Surging Gold Prices Fuel $120 Billion in Illicit Trade, FT Reports

Surge in gold prices pushes global smuggling to $120 billion

Gold has nearly doubled over the past two years

Demand rises as a tool for money laundering and sanctions evasion

A sharp rise in gold prices is heightening concern over illegal gold smuggling and the spread of criminal finance. As gold is increasingly used to fund wars, evade sanctions and launder money, governments and market bodies are under growing pressure to respond.

The Financial Times reported on June 19 that gold industry executives view high prices as a crisis, fueling a surge in illicit activity and channeling money to wars and criminal groups. David Tait, chief executive officer of the World Gold Council, said annual illicit gold flows are worth well over $120 billion, with most of that linked to gold produced by artisanal and small-scale miners.

Illegal mining often goes hand in hand with conflict, sanctions evasion and illicit finance, Tait said. Gold prices have eased somewhat in recent months, but they have nearly doubled over the past two years, increasing the scale of the problem. The rally has also been identified as a source of funding for violent conflicts in Sudan and the Democratic Republic of Congo.

Once gold is refined, its origin is difficult to trace. Gold bars become chemically identical, making it easy to hide where they came from. That has made gold a favored asset for money-laundering networks and criminal groups. As prices rise, the same quantity of gold can move more illicit funds, adding to the risk.

Ruth Crowell, chief executive officer of the London Bullion Market Association, said higher gold prices are making it more urgent to curb illicit flows than elevated interest rates. While the rally may create profit opportunities for investors, it also makes illegal finance more efficient in regulatory blind spots.

Governments are weighing possible responses. The US, UK and the United Arab Emirates are considering measures to curb gold smuggling, including installing metal detectors in airport arrival areas and tightening rules on gold sourcing standards. The review reflects concern that gold trading is vulnerable to cross-border transport and false claims about origin.

In the US, bipartisan legislation has been introduced in Congress. The bill would require the State Department to develop a strategy to address illegal gold mining and launch a special investigation into illicit gold mining in Venezuela. The FT said the measure shows gold smuggling is being treated not just as a commodity crime, but as a diplomatic and security issue.

The UK has also signaled tougher enforcement. David Lammy, the UK's deputy prime minister, said Britain plans to take a harder line on illegal gold trading. He said the issue would be addressed through an illicit finance summit and the work of a joint money-laundering intelligence task force. Lammy also said gold is being misused as a vehicle for criminal transactions and that its ties to virtual assets are growing as criminals seek to better conceal illicit activity.

Kim Dong-hyun, Hankyung.com reporter 3code@hankyung.com