Gold has always had an allure. Earlier this month, it reached record highs breaking through the USD $4,000 per ounce price barrier for the first time in history. Pundits have been quick to warn that the price will drop soon, but it hasn’t happened yet. With the global price of gold now having risen by 43% already in 2025, what can CIPS students learn from this?
“Gold is unique, and always has been. Aside of its status value throughout history, this precious metal enjoys special tax benefits and a privileged position among investors.
However, the yellow precious metal is a commodity and like all commodities, we need to understand its degree of volatility within the global markets.”
Gold is a ‘hard’ commodity, meaning that it is a raw material extracted from the Earth and used as the starting point for many manufacturing and production processes. Commodities cannot be reduced to any lower entity, they cannot be broken down into component parts, they form the basic building block for subsequent production processes required to make finished goods.
As such, commodities have certain unique properties:
They are natural raw material products [non-manufactured] from the Earth
They cannot be broken down further
They can be ‘traded’ for monetary value or as units of value in their own right
They have specific quality grades
They are fungible [i.e. interchangeable] so that each unit of commodity could be readily exchanged.
CIPS includes the trade of commodities as part of its qualification suite that every professional procurement person needs to learn, both at Level 5 and also at Level 6. In particular, you are required to understand that volatility within the pricing of raw material commodities can create major risks within the supply chain for manufacturers.
Why does volatility affect raw material prices?
Commodities rely on the economics of supply vs. demand. A sudden rise in the demand for a raw material such as the rare minerals required to make consumer electronic devices pushes the price up. A poor harvest of a crop will reduce supply and again push the market price up. Conversely, a good harvest or the sudden discovery of a new source of raw materials or fuel increases the market capacity and prices tumble.
As such, commodities are prone to the fluctuations of market demand and environmental conditions. Added to this, geo-political uncertainties can reduce the availability of certain commodities making their scarcity a source of value for those who own what little material is available.
One of the unique features of commodity volatility is the lack of control and lack or predictability behind these environmental uncertainties. This is where expert market knowledge comes in. For CIPS students, you quickly learn the value and insight that an accurate STEEPLED analysis can provide.
So, why is gold so valuable?
In times of uncertainty, investors will rush to gold as a safe-haven for financial security. All of the usual commodity volatility conditions still apply to gold, but gold is perceived with added cache.
In recent years, many central banks like the European Central Bank have bought up additional gold reserves as a ‘hedge’ to counteract US federal monetary policies. Some countries (such as Turkey, Poland and others) have increased their gold reserves as an investment to support their growing economies.
With doubts being voiced about whether stocks and shares (particularly in digital technology and A.I.) might be over-priced, investors have seen gold as being more tangible and therefore more secure.
Wars, unrest and political instability have helped to fuel the global anxiety about the world’s financial system, and so investors look to other sources of value.
All of these factors have played into the recent rise of gold as an investment opportunity, leading to its recent spectacular rise. At USD $4,000 per troy ounce, this represents the peak value for gold in its trading history.
But will it last?
Some suggest that gold is the safest investment and it will never lose value. others suggest the price is currently over-inflated a readjustment is about to happen anytime soon. Who knows? Commodities are volatile, unpredictable and that’s just the point!
What’s the takeaway learning for my CIPS exams?
Supply chains are built on raw material supplies. Some are harder to source than others and this affects their scarcity and price. As such, this all leads to supply chain risk and cost fluctuations.
Learning about commodities and their effect on production costs is a critical foundation in any procurement professional’s career development, and this is why this is a crucial element of the total CIPS syllabus content.
While you study this for your CIPS qualification exams, do please remember that not all MCIPS members will have studied with the same integrity or depth of content knowledge. MCIPS is just a membership status of the Institute, whereas your exam-based qualifications give you an accreditation for life.
We wish the very best with your on-going CIPS studies and preparations for your next exams. Do please reach out if any of us in the Cordie team can help or support you on your journey.
…And who knows, one day soon you will enjoy that golden procurement career! :)
