Theories on Gold Drop, WGC Insists Nothing to See

August 9, 2013 at 08:55


A mining company CEO says there’s not enough transparency in the gold trading market.

Western Australian company Silver Lake Resources has laid off nearly 40 workers and cut wages by 7.5 per cent since the price plunge in April this year.

Les Davis says industry remains concerned that the millions of ounces of gold that were dumped on the market and caused the drop was so-called ‘paper gold’.

Paper gold is the name given to exchange traded funds, ETFs, that are shares issued against physical gold bullion.

That bullion should be stored in vaults, but Mr Davis says the numbers don’t seem to ‘add up’.

“There appears to be a huge delta on the amount of paper gold out in the market at the moment with physical backing.

“And I think there seems to be a lot of smoke and mirrors on how much gold is actually out in the big wide world. And where it is. And who’s got it.

On Friday April 12 this year, the 12-year bull run on the price of gold came to a spectacular, screaming halt.

It peaked at US$1,900 an ounce two years ago, and drifted lower from there.

Then shock waves rolled through the sector with the biggest one day price drop in 30 years.

Gold is a particularly volatile commodity, but a drop of $200 in one day caught many by surprise.

The result has been massive write downs on company balance sheets, workers laid off and some mines closing altogether.

And according to many analysts like Rob Brierley, it was due of a skittish free market at work.

Gold is still being bought and sold and it’s climbed from that low of less than $US1,200 an ounce.

But at just what price it will continue to be traded at is almost anyone’s guess at the moment.

Alan Kelly is the head of Doray Minerals, Australia’s newest producing gold company.

The first bar was poured this week from the Andy Well project in WA’s Murchison.

Like many miners, he does wonder if perhaps the price plunge was a case of deliberate manipulation.

About four million ounces of gold were dumped onto the market by an international hedge fund on April 12.

The statutory body that oversees gold trading is the World Gold Council.

It was the WGC that developed the paper gold system.

Managing director Marcus Grubb says it’s much too simplistic to say that ETFs that were sold down caused the drop in the gold price.

Mr Grubb says it was to do with trading on the gold futures market COMEX, where, in essence, bets are laid on what the future gold price will be.