Latest update March 19th, 2024 12:59 AM
May 05, 2016 Features / Columnists, Peeping Tom
If I buy gold from miners for $10 when the price on the world market is $11, I can expect to make a profit of $1. But if before the gold can be sold, the price dips to $9, then any sale would result in a loss of $1.
What then should be done? If the gold is sold below world market price, then the seller loses. If the price falls further, he loses more. What should the seller do?
The seller does not wish to lose and therefore he takes calculated risks. He may hold the gold in inventory on the presumption that the price will eventually rise. But if it never rises he can never sell unless he is willing to take a loss.
It will be hard for any person managing Guyana’s gold stocks to go to the public and say that billions of dollars were lost because he did not sell, but that if he did sell billions more would be lost. Damned if he did and damned if he did not.
The opposite can also happen. You can sell at a low price on the assumption that the price will not rise. But if it does rise above what you predicted then people will want to accuse you of making a bad decision.
Some companies, in order to reduce the risk of uncertain movement in prices, choose to hedge their production. But this can have catastrophic consequences as one major gold company found out in Guyana, when the world market price rose far higher than the price at which it had hedged its production,
The one sector which has shone in the latter days of PPP rule had been the gold sector. It is a sector in which production is privately run. Government buys gold and sells on the world market. It does not produce its own gold. One major company was allowed to sell its own gold but that company is no longer around.
There have been reports that the government lost $10 billion in two years due to the manner in which gold stocks were managed. There needs to be detailed disclosure as to how this sum ten billion dollars was calculated.
It needs to be clarified if the gold on which Guyana was said to have lost these ten billion dollars had been sold immediately on the world market, what would have been the losses. Would it have been more than ten billion dollars or would it have been less?
There is need for the basis of the ten billion dollar figure to be made public. The public should simply not be expected to believe that ten billion dollars simply went down the drain.
Things are not that simple when trading in commodities.
If this was the loss over a two-year period, then what was gained over other periods? Did the gains in previous and subsequent years offset the losses in the two years when Guyana was said to have lost ten billion dollars.
The Government of Guyana’s main purpose in selling gold should be to ensure that the foreign exchange earnings return to Guyana. The Government of Guyana should not be making any great profit from the sale of gold, because if this were the case then it means that they are underpaying the miners from whom they purchase the gold.
The government should not be in gold speculation. This is too risky a business for any government to be in. Speculation in commodities should be left for private traders. Government should pay as near a price to miners as they sell on the world market.
Listen to the man that is throwing Guyanese bright future away
Mar 19, 2024
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