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Gold faces life-and-death crisis
BULLION AT THE BRINK
THE gold industry was thrown into crisis this week as a tumbling gold price claimed its first casualties, with some marginal mines announcing they would close or start to reconsider their limited options. SA is a significant world producer of gold and the mining industry is a major employer. The lower gold price will put pressure on the balance of payments and force thousands out of jobs in the country's numerous marginal mines. It could also end hopes of an early cut in interest rates. Rian le Roux, senior economist at Old Mutual Asset Managers, said that historically, when the gold price had fallen sharply, interest rates had gone up. Every $10 dip in the gold price over a full year cost the country $115-million in foreign exchange earnings. The effect on the tenuous balance of payments is obvious. This week's crisis was prompted by the Australian central bank's announcement that it had, over the past six months, sold 167 tons of gold - close to 70% of its gold reserves. This sent gold tumbling from $325 to below $320, the lowest level since 1985. Australia's announcement in itself was unimportant, but it fuelled a view of gold which is already extremely pessimistic. Economists said the world's central banks, sitting on gold stockpiles that had been one of their worst performing assets, were now looking at bailing out. There are also concerns that European central banks will sell gold to reduce outstanding debt necessary to qualify for the EU's monetary union. In addition, the International Monetary Fund, Taiwan, Austria and others have indicated they may sell off some gold. "A major shift is taking place, and holders of gold increasingly want to sell. Most gold purchases go into jewellery, and the cheapest gold is that which has already been mined. This is decimating some gold mines." Economists are pessimistic about gold's future. One said: "Even a dead cat can bounce if you drop it from high enough, but it will fall down again." The closure of marginal mines will clearly hurt certain sectors and regions. Economists are predicting potential job losses of 50 00 to 100 000 from mines and downstream industries. "There will be a negative impact overall, particularly on gross domestic product," Le Roux said. The industry contributes 8% to SA's total output, but gold mining output has declined steadily and last year it reached its lowest level in 40 years. Gold production in 1970 was more than 1 000 tons and had fallen to 496 tons last year. In the late 1980s, more than half a million people were employed in SA mines. Last year there were only 350 000. Roger Baxter, chief economist at the Chamber of Mines, said that in the first three months of this year nine gold mines - employing 63 000 people - were classified as marginal and seven of those were operating at a loss, reports Reuter. Economists said this week that job losses had been a feature of the industry for decades. SA had mined out most of its gold and it was costly to reach the remaining gold. "You cannot save mines by cutting interest rates or by throwing money at the problem. The mines have to be more productive or they will die," an economist said. Negotiations with the unions could be the only answer.
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