Legal challenge launched over gold
Jack Danylchuk
Northern News Services
Yellowknife (Jan 05/01) - If gold was $600 US an ounce, Yellowknife would be a different place.
Giant Mine would be up and running. Apartment rents would be even higher, unemployed miners would be at work and Miramar Mining Corp. would invest even more on its search for the precious metal.
"If gold was $600 or even $400 an ounce you would see a lot of exploration activity," said Kevin Irvine, chief financial officer for Miramar, the owner of Yellowknife's Con Mine.
"There's no doubt that more mines would be operating."
The blue sky price is where gold should be, according to the plaintiffs in a lawsuit filed in the U.S. District Court in Boston last December.
The Gold Anti-Trust Action Committee (GATA) alleges that five Wall Street investment houses and the U.S. Federal Reserve Board conspired to depress the price of gold between 1994 and 2000.
Gold traded below $270 US for most of last year, but its "natural equilibrium price" should be around $600 an ounce, according to Bill Murphy, a Dallas-based futures trader and financial writer who is chairman of GATA.
"I wish it was right," said Irvine.
According to the scenario detailed in the suit, investment dealers borrow gold from central banks at low interest rates and resell it on the open market. They lose money if the price of gold rises and forces them to but gold to repay the loan.
Because of that, Chase Manhattan Corp. Goldman Sachs Group Inc. and Deutsche Bank AG, "over the past two years have regularly appeared as heavy sellers of gold in the New York Commodities Exchange whenever necessary to kill any significant rally."
The alleged scheme has made billions for the banks but forced some mines to close and pushed some producers to the brink of bankruptcy, the suit says.
With the price apparently stuck at below $300 US, Irvine said Miramar has focused on reducing costs.
Miramar's third quarter report said that its Yellowknife operations are expected the yield 120,000 ounces of gold in 2000. Sales brought an average of $285 an ounce and production costs were expected to average $265 an ounce.
Miramar was not among the international mining companies that contributed $290,000 to GATA's legal war chest, and Irvine was reluctant to comment on the merits of the suit.
The price-fixing allegations are not new and the gold industry is divided between believers and skeptics.
In Irvine's view, "the gold market is too large, too liquid, with a lot of players.
"The market would move against any systematic attempt to control the price of gold."
