Gold in the Saudi Financial Market: Its Role in Mining

Gold is a precious metal with a unique economic and historical status worldwide, occupying a central position in Saudi culture and economy. Gold is considered a store of value and a safe haven, emerging as one of the most important assets for hedging against inflation and currency fluctuations. In Saudi Arabia, gold is not classified as a direct financial asset in the Tadawul market, but it is strongly present in related sectors such as jewelry and mining. It also has significant social and cultural dimensions, as it is used as gifts on occasions and viewed as an indicator of wealth and financial stability.

The Kingdom seeks to enhance the status of gold by developing the mining sector under Vision 2030, which aims to diversify the economy and reduce dependence on oil. The government has encouraged mineral exploration, including gold, by granting extensive licenses and providing incentives to attract local and foreign investments. Thus, gold has become part of the national strategy to maximize economic returns and diversify income sources, emphasizing its role in building foreign currency reserves at the Saudi Central Bank.

Gold is not traded as a direct financial asset or security in the Saudi stock market (Tadawul); rather, its economic and investment impact is reflected through listed companies related to the mining and minerals sector. Investing in gold in Saudi Arabia is multifaceted, including the purchase of bullion, coins, and jewelry, as well as indirect investment through shares of mining companies such as the Saudi Arabian Mining Company (Ma'aden).

There are also financial products linked to gold, such as savings certificates or gold accounts at some local banks, but so far, there are no exchange-traded funds (ETFs) for gold within Tadawul. Saudi investors looking to gain global exposure to gold rely on external brokers to access gold funds listed in international markets such as the New York or London exchanges. Thus, gold remains a fundamental part of the investment asset mix and is used as a means of hedging and diversifying financial portfolios in the Saudi market.

The price of gold in Saudi Arabia depends on global prices determined in international commodity markets such as the London and COMEX exchanges. Local prices are calculated by converting the price of an ounce in dollars to Saudi riyals, considering the manufacturing margin, transportation costs, and taxes (if any). The key factors influencing prices include:

1. Global supply and demand: Production from mines and recycling meets the demand for jewelry, investment, and central banks.
2. Global interest rates: As interest rates rise, gold's attractiveness decreases, and vice versa.
3. Inflation: Rising inflation drives investors to hedge with gold.
4. Strength of the US dollar: Gold typically moves inversely with the dollar.
5. Geopolitical crises: Wars or financial crises increase demand for gold as a safe haven.

In Saudi Arabia, the price of gold is linked to the riyal due to the currency's peg to the dollar, making international price movements quickly reflected in the local market.

Saudi Vision 2030 has prioritized the mining sector, including gold, to diversify income sources and stimulate non-oil investments. The government has launched several initiatives to update legislative systems and facilitate licensing procedures for exploration and mining. In recent years, extensive exploration licenses have been granted covering thousands of square kilometers in mineral-rich areas such as Medina and Asir.

The value of untapped mineral resources in the Kingdom is estimated at about $2.5 trillion by the end of 2024, compared to $1.3 trillion in 2016, including significant quantities of gold and precious metals. The government aims to attract annual foreign investments of up to $100 billion by 2030, with gold being one of the pillars of this strategy through joint projects with global companies, such as the Minerals Lighthouse project with the Public Investment Fund.

Despite the absence of gold as a direct asset in the Tadawul market, the Saudi Arabian Mining Company (Ma'aden) is the most prominent face for investment in the gold sector locally. Ma'aden was established as a government company leading comprehensive mining projects, including major gold mines such as the Duwayhi project and the Mansourah-Masara mine.

Ma'aden's stock (1211) reflects the dynamics of the Saudi mining sector, as the company's performance is affected by global gold prices, local production volume, and exploration and operational efficiency. Financial data for Q4 2024 indicates the stock price stabilizing around 50 riyals, with a price-to-earnings ratio lower than global averages, and annual revenue growth due to rising metal prices. Ma'aden offers annual cash dividends of approximately 1-2%, making it one of the investment options linked to gold in the local market.

The world produces about 3,300 tons of gold annually, led by China, Australia, and Russia. In Saudi Arabia, local production is relatively limited compared to major producers, but it is witnessing rapid development thanks to new exploration projects. The Geological Survey Authority revealed massive deposits in the Al-Ralaat and Zajouqa regions, which are expected to increase the Kingdom's production in the coming years.

In terms of consumption, local demand for gold is high due to cultural use in occasions and gifts, alongside investment demand. Additionally, Saudi exports of gold bullion and coins rose in 2024, supported by rising global prices, despite a decline in the volume of exported quantities.

The Saudi Central Bank (SAMA) holds part of its foreign currency reserves in the form of gold, estimated at about 323 tons by the end of 2024 according to International Monetary Fund data. These reserves represent about 10-15% of the Kingdom's total reserves and contribute to enhancing financial stability and the ability to withstand global economic fluctuations.

The value of these reserves changes with fluctuations in global gold prices, as rising gold prices increase the market value of the reserves even if the quantities remain stable. These policies fall under risk management and asset diversification at the central bank, in line with international best practices.

The mining and minerals sector, led by gold, is considered one of the emerging and promising sectors in the Saudi economy. The sector includes local mining companies such as Ma'aden and global companies engaged in investment partnerships. Strengths include increasing global demand for gold, supportive government policies, and the availability of vast untapped reserves.

Conversely, the sector faces challenges such as rising extraction costs, the need for modern technologies, and regulatory and environmental fluctuations. However, recent reforms, facilitating foreign investment entry, and encouraging local manufacturing are all factors enhancing the competitiveness of the Saudi mining sector and attracting capital to invest in gold and other precious metals.

The Saudi gold market witnessed several significant developments in 2024-2025:

1. Extensive exploration licenses granted in March 2025, covering 4,788 km² in two mineral-rich areas in Medina and Asir.
2. Announcement of investments worth 366 million riyals over three years to explore new sites.
3. Increased exports of gold bullion and coins despite a decrease in quantities, driven by rising global prices.
4. Notable growth in revenues of listed local jewelry companies.
5. Strategic partnership between Ma'aden and the Public Investment Fund to invest in global mines such as Reko-Diq in Pakistan.
6. Government initiatives to support the mining sector under Vision 2030 and update regulatory laws.
7. Continued relative stability in local gold prices, influenced by global movements and changes in international interest rates.

Gold is considered a tool for hedging and risk diversification, characterized by its lack of direct correlation with corporate returns or interest rates. In Saudi Arabia, gold is compared to stocks, bonds, and real estate, each with its characteristics:

- Stocks provide dividends and capital growth potential but are more volatile.
- Bonds offer fixed income with lower risk levels but may be affected by inflation and rising interest rates.
- Real estate represents a tangible long-term asset but requires liquidity and significant capital.
- Gold does not provide periodic income but is used as a safe haven in times of uncertainty and often performs well during crises or rising inflation.

Thus, gold is viewed in Saudi Arabia as a complementary element to the asset portfolio, not a complete substitute for any other investment category.

There are currently no exchange-traded funds (ETFs) for gold in the Tadawul market, but there are financial products linked to gold available through local banks and some brokerage firms. These products include:

1. Gold accounts: Allow customers to buy and sell gold electronically, with storage at the bank or financial institution.
2. Gold savings certificates: Investment products that enable investors to benefit from gold price movements without actual ownership of bullion.
3. Contracts for difference (CFDs): Products allowing speculation on gold price movements through local or international brokers.
4. Purchasing bullion and gold coins from jewelry stores or online.

All these products offer diverse investment alternatives for investors wishing to gain exposure to gold without the need to physically store the metal.

Despite gold's appeal as a safe haven, investing in it carries certain risks and challenges:

1. Price volatility: Gold may experience prolonged downturns or sharp increases, affecting final returns.
2. Lack of cash flows: Gold does not generate periodic returns like stocks or bonds.
3. Storage and insurance costs: Holding physical gold incurs additional costs.
4. Regulatory changes: Imposing taxes or restrictions on gold trading may affect its attractiveness.
5. Mining company risks: Investing through mining company stocks exposes investors to operational and financial risks related to company management and exploration efficiency.

Therefore, it is always advisable to diversify and consult licensed financial professionals before making significant investment decisions in gold or any other asset.

The prospects for the gold sector in Saudi Arabia are promising due to government reforms, growing local and global demand, and increasing investments in new mining projects. With the continued granting of licenses, infrastructure development, and the entry of international partnerships, local gold production is expected to rise in the coming years.

Additionally, the introduction of more financial products linked to gold in the local market, such as exchange-traded funds, could expand investment options and enhance market liquidity. The shift towards local manufacturing of bullion and jewelry will also contribute to job creation and increase the added value to the national economy.