WHERE IS THE GOLD?

Jun 10, 2014 Features / Columnists, Peeping Tom

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For the first five months of this year there was a precipitous decline in gold declarations.  Gold declarations were 20 per cent below the corresponding period last year.
This is highly unusual. It is also inconsistent with a situation in which Guyana’s gold production may have peaked and now is on the decline. Guyana’s gold production has been increasing over the past few years and there will come a time when it can go no more. But even taking this into consideration, it is not usual for there to be such an appreciable decline in production. You do not peak and then decline by as much as 20 per cent.
If gold declaration continues its free-fall, it can spell disaster for the country’s economy. There will be a severe decline in foreign exchange earned by the government.
There will also be implications for growth. Unless the authorities can establish that there was more gold produced than what was being declared, the projections for growth in the economy would have to be revised downwards.
There has been a great deal of speculation as to what is responsible for this large decline in gold declaration. Unfortunately, there has been too much speculation and very little detailed analyses of the situation.
The President of Guyana should commission a team of independent experts to study the data and to determine the likely causes for the decline in gold declaration. This is not rocket science.
The trend as explained by one former head of the Guyana Gold Mining Commission is that a small group of miners control about 70 per cent of the total declarations in the sector. The remaining 30 per cent comes from small miners.
Given this profile, a 20 per cent decline in national gold declarations should originate in the large-scale gold mining. Statistically, this is where the attention should be focused. It is near impossible for there to be a contraction in gold declarations by 20 per cent without a shortfall in declaration by these large miners.
An analysis should be done of the gold declared for the past five months by each of the large gold miners. These declarations should be compared with the corresponding period last year. If this analysis establishes that there is a decline in gold declaration by the large miners, then the reasons for this decline should be examined in detail.
Any decline relative to the same period last year will have to be investigated to ascertain the reasons for such a decline.
If on the other hand, it is established that these miners have been selling gold and that their individual and aggregate sales did not decline appreciably for 2014, then the investigation has to focus on the private gold buyers as well as the Guyana Gold Board. The records of those licensed to purchase gold should be examined to determine where any shortfall exists and if it is these buyers that may be hoarding gold.
There are many possible scenarios that can account for the decline in gold declarations. The first of these is the hoarding of gold.
There are many reasons why persons will want to hoard gold. The main one concerns the impasse over the Anti- Money Laundering and Countering of the Financing of Terrorism Amendment Bill.  The problems with this Bill has been ongoing for over a year now and there are many persons who feel that Guyana is headed for sanctions by the international community because of its failure to pass CFATF- compliant legislation. With sanctions, Guyana will face a financial crisis.
What happens during a financial crisis? People seek to find other means to store their wealth and protect their assets from depreciation. This is where gold comes in. People buy more gold when there is a crisis. Countries do the same. They begin to stockpile gold to support their currency. As a result of these developments, gold prices tend to skyrocket during financial crises. In fact, the spike in gold prices which led to the gold boom in Guyana was caused by the global financial crisis of 2008.
It is therefore possible that some persons with substantial investments in Guyana may be fearful of a financial meltdown in Guyana and therefore instead of buying currency, which can be unstable during a financial crisis, are instead buying gold in order to protect their investments.
Another related possibility is that speculators are holding gold because they feel that prices will rise and they wish to make a killing.  This is why many persons are saying that gold hoarding may be responsible for the decline in declarations. However, it is difficult to imagine that so much gold is being hoarded- to the tune of 20 per cent of what was produced for the first five months of last year. This is far too much gold to be hoarded.
There is also a third possibility. It is possible that gold is being smuggled out of Guyana to countries where the royalties are not as high as in Guyana. Rather than selling the gold in Guyana and having to pay the prohibitive royalties, there may be unscrupulous individuals who may be smuggling it outside of Guyana to other countries where the royalties are not as high.
Whatever the reason, what is needed is a detailed analysis of gold declarations. This should be undertaken by a team of independent experts, preferably from reputable international organizations.

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