Rule Symposium: Gold demand shifts from hedge to bank collateral

Gold’s rally is turning bullion from a hedge into working collateral, resource investors heard this week at the Rule Symposium in Boca Raton, Florida.

Central bank buying, physical metal flows and dollar alternatives are pulling gold and silver deeper into the financial system, analysts said this week.

“The people who print the money are buying the one thing they can’t print,” Miles Franklin founder and CEO Andy Schectman said. “Does that not strike you as concerning, or interesting?”

Steady monetary demand can keep gold and silver prices above cost inflation, widen margins and help reopen equity markets for developers. But if artificial intelligence keeps lifting U.S. corporate profits, miners may still have to fight other industries for risk capital, analysts said.

Monetary shift

World Gold Council data illustrate the change in the market mix. First-quarter gold demand, including over-the-counter demand, rose 2% to 1,231 tonnes, while its value jumped 74% to a record $193 billion (C$273.7 billion). Bar and coin demand rose 42% to 474 tonnes and central banks bought 244 tonnes net.

Schectman cast those flows as part of a larger move by governments and large investors to hold metal with no counterparty risk. He pointed to China’s gold buying, gold repatriation from Western vaults such as futures exchange COMEX and the growth of alternative payment systems outside the dollar as signs of strain in the paper-based metals trade centred on London and New York.

“This is the market plumbing moving from a western-based paper settlement system to a non-western-based, ‘give me the damn metal now’ system,” Schectman said.

COMEX, which is owned by CME Group (Nasdaq: CME), has long let producers, dealers and investors roll or settle futures contracts without taking bars. Schectman said the rise in deliveries and warehouse withdrawals shows some large buyers now want the physical metal, not price exposure.

Banking gold

Battle Bank CEO Frank Trotter built a business around the idea. The bank offers high-yield cash accounts, foreign-currency deposits, precious metals storage and loans secured by bullion — products built for investors who want hard assets without stepping outside the banking system.

Trotter said Battle had received more metal than cash in its first months of business, measured by dollar value. The bank lends against stored gold and silver at up to half the metal’s value, letting clients raise cash without selling bullion.

That turns gold and silver into working collateral. For miners, the shift matters because financial firms that treat bullion as credit support can strengthen the link between physical metal demand and capital markets.

Equity pushback

Litman, chief investment officer of Cambridge, Massachusetts-based Altimetry Research, offered a different take. U.S. equities do not need to lose for gold to win, he said.

Inflation and accounting-rule changes distort reported earnings and make today’s stock market look more expensive than it is, Litman said. Altimetry’s uniform accounting measures show U.S. companies earning far higher returns than global peers, helped by productivity gains tied to artificial intelligence.

“The things that push up gold and the things that push up U.S. equities do not have to be antithetical,” Litman said.

But juniors need more than a strong metal price; they need investors willing to move down the risk curve.

The funding strain showed before this year’s gold rally widened. S&P Global Market Intelligence said global nonferrous exploration spending fell for a second year in 2024 to $12.5 billion as juniors struggled to raise money. Mining stocks on the TSXV have since rebounded and its top performers this year raised more than $1.5 billion. But that points to a selective market backing winners, not a broad reopening for early-stage explorers.

Miner stakes

The Rule debate paints an uneven backdrop for miners. Gold’s monetary bid can support producers first by lifting margins and cash flow. Developers may follow if investors believe higher prices will last long enough to justify financing new mines.

Silver could benefit more if investors accept Schectman’s view that physical demand has tightened a market still priced through paper contracts. But silver miners also face the same hurdle as gold juniors: a sector can have a strong commodity price and still struggle for equity if investors see faster gains elsewhere.

For now, gold’s role in portfolios is widening. The stronger question for miners is whether that shift results in drilling campaigns, studies and mine builds, or stays confined to vaults.