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Mulroney, Crow lobby for gold
Hired by World Gold Council members, they urge central
bankers to hang onto holdings, help prop up weak prices
Saturday, February 28, 1998
Former prime minister Brian Mulroney and former Bank of Canada
governor John Crow are lobbying for the world's biggest gold producers
in a campaign to stop central banks from dumping their gold holdings.
Using Mr. Mulroney's political connections and Mr. Crow's entr‚e into
the exclusive club of central bankers, the two promoted the gold
producers' views in private meetings this month with German
Bundesbank president Hans Tietmeyer and Bank of France governor
Jean-Claude Trichet.
Contacted in Toronto, where he works as a consultant and corporate
director, Mr. Crow said he was acting on behalf of Toronto-based
Barrick Gold Corp. "and others" at the meetings. The purpose, he said,
was to determine "what [the central bankers'] gold-holding policies are."
Mr. Crow added only that he and Mr. Mulroney were given "attentive
hearings." Mr. Mulroney, who has sat on Barrick's board of directors
for several years, could not be reached for comment. His Montreal
office said he was travelling.
A Barrick spokesman confirmed that the two are working on behalf of
the company and other members of the London-based World Gold
Council, which is in the midst of a $3-million (U.S.) lobbying campaign.
The council represents the world's major gold companies, including
Anglogold Ltd. of South Africa, the No. 1 international producer; Placer
Dome Inc. of Vancouver; Newmont Mining Corp. of Denver, the
largest producer in North America, and Barrick, North America's
second-largest producer.
The unprecedented campaign is taking place against the background of
a major slump in the price of gold to just under $300 an ounce from a
high in recent years of $417 in February of 1996.
Gold sales by central banks in Australia, the Netherlands and Argentina
have helped drive down the price amid market expectations that other
central banks may follow suit. What upsets the gold producers is that
this is happening even though physical demand for gold is at record
levels and exceeds physical supply.
"In the last two years, market sentiment has been driven by the central
banks," said Kelvin Williams, executive director of marketing at
Anglogold.
With the 15 member countries of the European Union due to announce
next month how much gold the new European Central Bank will hold in
its reserves, the producers have sprung into action, lobbying fiercely to
get the central bankers to send a bullish signal to financial markets by
announcing that gold will form at least 10 per cent of the new bank's
reserves.
And progress, possibly helped along by Mr. Mulroney and Mr. Crow,
is being made, as far as Barrick and other mining companies are
concerned.
"There is now a growing consensus among European central bankers
that part of the reserves we are transferring from the national level to the
European level will be gold," Mr. Tietmeyer said in an interview last
weekend in London. He has said several times recently that the French
do not intend to sell their gold.
European central banks hold 13,840 tonnes of gold, more than 40 per
cent of the 32,800 tonnes held by central banks worldwide.
Gold represents 30 per cent of their collective reserves, which also
include currencies. As they set up the new European Central Bank, the
existing central banks will be transferring some, but not all, of their
reserves to its coffers. At one point, gold producers feared that the new
bank would have no gold in its reserves. Now, as Mr. Tietmeyer has
indicated, it will have some gold, but the question remains how much.
Though they are now arguing the case for gold, Mr. Mulroney and Mr.
Crow were in office when Canada was one of the first countries to sell
most of its gold holdings.
The selling program began in 1980, when the Bank of Canada held 22.2
million ounces of gold (or 690.5 tonnes) on behalf of the federal
government. A total of 3.1 million ounces are held now. The average
selling price was $393.90 an ounce. The proceeds were used to buy
interest-bearing U.S. treasury securities.
However, Canada's slow, fairly steady gold sales -- the last occurred in
October of 1996 -- did not unsettle the markets the way Australia did
last year with an announcement that it had sold two-thirds of its
reserves, or the news from Switzerland last year that the national bank
might sell more than half its reserves to finance a fund for Holocaust
victims.
The United States is not selling its gold reserves, but news from
Southeast Asia adds to the gold producers' gloom. After years of
accumulating the precious metal, financially strapped Asians and some
Asian governments have been selling a portion of their holdings.
Since 1971, when the United States abandoned the gold standard (the
practice of backing its currency with a set amount of gold), bullion has
been held in lower esteem by central bankers as a reserve asset. Gold
also has traditionally been viewed as a hedge against inflation and is
therefore not as popular in times of low inflation like today.
"It's just less valuable as a monetary asset," said a participant who
attended the London meeting of central bankers last weekend.
"It's over for gold. It's finished," argued Paul De Grauwe, a Belgian
economist and monetary policy expert who believes it is not
inconceivable that the price could eventually fall to as low as $100 an
ounce.
The plunge in gold prices was centre stage recently at Davos,
Switzerland, where business and corporate leaders met at the World
Economic Forum. Barrick chairman Peter Munk confronted central
bankers and said that, by not speaking out in defence of gold, they were
allowing short-sellers to push down the price.
Barrick's share price has followed the price of gold downward, closing
yesterday at $27.30 (Canadian) a share on the Toronto Stock
Exchange, compared with $43.50 two years ago. Other gold producers
are in the same boat.
It's believed that Mr. Munk was the catalyst in getting Mr. Mulroney
and Mr. Crow on the road pushing the case for gold. Mr. Mulroney is a
regular at the annual dinners Mr. Munk holds for conference participants
at his mountain-top chalet in the Swiss resort of Klosters, just down the
road from Davos.
Mr. Mulroney stepped down as prime minister in February of 1993.
Mr. Crow was replaced by the Liberal government that took office in
October of 1993.
Since leaving public life, both Mr. Mulroney and Mr. Crow have
accumulated corporate directorships, among other business activities.
Mr. Mulroney is a senior partner at the Montreal law firm of Ogilvy
Renault and has travelled for Barrick in the past, including to Irkutsk in
Siberia last September, where the company is looking at gold
properties. His other directorships include agrifood conglomerate
Archer Daniels Midland Co. and energy giant Petrofina S.A.
Mr. Crow is an adviser for American International Group of
Companies, a large financial-services concern, and a director of
companies, including Midland Walwyn Inc.
The two men are not known to be particularly close, and this is believed
to be the first time they have worked together in the private sector.
"My first thought was 'What an odd couple,' " one central banker said.
Robert Pringle, spokesman for the gold council, said the gold producers
are telling European central bankers that their new single currency,
called the euro, won't gain public acceptance unless it is backed by gold,
and that they should make sure they have gold as a backup should the
euro prove a failure.
The council also argues that selling gold is counterproductive because it
devalues the bullion the central bankers keep. By one estimate, for every
$1 (U.S.) drop in the price of gold, the aggregate value of gold held by
European central banks drops $2.5-billion.
Finally, the council is raising concerns that low gold prices are having a
harsh effect on South Africa's fragile economy.
"We're not so much hankering back to the days of the gold standard,
but there is a role for gold as a modern asset," Mr. Pringle said. "It's too
soon to come to the conclusion that gold is on the way out."
Central banks' net sales and purchases worldwide in tonnes
Year // (Net sales of gold// Net purchases) of gold
1977 // (269// --)
1978 // (362// --)
1979 // (544// --)
1980// (-- // 230)
1981// (-- // 276)
1982// (-- // 85)
1983// 142// --
1984// 85// --
1985// -- // 132
1986// -- // 145
1987// -- // 72
1988// -- // 285
1989// 225// --
1990// 196// --
1991// 11// --
1992// 622// --
1993// 482// --
1994// 94// --
1995// 182// --
1996// 239// --
Source: Gold Fields Mineral Services
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