Financial Times, February 4. GOLD: Plan to buoy price
By Gillian O'Connor, Mining Correspondent
Central Banks should be encouraged to sell off most of their gold reserves so that they cease to pose a threat to the gold price. Michael Coulson, head of global mining research at Paribas, floated this plan to the Investing in Africa Mining conference, Indaba 99, in Cape Town yesterday.
He argued that central banks were responsible for gold's poor performance in recent years, because of the way they have used their reserves in the derivatives market to provide cheap gold loans for producers.
"The gold mining industry has colluded in this by persistent forward selling capping the gold price at ever lower levels," Mr Coulson said. "The industry faces years of going nowhere unless it moves to neutralise central bank and other official gold holdings."
Mr Coulson suggested two ways of organising the sale: regular auctions or securitisation of the banks' reserves. He argued that, although the central banks are large holders, the market could absorb a staged straight sale of their holdings.
"While the announcement of such a programme would shake the gold market initially, we think that in time the market would come to terms with it," he said.
The aim would be to reduce official gold holdings by 75 per cent over 10 years, to a series of sales similar to those employed by the IMF and US Treasury in the 1970s. Indeed, the new round of sales might even be managed by the IMF.
Alternatively, and this is Mr Coulson's preferred method, gold bonds, redeemable into gold, would be sold under the aegis of the IMF.
The precedent for this is the successful French government bond, the Rente Giscard of 1973 to 1988, which was very popular.
In London, Andy Smith of Mitsui was wary of Mr Coulson's proposals. He argued that the central banks do not care enough to set the necessary auction mechanism in place; that it is difficult to see who the buyers would be; that the Giscard bonds were a special case; and that if there were really a market for gold-backed bonds, some commercial bank would have created them by now.
However, Mr Smith agreed with Mr Coulson that to have any hope of working, an auction scheme would have to be operated under the auspices of the IMF.
Some producers do not agree that central bank gold sales are a threat. "We no longer see them as an issue," said Bobby Godsell, Anglogold chief executive officer, shortly before Mr Coulson presented his proposals. |
