Real-time risk management solutions for volatile precious metals market

2021-05-04T09:26:53+00:00 May 4th, 2021|News|

As precious metals price volatility accelerates, the risks brought by the speculative market could severely impact profitability of businesses in this industry. Ability to hedge these risks highly depends on accessing all relevant information on time and bringing it together in a usable format. One company has a solution for this.

Volatile precious metals market calls for real-time risk management solutions. Photo by Wikimedia Commons

Volatile precious metals market calls for real-time risk management solutions. Photo by Wikimedia Commons

Precious metals markets continue to fluctuate. Inflation, Covid-19 uncertainty as well as interest rate and equity volatility is affecting all of the markets. For businesses in metals and mining industries this can be a double-edged sword—a significant revenue boost countered with large potential losses due to mismanaged risk positions. Companies seek a reliable real-time data monitoring solution to hedge their risks, but such projects are expensive and have been accessible to mega corporations and banks only, until now.

With global investors constantly shifting their asset locations, challenges of managing a business in a volatile environment are increasing. Canada’s leading precious metals trading company, Silver Gold Bull (SGB) has experienced these headwinds first hand. A lack of real-time risk monitoring tools to successfully hedge their risks were exposed by the dramatic shifts in market pricing. The increased volatility led to drastic swings in SGB’s inventory and commitment positions, so the company began to search for new and innovative risk management solutions.

“The industry we work in can behave in extremes. While this market helps us grow exponentially, it also brought serious and new challenges our way,” said Mihali Belandis, Partner at Silver Gold Bull. “Our risks increased 10-fold and we had to broaden our risk management capabilities. Since the old ways were leaving us increasingly exposed, we had to make a move. We managed to get lucky and come across DeRISK. Since then, our mutual work has created an environment to help us grow in the future.”

DeRISK, a Fintech services company, focused on corporate risk management services, has taken upon themselves to design an innovative solution based on Silver Gold Bull’s needs and introduced a fully automated tool that monitors SGB’s risk exposures in real time across FX and commodity risks for hedging purposes. It integrates data, ensures that the infrastructure is continuously running, and identifies real-time risks in the company’s internal processes, in order to aggregate them.

“What the system does is shows your risk exposures precisely and continuously. To achieve such a level of data integration and accuracy is rather unique for businesses outside of the financial sector. At least it was until now,” explained Naglis Vyšniauskas, CEO at DeRISK. “We are talking about the type of infrastructure that can only be found in the most sophisticated institutions with multi-million budgets for IT systems and risk management departments. DeRISK on the other hand, managed to build an efficient and timely programme that could be accessible to smaller companies. This introduces a new spectrum of hedging and risk management opportunities for smaller companies that were simply out of their budget levels”.

While DeRISK’s idea of a fully automated, AI and Machine learning powered risk exposure monitoring system has been in development for some time now, the long-term partnership between DeRISK and Silver Gold Bull, as well as the challenges faced in the industry, have shown that such a tool is essential for businesses’ scalability, as observed by Mr. Vyšniauskas. The product’s wider accessibility is in the works, and DeRISK hopes to release the product for use in other industries by the end of 2021.

As the precious metals’ market remains volatile, it continues to bear high risks for the companies involved. Accurate, timely and even fully automated risk management is not that far away from wider accessibility as showcased by the partner-level cooperation between DeRISK and SilverGoldBull. This could be seen as a risk management industry-changing project, allowing businesses with exposures to markets prices across many industries to hedge their risks more effectively.