London Fix has outlasted its time

Guyana Gold Board happenings

(Editor’s note: Stabroek News has agreed to carry occasional columns from the Guyana Gold Board on matters of public interest. )

The Guyana Gold Board (GGB) has been called upon to fill many roles in the almost four decades of its existence.  From mandatory buying of gold to foreign exchange earner, and more and more of late to be the regulatory sentinel of the sector.  Notwithstanding these crucial and sensitive responsibilities, the GGB has attracted heavy criticism, if not outright resistance, to its very presence and what this signifies.

From almost the inception, the deck was stacked and remains deliberately so to the disadvantage of the GGB specifically, and by extension the wider citizenry at large.  There is this pricing mechanism that has been maintained by successive governments (and competing political parties) that is loss inducing, and tailormade to foster dependency.  At best, it is the twice-daily pricing of the London Fix, which in today’s dynamic technologically-driven trading arenas is slow and out-of-step.  At its worst, this pricing practice is a state subsidy that depletes the Treasury and locks the GGB into a defensive, and increasingly vulnerable position.  This longstanding pricing standard of using the static London Fix is self-defeating.  In the fast moving modern commodity marketplaces characterized by the fluency and volatility of spot prices, use of the London Fix, to put it charitably, has outlasted its time, objectives, and utility.

It can be a costly, if not unprofitable, reality, when obligatory purchasing of gold has to be accompanied by the time-consuming processes of accumulating, smelting, shipping, and refining prior to selling.  During this holding period, the GGB is reduced to a mainly passive posture where price movements are concerned.  This is counter to the sacred investment wisdom and market timing of buy low, sell high.  It can be buy high and sell way lower, depending on trading conditions at the time.  The unsparing reality is that the GGB’s situation is the equivalent of buy and hold, and hope for the best.  This is counterintuitive, and something has to give.

While the GGB was not visualized as a pure profit-generating entity, the operational playing field has to be more level, so as to enable it to stand on its own financial feet.  Though some conservative hedging strategies are utilized, at times they are not enough to really capitalize on market movements, especially in times of heavy volumes and heavier turbulence.  It must be remembered that really rich and rewarding market plays by character and temperament must, of necessity, be high risk.  Such aggressive (high return) plays demand correspondingly high-risk appe-tite and high-risk tolerance.  In view of downside dangers, it would be both improper and irresponsible to engage in these high-stakes gambits with a precious asset of the nation, and on which many things hinge.  Thus, it is opportune for the consideration and implementation of more realistic, less draining spot pricing to replace the anachronistic London Fix.  This should become the norm.  It is understood that spot prices for gold are occasionally extended by some of the state’s agents licensed to purchase from eligible members of the public.

With current financial restraints as context, and with the financial needs of the GGB and a cutthroat buying environment superimposed for good measure, there have been intermittent calls for the GGB to be removed from the business of buying gold.  To this end, the government has an emerging vision of the GGB functioning more as a Supervisory Regulatory Entity, and less as a gold buying facility.  This gives rise to a single question of relevance and substance:  To whom to entrust this pivotal authority, this finely tuned foreign exchange responsibility?

By now it is well known that this country teetered perilously close to being blacklisted due to foreign money laundering concerns.  In fact, in May 2017 all gold shipments from the GGB (in effect, Guyana) were suspended indefinitely by the Royal Canadian Mint (RCM), its internationally renowned refiner.  That suspension of shipments was prompted by charges instituted against, and related media coverage involving, one of its customers.  Vigorous representations and firm commitments resulted in the conditional lifting of that suspension.  As a reminder, at that time, gold was the major foreign exchange earner in the local economy.  Gold, also, has a proven history as being the ideal cover for money laundering objectives.  Thus, it should not startle that multiple foreign watchdog agencies harbour serious reservations about the local gold sector, and a not inconsiderable number of its active and silent presences.

Since this is a formidable reality, (and with some justification), the question resurfaces: who is there that measures up and to whom this special responsibility can be given? In view of individual records and reputations, resistance to required compliance standards, and the high probability of hard country risk, the best existing mechanism still points persuasively and unambiguously to the GGB, at least for the near and intermediate terms.

Additionally, there are the hard, associated issues of whether this government (any government) should dare to place the responsibility for foreign exchange repatriation, foreign exchange rates, and foreign exchange levels under wholly private purview.  Though those vulnerabilities are beyond the scope of this writing, it can be reasonably said that opportunities for manipulation and exploitation for financial and other objectives do abound.  These have to be powerful factors in any decision-making as to either extending the presence of the GGB in its present state, or reengineering it away from buying responsibilities.

Further, it is ironic and revealing that, among those openly or stealthily challenging the existence of the GGB, are some who work assiduously to undermine it.  This is facilitated through operators in the media, and corrupting the staff.  Historical evidence, present information flows, and lifestyle levels point to many millions doled out to compromise the integrity of the GGB’s functions, whether in human resources or other areas.  As if to confirm that money is no object, and the apprehensions of external bodies, reliable information has surfaced of prices paid, from time to time, that exceeds by thousands of Guyana dollars the prevailing market price per ounce of gold.  For foreign sentinels, the troubling concerns are: a) source of gold; b) source of funds; and c) legitimacy of presences in the sector.  All of these pose major reputational risks for Guyana, and should influence heavily the government in its dilemmas and deliberations, as to the fate of the GGB.

Meanwhile, in spite of the significant forces arrayed against it (or, because of them), the GGB moves forward.  It has a mandate to fulfill.  It, also, has a responsibility to serve the nation in a consistently efficient and principled manner.  In an environment and atmosphere interspersed with the unethical, mercury, and potent adversaries, the GGB perseveres.

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