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Governments want to take the glitter out of gold

By John J. Metzler
SPECIAL TO WORLD TRIBUNE.COM

July 25, 1999

UNITED NATIONS -- Global gold sales by governments have deliberately depressed the price of the precious metal and moreover have diluted the backing of many currencies. What has not been as obvious has been the steady and severe damage done to the mining industries--especially in South Africa and Ghana--where record layoffs have not only deepened economic malaise but have caused political ramifications as well.

Traditionally South Africa has been the kingpin in global gold production; in 1980 gold comprised 50 percent of exports--today the figures stands at a mere sixteen percent. Naturally while the skyrocketing prices of twenty years ago played a significant role, today many mines have been closing, adding scary statistics to South Africa's 30 percent unemployment rate.

According to the Chamber of Mines in Johannesburg, the trigger price of $265/oz means a mine can stay in production; when the price falls below this magic figure, half the mines become "marginal" and 80,000 jobs become problematic. In late July prices stood at $255 per ounce.

Typically each miner has eight to ten dependents so the ramifications outpace the obvious numbers. Miners come from throughout Southern Africa, especially Lesotho and Mozambique. Thus while on the one hand Western politicians speak about economic development for Southern Africa, they are at the same time through central bank bullion sales, depressing one of the major engines of that development; the mining sector.

Naturally mine efficiency has been as much of the problems as has been the world prices set in places as far off as London, New York and Hong Kong. Restructuring and efficiency, which were never issues during boom times, now have been fairly successfully addressed at the major holdings. South African mines now have the highest average production costs in the industry.

Though Ghana's Ashanti Goldfields plans a major workforce cutback, firm executive Sam Jonah asserts that while it may be tempting to pound on western doors he will tend to concentrate on things under his direct control "such as cutting costs and unprofitable production."

Still major gold bullion sales by the British and the Swiss have done much to depress prices. So has the global feel good economy where perceptions of unbounded prosperity sadly outpace reality. While Wall Street boom and low interest rates belie such structural problems as the significant loss of American industrial sector jobs, the bottom line remains that today's perceptions of prosperity and clear economic sailing often overlooks storms on the horizon.

Gold seems strangely forsaken as a port of financial refuge.

The International Monetary Fund (IMF) wants sell gold as to finance its debt relief. Congressman Spencer Bachus (R-Alabama) proposes a better idea; to use gold as a way to both finance poor country debt relief through revaluation. According to the Financial Times of London, "Some twenty million once of US gold is held at the IMF at the book value of $47 per ounce. He said that a portion of this could be restituted to the US and then revealed. The approach may allow the revealed gold to be placed in a trust fund specifically created to finance the highly indebted poor countries."

Such a plan avoids the need for further open market bullion sales which in effect then continues to depress prices.

The Bachus plan deserves merit. Not only would it dampen the continued price erosion, but moreover it would put gold to good use as collateral for poor country debt relief. It offers a creative path away from the traditional low interest loans which will realistically never be repaid.

Gold seems under deliberate assault from governments who want to replace the intrinsic value of the "barbaric metal," with the intrinsic faith in their paper currency. Even the usually sober Swiss have de linked gold backing from their Franc currency. There's no doubt that without the stabilizing effect of gold, governments gain financial options without nearly as many fiscal responsibilities, a pleasure for any politician..

John J. Metzler is a U.N. correspondent covering diplomatic and defense issues who writes weekly for World Tribune.com.

July 25, 1999


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