Two violent massacres just this month demonstrate the growing risks of illegal mining in Latin America. The region’s criminal groups have increasingly turned to illicit gold as a source of revenue over the past decade. Now, as they fight over an increasingly profitable sector, violent crime around the illicit gold industry is heating up and destabilizing governments across the region.
The reasons for the surge in illegal gold mining are straightforward and have to do with the economics of the global trade in the precious metal. Most importantly, at the point they both leave South America, an ounce of gold is currently worth more than a kilogram of cocaine. En route to markets in the U.S. and Europe, however, that relationship flips. Illicit gold entering the global commodity supply chain only gains 10 percent to 50 percent in value after leaving South America. By contrast, cocaine sold on the streets of the U.S. is worth about 2,000 percent more than its value at export.
For global investors, gold is considered a safe haven when the broader economic conditions are uncertain, which is why its spot price has risen to over $3,000 per ounce in recent months. For criminals, gold can be laundered into a legal product once it reaches international markets, which isn’t the case for cocaine. As a result of all these factors, while cocaine is extremely lucrative for those who traffic it across borders, illicit gold is far more profitable for criminals at the source.