Gold Board says pricing mechanism outdated
The Guyana Gold Board (GGB) has said that the London Gold Fix, the pricing mechanism being used to set gold prices, has outlasted its usefulness.
In a column published in last Thursday’s Stabroek News, the GGB argued that the London Fix is “loss inducing, and tailor made to foster dependency,” and “in today’s dynamic technologically-driven trading arenas is slow and out-of-step.”
The GGB said the twice-daily pricing of the London Fix 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 added.
According to the GGB, 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,” it noted.
The GGB added that while it was not conceived 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. It pointed out that while some conservative hedging strategies are used, at times they are not enough to really capitalise on market movements, especially in times of heavy volumes and heavier turbulence. It said, “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 appetite and high-risk tolerance.”
It acknowledged the potential downside and that it would be “both improper and irresponsible” to engage in such highstakes 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 said, while noting that 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.
The GGB further noted that there have been intermittent calls for the GGB to be removed from the business of buying gold and that the government has an emerging vision of the agency functioning more as a supervisory regulatory entity, and less as a gold buying facility. It said this raises the question as to whom to entrust the “finely tuned foreign exchange responsibility. It concluded that at present, given “individual records and reputations, resistance to required compliance standards, and the high probability of hard country risk,” the GGB remains best suited for the near and intermediate terms.
Added to that, it said there are questions as to whether a government should dare to place the responsibility for foreign exchange repatriation, foreign exchange rates, and foreign exchange levels under wholly private purview. “…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,” it added.
The GGB also observed 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,” it said, while noting that 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.”