:24It's more geographically dese, but it's a by product.

10:27When you're a by product, it's unpredictable in terms of supply.

10:30Mm.

10:31And what's happened recently with ESG is a lot of the open pit mines,

10:34which are mainly the copper mines are open pit,

10:36they're being forced underground because they had to comply with more environmental code.

10:40And when you go underground,

10:41you'd be much more targeted in your copper production,

10:44you produce less by products.

10:45Right. So, in fact,

10:46that's exacerbated the price of Molly,

10:48because you've now got a supply squeeze.

10:50And that's where it's a little bit different I gold,

10:52it sounds as if it's more geographically diverse.

10:54Absolutely. And I think that that diversity.

10:57The one market that actually we haven't seen as

10:59much growth as maybe you would expect to be the US market,

11:02but I think that's a bit of a political issue,

11:03a bit of issue around permitting and

11:06ultimately having ample supply coming from other nations around the globe.

11:09I think you may have mentioned earlier

11:12that there are nations that are actually encouraging this type of activity.

11:16Our mining members can get to an emerging market, can open a mine site,

11:20can actually apply ESG standards like

11:22our responsible gold mining principles and actually do a lot for that community,

11:26create jobs, create infrastructure,

11:29roll out some of this modernization of energy that's actually being used,

11:33whether it's solar or hydro electric,

11:35and actually make it all happen in markets that really need it.

11:38And I think that's actually where we're seeing the growth,

11:41and I think that it's actually pretty exciting.

11:43I think the challenge for us in the Western markets

11:46is thinking about whether or not gold fits the bill of being a critical mineral.

11:51And it gets the kind of attention from the government that might be beneficial,

11:55whether it's subsidies or some sort of

11:57support economically or financially from the government

11:59to kind of make more progress in terms of getting better supply chain online, or not?

12:05And I don't know right now, no Western market has identified gold as a critical mineral,

12:09whether it's the UK Australia, the US, or Cada.

12:11Unless it was more of a critical resource that was needed for industrial production,

12:16then it would potentially get think the benefit of having

12:19the diversification of supply has

12:21actually kept it mainly off the list of these critical minerals.

12:24I think when it's more concentrated and concentrated

12:26in places that might have a little bit more level

12:29of concern to them is when they basically

12:31will identify the metal to be on the critical minerals list.

12:34Yeah. So back to my earlier question,

12:36so it could be a good or a bad thing.

12:39It's a double edged sword. Right, right, right.

12:40Because I think as we were saying before,

12:43that on the critical metals list,

12:46you would expect government to be more supportive,

12:48but also you run the risk of being more geopolitically visible.

12:53Mmm.

12:53And you could end up in the future.

12:56Where you have a critical metal mine,

12:59which the nation that you actually because you can't move a mine, decides that, in fact,

13:03from a national security point of view,

13:05they want to look at perhaps where are you sending this material?

13:09You know, we live in a capitalist democracy.

13:12You should have the right to sell to whichever party you see fit.

13:15But that may actually change in the future.

13:18I'm not saying it will, but it's a possibility that they may say, You know what?

13:21You're selling to this guy. We don't like this guy so much.

13:24Please look over here for sales. Right.

13:26And, of course, of course,

13:28you can't move the mine. You've got to listen.

13:31But in fact, they do that now, though.

13:33I mean, there are nations that we cannot trade with.

13:36Very few.

13:37Right. Not enough to move. I mean, the needle, right?

13:40Well, you're right, right. North Korea. Yeah. Yeah.

13:42It's not enough to move the needle.

13:45I guess from, you know, a revenue perspective,

13:48but certainly from the geopolitical perspective,

13:50that's kind of where There's a lot of gray area.

13:53With Tungsten, there's only a number of nations that consume it.

13:56There's the United States. There's the EU.

13:58There's Russia, there's China, the South Korea and Japan, and that's it.

14:01Those are the consuming countries of Tungsten.

14:04Yeah. And, of course, that's most of

14:06the economic activity in those environments, but that's it.

14:10What happens if you have a tungst mine,

14:13and they say, You know what, we're not friends with Japan anymore.

14:17We want you to ship it to South Korea instead.

14:20You know, you just don't know what the future holds,

14:22but that critical metals list brings a lot of

14:26visibility that perhaps you don't really want critically.

14:31Yeah. And of course, when you start thinking about geopolitical risk and so forth,

14:35when we're implementing all these new technologies, of course,

14:37the demand for these resources is only going to increase.

14:40Absolutely. So if you don't have the resources,

14:41then you can't, level up in terms of Yeah. You know, security.

14:45And from our perspective,

14:47the consumption of gold global.

14:49And I think from the breakdown of

14:52where you see most gold consume emerging markets more than anything.

14:56Our challenge will be whether or not, ultimately,

15:03political actions in the form of sanctions or the attempt to curtail the use of gold

15:09in the form of money actually develops in a big way over the next two years, three years.

15:14We'll see how it plays out. Lots of talk around the debasement of the dollar,

15:18gold playing a role in that,

15:20how the US might react to that,

15:22how the G seven nations might look at that.

15:24Talk about bricks trying to find

15:26an alternative settlement currency. These are all factors at play.

15:28But again, a little bit away from industrial utilization, again,

15:31because we're not that heavily involved in it,

15:33but similar kind of behavioral concerns around

15:36how geopolitics will impact the use of the metal over time.

15:39Alright. Appreciate both of your insight.

15:41Thanks for joining us on Trade Talks.

15:42And thanks for joining me from Market site and Joel Melanino,

15:44Global Market Porter at NeSDAC.