Across globe, gold is losing luster
South Africa may lose 80,000 jobs as gold prices tumble.
JOHANNESBURG, SOUTH AFRICA — A sweat-drenched feliciano matsino emerges from a dank mine shaft with muddy gumboots and a sense of foreboding about the global forces affecting his life.
For centuries, gold was king of the commodities: Egyptians drew power from it, pirates fought for it, American dreamers rushed to stake claims for it. But as tens of thousands of South African miners facing layoffs know, the value of gold may be at a historic turning point.
"I have given 17 years to this mine," says Mr. Matsino, wondering about feeding his five children. "What will I do?"
Once deemed the essential backer for paper money, the amber metal - as one British economist declared - is a "barbarous relic."
Gold prices are hitting record lows, pushed south by an IMF sell-off plan and moves by several central banks to sell portions of their gold reserves and replace them with Treasury bonds or other interest-bearing securities. Some economists describe this as simply good financial management, nothing more. Others say low gold prices are the result of enduring changes in how investors value gold assets.
When the world's most powerful leaders met last month to find new ways to fund a debt-relief plan for impoverished countries, the International Monetary Fund proposed a seemingly simple solution: sell gold. Britain also announced plans (and last week began) to auction off half its gold reserve, to "diversify" its portfolio. Switzerland intends to follow suit.
These sales are sparking concern in South Africa and elsewhere. The gold auctions are hurting the poor nations that wealthy countries vowed to help in the first place: 30 of the world's 41 "highly indebted poor countries" count on gold mines for economic survival.
The controversy that has erupted pits North against South, rich against poor.
Gold at 20-year low
The Bank of England announced its sale on May 5 and, in one day, the gold price dropped $5. It continued to plummet in weeks to follow and has hit fresh 20-year lows at $253 an ounce.
At those prices, Matsino's 4,500 fellow gold miners at East Rand Proprietary Mines (ERPM) now may lose their jobs. ERPM - a century-old gold mine that was once hailed as one of the biggest and best - spends more than $300 just to dig a one-ounce nugget out of the ground. The company is on the verge of closing, as liquidators embark on a last-ditch search for a buyer.
Industry analysts warn that another 80,000 workers at South Africa's marginal mines may lose their jobs if the gold price stays at current levels. The prospect has set off a panic. Johannesburg was literally built on gold mines 100 years ago, and Zulu's still call the capital Egoli - City of Gold. South Africa is the world's largest gold producer, and this attack on the pillar of the economy comes just when a new government is struggling to find solutions for joblessness and poverty among its black majority.
Thousands of angry mine workers took to the streets in Pretoria on Saturday, joining hands with gold barons in an unprecedented show of unity and marching on the British and Swiss embassies. Crowds chanted "Stop selling gold, Tony Blair" and waved banners pleading, "Not one more ounce."
"We say to Britain: You can not run away from your social responsibility," hollered James Motlatsi, president of the National Union of Mineworkers.
He points out that the consequences will not be confined to South Africa. For generations, rural villages from Mozambique, Lesotho, and Malawi have sent their young men to work in the mines here. As many as 10 extended family members survive on a miner's salary of as little as $150 a month.
The conditions are unbearably harsh. Miners crawl through shafts, drill, haul rock, and man elevators thousands of feet below the ground for eight hours a day. Some 250 die on the job each year in South Africa. Thousands more are injured. The men live in crowded hostels, amid filth and foul smells, stuffing all their worldly possessions into a single locker and eating an army-style slop of porridge, cabbage, and chicken.
Yet, many feel fortunate.
"It is a good job," says Antonio Makahe, a father of five from Mozambique who lives in ERPM's most modern hostel. "I make 900 rand a month ($150), and I send all my money home. My family does not have enough, but at least I am working. If I lose this job, I do not think I will find another."
Roelf Cockcroft, the exhausted manager of ERPM mine, shook with emotion during an interview here last week: "They are killing third-world countries - selling gold cheap to assist themselves. Not to assist us.
Also hit by low gold prices are 30 deeply impoverished countries that produce gold and, unlike South Africa, are directly targeted for assistance by the IMF. Mali, Tanzania, Uganda, Ghana, and others were counting on gold mines to help them industrialize.
"In these countries, gold mining is it," says Roger Baxter, chief economist at the Chamber of Mines, which represents most of the big mining companies. "They don't have anything else with the critical mass to drive their economies."
He stresses that when power plants, roads, railways, and other crucial infrastructure are built to support the gold industry - benefits flow to the economy and people as a whole. "This [gold crisis] is undermining the very sector that allows these economies to pull themselves up by the bootstraps."
Mr. Motlatsi, the union boss, and Bobby Godsell, chief executive of the mining giant AngloGold, went to Europe last week to lobby against future gold sales. South Africa's mines minister plans to lead an even larger delegation of African gold producers to Europe in weeks to come.
"It is important for us to win public sympathy," says Gwede Mantashe, general secretary of the miners' union. "Britain owes us. They are our colonizers. They have taken a lot of wealth from us." But Britain says it won't change its sale plans.
Many here are now pegging their hopes on the US Congress to stop the IMF from selling 10 percent of its gold reserves. Approved by G-8 leaders in June, the auction cannot proceed without another vote of all the bank's member nations. Eighty-five per cent of the IMF board must approve the plan. The United States has a 17 per cent vote - so Congress could effectively veto it.
Powerful Republican members, including House majority leader Dick Armey (R) of Texas, oppose the IMF sale. And the black congressional caucus has warned President Clinton he will face opposition. "When this proposal comes before Congress for consideration, we will oppose it vigorously," the caucus wrote in a recent letter to the White House.
The good old days
As the debate rages, many South Africans are still wondering how it came to this.
When gold peaked in 1980, at a whopping $850 an ounce, people lined up around the block on London streets to sell treasured heirlooms to dealers.
Their thinking was not much different from that of the 130 central banks, which have huge stores of gold in their vaults. In times of crisis - when market fears about war or famine send a country's currency tumbling - gold is better than cash. It retains its value.
But these days, the US dollar or the euro are just as solid. Investments in currency or securities earn interest. Gold does not.
A mass sell-off coming?
During the last three years, the gold price has declined because of fears that central banks around the world are poised to sell gold en masse. "It is this huge fear that allows gold speculators to drive the price down in their favor," says Baxter. "They are making huge profits."
The reality, he says, is that only six of the world's central banks have sold off portions of their gold reserves in the last decade, and the United States joined several European countries in emphatically stating they have no intentions of dumping gold. The IMF has promised to make its gold sales gradually, so as not to depress prices.
That's not much comfort for ERMP workers like Jackson Mbengo. He makes $250 a month, managing one of the hostels where miners live.
"A lot of people are going to suffer," says Mr. Mbengo. "My wife was going to go to university. But now I don't think I'll have the money for her to proceed.... I blame Britain. They are killing the African countries."
(c) Copyright 1999. The Christian Science Publishing Society