2 April 2010

Diamonds and Gold

Diamonds and Gold

South Africa’s most conspicuous commodities are sold into markets that are rigged. What the exact net effect is upon the South African economy of this market-manipulation is, is hard to find out. But it seems worthwhile to seize a couple of new opportunities to record some evidence and reflect upon the question. These opportunities have been created by the published writings of interested parties, internationally available on the Internet, some of which are linked below.

One thing that is already apparent from South African reports and statistics is that gold mining in South Africa is said to be a sunset industry (though not platinum, uranium, coal and some other kinds of mining).

Another thing that is readily apparent is that hundreds of thousands of gold miners have been rendered unemployed over the past two decades. South Africa’s rate of unemployment is variously estimated as 30% or 40%, and its inequality index as one of the worst in the world.

The gold market is rigged so as to keep the price as low as possible. The diamond market is rigged so as to keep the price of diamonds artificially high. In either case, the effect of rigging the market is to restrict production and to produce unemployment. In the case of gold, mines that would otherwise be “economic” are no longer so when the gold price is kept down, thereby forcing mineworkers out of work. In the case of diamonds, which are abundant in nature, the effect of a cartel that restricts production to maintain a high price is to reduce employment in that industry.

It is given that mining is a vast investment in works, machinery and transport infrastructure that can only be recovered over many years of profitable operation and positive cash flow. It follows that the most critical factor for the success of mining as an enterprise, whether nationalised or not, is a steady market for the product.

Advocates of the long-term management (manipulation) of markets could argue that such management or manipulation is a necessary pre-requisite for mining investment to happen and for employment to expand. One counter-argument would be that long-term bilateral supply contracts such as those favoured by China at the present time would form a better basis for stable mining investment.

Against negotiated bilateral trade relations is set the ideology of neo-liberal globalisation which purports to advocate “free trade”. But the reality of “free trade” is represented by fraudulent commodity markets such as the London [gold] Bullion Market Association (LBMA) and the De Beers diamond cartel, which are no better than “Ponzi” [pyramid] schemes and “Potemkin villages”. The neo-liberal “free market” is a fiction to cover up trade relations that are anything but free, or fair.

The gold (and silver) market has, in March 2010, receive an unusual degree of publicity because of public hearings in the USA where sensational evidence of manipulation was presented by the Gold Anti-Trust Action Committee (GATA), using material they had obtained from a whistle-blower on the inside of the London precious-metal markets named Andrew Maguire. An account of this series of event was published on the “Huffington Post” site, authored by Nathan Lewis and titled It's Ponzimonium in the Gold Market.

In January of 2010 GATA’s Adrian Douglas published, on the GATA web site, a concise description of the trading of gold as a commodity, with the title The 'tiny' gold market is actually the world's biggest. In it he alleges that most of the “gold” that is traded in the LBMA does not exist.

The effect of fraudulently trading large amounts of fictional gold is that the price of real gold is suppressed, until the collapse of the market when the price will leap to many times its previous level. The last time this happened was in the 1970s, when the price went from $35 to $800 (per ounce), that is to say more than twenty times the previous price, in a short time. The present price of around $1000 per ounce could rise by many times, but what the “real” price of gold is, is anybody’s guess until the fraudulent manipulations practiced on the LBMA are destabilised, and collapse.

The revelations of GATA are attacked as being self-interested, as indeed they are. GATA is an organisation of bourgeois players in the market who for their own self-interested reasons want a clean and fair market in gold. GATA’s primary interest is not the preservation of mineworkers’ jobs in South Africa. Their evidence should therefore be judged on its merits alone.

In the case of diamonds, and incidentally of commodity scarcity/glut as a general phenomenon, a good article in the form of an interview of the historian Iain Boal was published on Counterpunch in 2007, called Specters of Malthus: Scarcity, Poverty, Apocalypse.

Some preliminary findings can be consolidated at once from all of this.

One is that the realisation of South Africa’s “natural resources” – i.e. the turning of those resources into saleable products - depends upon the existence of long-term paying customers for the products. It is not true that there is “no alternative”, in this regard, to the World Trade Organisation (WTO) or any other extension of false neo-liberal “free market” ideology, which is in any case a fraud and the opposite of what it purports to be.

The realisation of South Africa’s natural resources for the full benefit of South Africa’s inhabitants, and for the employment of a much larger working proletariat in South Africa, is secure, long-term bilateral contracts of sale of the kind that the WTO exists to restrict, undermine and destroy.

Those who wish to maximise South Africa’s sovereignty or “economic independence”, or in other words the economic freedom after political freedom of the South African people, should concentrate upon this question of securing long-term markets for South Africa’s mineral products, such that South African workers cannot any longer be held hostage by “market” crooks in London, New York or anywhere else.


Good Friday, 2010


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