5/14/99 - Gold"s role needs to be re-evaluated
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Johannesburg (Mail and Guardian, May 14, 1999) - Gold, the precious metal most commonly associated with = South Africa, is in the way of taking yet a further beating after the Uni= ted Kingdom"s Chancellor, Gordon Brown, announced last week that Britain = is to sell off about 415 tons over the next three years.
An extraordinary aspect of the British announcement was the way it del= ivered its decision. Most central banks which decide to reduce significan= tly their bullion reserves announce this after they"ve made their sales (= as Australia did two years ago).
All the Bank of England has done is to drive down the price of the ver= y commodity it now hopes to sell, presumably at good prices. In its defen= ce, some commentators say that at least the UK sales by auction will be t= ransparent.
I cannot, for the life of me, see what good that does. If, for some pe= rverse reasoning, the bank thinks it clever to deny taxpayers $10 an ounc= e (roughly the extent to which the gold price has fallen since the Britis= h announcement) it will certainly get its wish. Ten dollars an ounce may = not sound much but over 415 tons it amounts to something like a cool $135= -million.
South Africans need to be concerned because of the primary role gold m= ining continues to play as an employer of labour. At its apogee in 1986, = the industry employed 534 000 personnel. Since then, and as gold"s role h= as been steadily reduced, so much of South Africa"s production has become= uneconomic. As production fell, so did the labour force needed to mine i= t. By 1997, the labour force had shrunk to 321 000.
Economists believe every man employed in the mines effectively support= s a further 10 people, either indirectly in the rural areas or through th= e secondary industries which have grown up around the various gold fields= . Presuming that"s correct, the cold statistics mean that over the past t= wo decades more than two million people have had to find sustenance from = some source other than gold mining. In a country in which job destruction= and economic contraction are commonplace, this is where the real pain ha= s had to be absorbed, not in fancy numbers or in economic theory but in t= he reality of poverty.
And, given the state of the market, it"s hard to see how it will recov= er. Over the past 10 years the grip of the bears has steadily tightened. = Central bankers, who really should know better, have allowed their stock = of bullion to be used for lease purposes on the flimsy pretext that it"s = better to earn 2,5% from a silent asset than nothing. What none of them a= dmit publicly, however, is these loans have contributed to bullion"s stea= dy price decline. And of what value can it possibly be to earn a pittance= on the income statement while the asset"s value in the balance sheet fal= ls by $40 an ounce or more?
What is now needed is a complete about-face in the way gold"s role in = commerce is measured and understood. We all know that gold remains a stor= e of (declining) value. We also know its role as a monetary instrument ha= s been steadily debased over the last decade (except when it suits the me= rchant bankers for whom its cheapness and ease of access has become legen= dary).
Gold Fields chair Chris Thompson, who takes grave exception to the man= ner in which gold"s supply and demand patterns are measured, believes new= methods of evaluating gold"s role are urgently necessary.
As an example, American housing stock (about 95-million units), like g= old, has a vast store above ground. Like gold, this stock is added to eve= ry year (about 500 000 new houses annually in the United States). And, li= ke bullion, property and land are perceived to be permanent stores of val= ue. Gold needs to be reassessed along similar lines.
The long term transfer of gold from central bank to private ownership = really should not come as any great surprise (most gold is already held p= rivately). Yet there seems a pervasive fear, fuelled happily by gold bear= s, that the 30 000 tons in national treasuries (most of it in the US, Fre= nch and German central banks) will be released in a deluge.
There"s not much chance of that but as long as the threat remains, so = gold will stay trapped in a relentless price decline. This isn"t helped e= ither by producers who hedge out sales of their future production, in som= e cases by as much as 12 years ahead. It may give short-term succour and = make some mines appear illusorily profitable, but it is really slow-actin= g poison because all it really achieves is to make increasing quantities = of unmined gold uneconomic.
I know what I urge is easier said than done and may appear a pious wis= h, but producers need to put their differences aside and devise a long-te= rm strategy which stands the industry on its head and enables it, after y= ears of debilitating price contractions, to expand. Failure to do so mean= s another decade of shafts closing, falling output and ever fewer jobs.
By David Gleason ( Column)
Copyright 1999 Mail and Guardian. Distributed via Africa News Online. |
