Recent slippages in the price of gold, particularly those that occurred between two Mondays ago and last Friday have been sufficient to raise eyebrows and, in some cases, even to trigger a hint of nervousness. Actually, gold prices have been recording a modest measure of fluctuation for much of 2013 though it has to be said that nothing resembling the tumble which prices took lately, have been recorded in recent years.
There have been few major reports about falling gold prices in the local media even though the development could turn out to be a matter of significant social and economic significance to the country. The truth of the matter is that the Guyana economy is tied to the apron strings of the gold industry and, by extension, to the vagaries of the international gold market to the extent that were the recent price drop to precipitate a more significant slide in prices, the consequences for the Guyana economy are likely to be pretty severe.
For the moment at least, the recent downward price movement provides a poignant reminder of how vulnerable our economy has become to the vagaries of the gold industry. This is not because our miners are relenting in their quest to maximise production but because neither the miners nor the government have even a modicum of control over gold prices. And at the end of the day, prices are what matter.
Last year marked the third consecutive year in which our total annual gold yield exceeded 300,000 ounces. The figure in each of those years would almost certainly have been significantly higher but for what we know to be uncontrolled smuggling. But that is another matter.
What matters in this instance is that at the end of each of those years we have celebrated the contributions that earnings from gold have made to the country’s economy without, perhaps, stopping to think that in the matter of earnings from the sector, we are in a sense, living on borrowed time.
The price of gold is set through a procedure known as the London Gold Fix or Gold Fix. Designed to fix prices for settling contracts between and among members of the London bullion market, prices are set by the five members of the London Gold Pool and are used as a benchmark for pricing gold products and derivatives on the world market. The official price is set twice daily and is strongly influenced by supply and demand.
Our local gold miners are what are known in the trade as “price takers,” that is to say that the volume of their sales on the market is not sufficiently influential to affect the market price. Even as price-takers, however, our gold miners have – at least up until now – been selling in an environment of rising prices and have therefore been making substantial profits. The other advantage of rising prices is that the industry has been attracting the attention of expatriate investors.
The problem with this equation, of course, is that once the price bubble bursts, price-takers like Guyana have no influence whatsoever on how or when favourable prices are restored. In effect, they must wait out the slump in prices.
It is the waiting out process that is bound to hurt Guyana since lower gold prices will mean reduced earnings, by extension, reduced investment and for those individuals and entities that depend for their own livelihoods on the industry, loss of income. In short, if gold prices continue to fall that could result in the significant disfigurement of the of the country’s economy.
These days, connecting the dots that hinge the Guyana economy and the livelihoods of thousands of Guyanese to the gold industry is not difficult. Apart from those who work directly in the sector there are those who either own and operate those sectors that provide services to the gold industry and which, in the absence of that industry, will, in all likelihood, fold. Of course, one need hardly extend the discourse into what is bound to be the impact on families.
More than that, falling gold prices will impact negatively on the ability of potential foreign investors to raise capital with which to pursue their investments, a circumstance that will result in – at the very least – the postponement of their ventures.
The Guyana Gold and Diamond Miners Association (GGDMA) has said in a statement that followed a recent meeting with Natural Resources Minister Robert Persaud that falling gold prices may well make a case for diversification even though it would be interesting to see just what direction that diversification will take.
The more likely scenario – assuming that gold prices fall further – is that the gold mining sector will take on a fittest-will-survive appearance in which the weakest investors will cut their losses sooner rather than later and the bigger, well-entrenched miners will stick it out for just a while longer though not long enough to allow the changing circumstances in the sector to take back the gains that they had secured over the years.
All this, of course is – for the moment at least – no more than conjecture, though, frankly, the scenario is nowhere near as far-fetched as it might appear.
