The World Gold Council (WGC), the trade body of the world’s gold industry, aims to stimulate and sustain demand for gold. It’s the go-to place for reliable data about gold in all its forms, whether jewellery, investment bars and coins, central bank gold reserves, or updates about responsible mining.
It also occasionally publishes useful and informative studies, the latest on the ‘social and economic contribution of gold mining’, in which the gold mining of nine countries is scrutinised. One of its “key findings” is that in 2020, the 28 members of the WGC contributed a great deal to the economies of the countries in which they operate: they paid $8.7bn in employee wages and $7.6bn in tax payments to governments in 38 host countries.
In many respects, this report resembles one the WGC published in June 1999. That earlier study – A Glittering Future? gold mining’s importance to sub-Saharan Africa and Heavily Indebted Poor Countries – was published in very different, but in some ways quite similar, circumstances.
The price of gold 23 years ago ranged between $285-$305 per ounce but started dropping in March to May 1999 on suggestions that the International Monetary Fund (IMF) might sell some of its gold, to fund debt relief in heavily indebted poor countries.
The late 1990s saw a wave of gold sales from the official sector, as its managers lost sight of the original reason (as a defensive buffer, to put it at its simplest) for building up gold reserves.
The Bank of England (BoE) and the UK Treasury said in May 1999 that they would sell almost 60% of Britain’s official gold reserves, 415 tonnes. The gold price fell to $256.45 an ounce on 9 August 1999. The IMF came under considerable pressure to sell some of its gold to finance debt relief for HPICs (heavily indebted poor countries), defined by the World Bank and the IMF as a countries with an unsustainable external debt burden. In 1999-2000, the IMF sold about an eighth of its gold (about 12.9 million ounces) to help finance debt relief.
Today, the world is struggling to cope with COVID-19 and the external debt of developing countries is a multiple of what it was in 1999; about $10.6 trillion compared to $2.3 trillion back then. As UNCTAD (the UN Conference on Trade and Development) puts it: “it threatens to turn what was already a dire situation prior to the pandemic into a series of sovereign defaults”.
It’s no surprise therefore that campaigners such as the Jubilee Debt Campaign are eyeing the IMF’s 2,814 tonnes of gold and calling for some of it to be sold to help reduce the debt levels of Least Developed Countries. So far this suggestion has fallen on stony ground. In October 2020, an IMF spokesman said: “the IMF has approved emergency financing of over $10 billion to 47 low-income countries since March…”
Calls for the IMF to sell some more gold to help finance debt relief are likely to grow in the coming months, as sovereign debt defaults turn from a nasty possibility into a reality. All that can be said is that for gold supporters August 1999 seemed like doomsday – yet the gold price has gone up by around 600% since then. The gold market is robust enough to withstand any official sector sales; individuals recognise that despite its ups and downs, gold has proved itself a secure method of holding long-term value, as the WGC’s studies remind us.
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