Gold is the world most ductile metal and it is regarded as a precious metal due to its rich history as a medium of exchange before the advent of the modern currency. Gold is valuable natural resources which can be found in mines, stream paths of rivers and lakes as well as in debris deposit. The common method used in mining gold includes dredging, sluicing and panning. Other salient features of gold which make it a valuable metal include its texture, density, colour as well as its melting point. Gold is a yellow shiny metal and highly valuable metal which cost around $ 38297.97 per kilogramme. Furthermore gold is one of the most traded monetary assets in the world. All these attributes made gold a significant tool to employ in monetary policies until when paper money was introduced. Studies indicate that 50% of world gold production is used to manufacture jewelry , 40%for investments in terms of central bank reserves to hedge against economic recession and inflation, and 10% of world oil production is used in industries due to its excellent ability to conduct electricity and heat making it be readily applied in industrial electronics and ceramics. This paper will focus on gold production, marketing as well as pricing in Indonesia.
Gold production in Indonesia
Currently,Indonesia contributes 4% of the world gold production,50% of which traces its origin to Grasberg mine,the global biggest gold mine as far as the western region of Papua is a concern. The Grasberg mine is believed to be housing the global largest gold reserve which is approximate to be about 67.4 million ounces mainly owned by Freeport-McMoRan Copper & Gold company,a the United States of the America-based company. The Indonesian government control only 9.36% of the gold production company which is 90.64% owned by Freeport-McMoRan . However, tension greatly affects gold production activities of this company due to series of violent attacks involving sabotage, robberies and assassinations have been on the rise since the regime of Reformasi came into power. Two reasons behind the violent attacks can be traced to the going push for the independence of Papua being advocated by Free Papua Movement as well as the resentment feeling of the Indonesian people against the foreign company which manages this valuable metal to the detriment of the Papuans and the people of Indonesia in general because profit from gold production are disproportionally allocated with large percentage gold proceeds being taken to the United States of America. By the mere fact that the Grasberg mine is situated in a province which is home to many poor Indonesians, makes the issue of gold production in Indonesia more volatile.The aforementioned challenges have affected gold production in Indonesia in the past and the possibility of future disruption is glaring based on the fact that historical injustices in relation to gold exploration in Indonesia remain unsolved to the present date.Therefore,gold production in Indonesia has been rather violent in the past few decades.Indonesias biggest gold mines are situated at Sumbawa, Papua as well as East and Central Kalimantan. According to a study that was conducted in 2014,Indonesia in the 9th largest producer of gold in the world.
Indonesia produces gold which is in a surplus of the needs of the domestic market. Since gold production in Indonesia is in excess of domestic needs, surplus gold is shipped to foreign countries. This has prompted the government of Indonesia to stimulate the establishment of local processing industries as a way of increase profits from the sale value added products to the international market. Resource nationalism measures were put in place after the enactment of the Mining act in 2009 which encouraged value addition in gold production activities. The 2009 mining act also had serious consequences for foreign players in gold production activities in Indonesia. The 2009 mining act further stipulated that within a span of ten years, commercial gold exploration and mining should be managed by the local people as well as the shareholding of commercial gold companies must be the majority -owned by the Indonesians shareholders. The mining law requires that foreign investors should divest the majority of their interest in mining companies latest by the 5th year of production. The Indonesian capital market plays a significant role in the divestment of gold production activities as stipulated in the Indonesia 2009 mining act. In addition to gold production via mining process, recycling of gold` add to gold production quantities.Moreover,central banks play a significant role in regulating the supply-side of gold through trading some of their gold deposits in stock exchange markets like the New York stock exchange.
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Gold marketing and pricing
Indonesia offers a dynamic but often overlooked gold market in Asia because it is overshadowed by the gold producing giant, Singapore as well as the expanded physical gold markets of China, Thailand, Vietnam and India. Indonesias gold market starts from upstream production process until the final stage of exchange-based financial intervention to retail distribution as well as gold exports thus representing an active local gold market and gold export source. With a population of over 250 million people in Asia and an expanding middle-class group, the Indonesian gold business certainly has a promising future.
There is a need for the country to put in place an elaborate marketing to ensure that the country fully benefits from gold mining activities. As a large gold producing as well as exporting nation, Indonesia hosts two commodity exchanges and all of them market gold futures contracts both in the Indonesian capital market and New York stock exchange. Indonesia being third most populous country in Asia with a population of over 250 million people, it has a vibrant local gold market.Furthermore,Indonesia has got a vibrant gold market with globally recognised gold refinery, a well-developed gold jewellery sector as well as the availability of retail market and investment in gold products. The majority of gold market participants` are located in the countrys capital city of Jakarta. Indonesia retail demand for gold in 2015 stood at 20.1 tonnes. Indonesias gold jewellery is also substantial and studies indicate that demand for gold jewellery in 2015 was 38.9 tonnes
Indonesias gold Jewellery offers an excellent platform for marketing of gold in Indonesia. Studies indicate that gold jewellery market demand was in excess of 38.9 tonnes in 2015. The Indonesian Jewelers and Goldsmiths Associations charged with the responsibility of organises promotional campaigns and events aimed at expanding the market for Indonesian gold.The Indonesian jewellery sector continues to thrive to the present day thus creating a sustainable market for the Indonesian gold globally with the ever increasing number of people who buy jewellery as a form of investment. Local brands of gold continue to increase jewellery sales to the present day due to the concentration of local brand outlets in major cities of Indonesia.The leading brand of jewellery is Indonesia are Goldmart, Frank & Co and Julia Jewellery.
Gold futures contracts are marketed in two product exchanges in Indonesia; namely the Indonesia Commodity Derivatives Exchange (ICDE) and Jakarta Futures Exchange (JFX). Jakarta Futures Exchange has located Jakarta,It was opened in and listed the first gold futures contract the subsequent year.The participants of the JFX are composed of JFX shareholders, broker members and trader members. Indonesia Commodity Derivatives Exchange (ICDX) is also located in Indonesias capital city. Indonesia Commodity Derivatives Exchange (ICDX) was established in 2009 where it list future contracts based on gold. In Indonesia, gold futures activities are controlled by the gold Futures Trading Act as well as the Indonesia gold futures trading regulatory body. Jakarta Futures Exchange (JFX) provides twelve gold futures contracts spread across three distinct groupings.First,the Physically deliverable gold packaged into 100 gram,250 grams and 1kilogram futures. Second, Periodic Rolling contracts packaged into 5,10,25,50 and 100 gram gold size. Third, A series of Gold Index contract as well as daily rolling gold contracts.
Between 1980 to 2001,a drastic increase in world gold production took place which lead to the saturation of gold market causing the price of gold to decrease. However, as the production cost began to rise, profit declined and with time production cost outpaced profits from the sale of gold.A decline in world gold production followed and for the period ranging from 2001 to 2008,global production of gold had declined drastically causing gold prices to skyrocket again.For the mining sector in Indonesia, this development was an incentive for producing gold which began in 2008.But,Aa recovering world economic from the 2008 financial crisis as well as growing global production of gold from 2008 onward have the potential of leading to overproduction of gold not only in Indonesia but also to the global production at large which can cause prices of gold to decline.
Gold prices are perceived to relatively constant and therefore they are unlikely to decrease significantly which is different from other natural resources. Studies indicate that gold market plays a significant role to investors in difficult times and at the same time gold markets serve as safe havens to investors especially risk-averse investor who might not be will invest in stocks which might be considered to be a risk even if their returns could be higher. The New York stock market is one of such avenue whereby people can invest in gold futures. Therefore, the New York Stock Exchange plays a central role in determining gold prices, especially for Indonesia. Gold being a metal that has a rich history of being used as a medium of exchange before the invention of money, there is a likelihood of disruption of the allocation which can price variation of gold between countries.Nonetheless, international institutions like the New York Stock Exchange has put in place standards upon which international gold prices are determined which affects gold pricing in Indonesia.
Gold is one of the valuable metal which is used to manufacture, jewellery, currency, cell phones, computers,laptops as well used in dentistry and medical field. Indonesia offers a dynamic market but so often ignored gold market in Asia because it is overshadowed by the gold producing giant, Singapore as well as the expanded physical gold markets of China, Thailand, Vietman and India. Indonesias gold market starts from upstream production process until the final stage of exchange-based financial intervention to retail distribution as well as gold exports thus representing an active local gold market and gold export source. With a population of over 250 million people in Asia and an expanding middle-class group, the Indonesian gold business certainly has a promising future. In comprehensive logic,gold production, marketing and pricing activities in Indonesia are so significant to be overlooked by international players in gold exploration and mining.