Gold Bonds & Mining Fund Default Risks

• Specific Risks: Gold bonds (issued by listed financial institutions) and mining funds (invested in gold mining enterprises) face default or underperformance risks:

  • Bond issuers may fail to pay coupons or repay principal due to financial distress (e.g., a bank’s credit rating downgrade).

  • Mining funds may underperform due to operational issues (e.g., mine accidents, reduced output) or regulatory bans on mining activities (e.g., environmental restrictions in major gold-producing countries like South Africa).

• Mitigation Measures:

  • Strict issuer/enterprise screening: Only select gold bond issuers with S&P credit ratings ≥ BBB- and mining enterprises with ≥5 years of profitable operations and valid mining licenses.

  • Set position limits: Cap gold bond holdings at 20% of the underlying portfolio and mining funds at 15%, avoiding overexposure to a single asset type.

  • Establish a risk reserve: Allocate 5% of gold bond coupons and mining fund dividends to a dedicated reserve, which can be used to compensate for losses from partial defaults.