Gold is a remarkable metal. Over time, it has sustained its importance as a store of value, its price at any given point in time being determined by factors such as inflation, interest rate volatility, fluctuations in the value of the dollar, currency-related crises and international political tensions that threaten to have economic implications. What makes gold different from other precious metals is that while the demand for those other metals derives mostly from their industrial application, gold is produced primarily for accumulation. Commodities produced from other precious metals are, by and large, consumed in one form or another and while the same can be said for gold which is consumed, in considerable quantities, in the form of jewellery, gold’s real value arises from its use and worldwide acceptance as a store of value.
The rise in gold prices to more than US$1500 an ounce last week really comes as no surprise to those who have been monitoring the slow pace of recovery from the global economic and financial crisis by the economies of the United States and Europe. Some of the current manifestations of the behaviour of the global economy and the consequential assertion of gold’s role as a store of value were predicted as many as six years ago. In March 2005, John Embry of the Investors’ Digest asserted that “In the coming decade, as the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the centre of the global financial system. Gold’s value, relative to most national currencies, will soar.”
That, literally, is what has happened. Confidence in paper money, stocks and other conventional stores of value continue to erode in the current global economic climate.
Increasing confidence in gold as a store of value means that the precious metal is in considerable demand. The demand will not last forever but while it sustains itself it offers opportunities to investors and entrepreneurs at several levels.
Here in Guyana, interest in gold reposes mostly in its price on the international market. At US$1,500+ an ounce, it has never been better. Of course, producers of gold in Guyana are less interested in holding on to the precious metal as a store of value and more interested in exchanging it, preferably for US dollars. As the price rises so too does interest in the mining sector.
Continually rising gold prices has been reflected in a frenetic gold rush in Guyana in recent years. Over the past two years the industry has yielded 300,000+ ounces in each year and, if all goes well, expert predictions suggest that as many as 500,000 ounces of gold could be mined in 2011.
That is, of course, if all goes well; we say this because all is far from well in the industry. Indeed, if the global demand for gold has now pushed prices up to record levels and created opportunities as much for the country’s country as a whole as it does for the miners, there are lingering issues that have cast a pall of uncertainty over the manner in which the industry will proceed in the future.
In the first instance there is the uncanny coincidence between the high price of gold and the resulting gold rush and initiatives being pursued by the authorities to assert a greater measure of environmental muscle within the sector within the confines of the government’s Low Carbon Development Strategy (LCDS). If it is hardly politic for the miners to seek to frown upon the LCDS, it is no secret that its constrictions, which some may say are welcome in terms of reducing the level of lawlessness that is sometimes manifested in mining practices, are regarded by many miners as an attempt to change the face of gold mining in a manner that will push hundreds of small miners out of the industry.
Specifically, the Guyana Gold and Diamond Miners Association (GGDMA) has made no secret of its concern over the required six-month notice of intention to mine, the failure of the state to open “closed areas” to mining since November 2009 and what is considered to be the speculative holding on to potential mining areas covering thousands of acres by companies holding reconnaissance permits.
The other issue that has created a measure of uneasiness among traditional gold miners is what, reportedly, has been a belated interest in the sector by urban entrepreneurs who have traditionally confined their operations to trading and other non-mining ventures. The miners are concerned – and they have, in some cases, said so – that competition from well-connected urban businessmen who see the industry as “good business” at this time could see the emergence on instances of political intervention in the allocation of mining claims.
Differences between the mining community and the political administration have already manifested themselves in a major demonstration at Bartica and with differences still persisting between the two sides there is no telling whether further confrontations might occur. On the other hand, there is one issue on which, presumably, both the government and the miners agree. The advent of the gold rush has created unparalleled levels of violence in mining communities, some of which appear to be the result on private gold-related differences. Others are the result of the attraction which the gold industry now represents for ruthless criminals who appear bent on securing their own unearned payday from the gold industry.
If, therefore, the continually rising price of gold presents more opportunities for the miners as much as for the country as a whole, those opportunities cannot be isolated from the risks and challenges that reside cheek by jowl with them. Whether the industry can take full advantage of the opportunity that currently presents itself – and which will not last forever – depends on the extent to which the key stakeholders, those are, the government and the miners, are prepared to work together to arrive at solutions that take account of concerns on all sides. Preserving the environment while ensuring the viability of the sector and creating a far more reliable security regimen that pays greater attention to providing protection for the miners, are likely to be among the major concerns on both sides.
