Gold

Michael John Bloomfield, Roy Maconachie

• Publisher: Polity
• Year: 2021
• ISBN:
  9781509534128
• Edition: 1
• Topic: Politik & Internationale Beziehungen
• Subtopic: Handel & Tarife

Gold remains a highly prized and impactful resource within the global economy.From the insatiable demand for gold in the electronics that permeate our day-to-day lives to the environmental desolation driven by gold mining in the Amazon, the gold trade continues to touch the lives and livelihoods of people across the world.

Bloomfield and Maconachie tell the intriguing story of the yellow metal, tracing the seismic shifts in the industry over the past few decades.They show how huge purchases of gold reserves by BRICS countries mark the shifting balance of power away from the West, and how rising affluence in India and China has led to a surging demand for gold jewellery, calling into question current approaches to make supply chains more responsible. Explaining why gold is so difficult to regulate and why it is only becoming more so, the authors suggest ways we could, collectively, make practices work better for the countless workers and communities who suffer at the producer end of the supply chain. Linking local to global, producer to consumer, and gold's extraction from the Earth to the financial centres that fuel it, this book offers a probing analysis that reveals who wins and who loses and what this means for the future of gold.

CHAPTER 1
Introduction

The year is 1979, and deep in the Amazon rainforest of Brazil an ominous discovery is about to be made. A local boy, playing in a swimming hole, spots a shiny object in the mud. Washing it clean with the clear, jungle water, even such a young boy knows this small golden nugget is a special discovery. He sprints off to tell the adults.

The boy works on the struggling farm of landowner Genesio Ferreira da Silva. When Genesio learns of the discovery, he feels he has been blessed, and his troubles may finally be over. The landowner hires a geologist, who comes out to the jungle and confirms what Genesio had scarcely allowed himself to hope: there is much more gold to be found here. Neither the geologist nor the landowner could have known this would soon become the site of the infamous Serra Pelada mine, one of the largest gold mines in the Amazon.

It didn’t take long for word to spread through the jungle. Prospectors, seeking their fortune, came by the dozen, then the hundreds, then the thousands. At first, Genesio made money from the find. He leased a strip of his land to a local businessman, who built an airfield to access the mine, and Genesio charged for its use. But soon the enormity of the deposit became clear: this was a major discovery of gold. Word spread far beyond the jungle, to the centres of power in Rio, São Paulo and Brasília. The ruling military dictatorship sniffed opportunity. The army swooped in and took over operations. The powerful came to claim the riches, while local people were sidelined and exploited.

Still, a few of the principles upon which Genesio founded the site remained. In what was quickly becoming a stinking and muddy wasteland, alcohol was forbidden, as was prostitution. In the middle of this impromptu settlement – what many referred to as ‘Babylonia’, in reference to the scale of excavation and slave-labour-like conditions – was a square where miners gathered to swap stories of gold and women. This part of town came to be known as the ‘Square of Lies’, befitting of the tall tales that seem to accompany prospectors and mine sites around the world and throughout time. Life was hard for the miners, and only a lucky few made their fortune.¹

The story of Genesio Ferreira da Silva and the Serra Pelada mine is a stark but familiar tale of how the discovery of gold can begin as a blessing, but can all too easily spiral into injustice and depravity. As often as not, a gold find turns out to be an excavation of disappointment, destruction and general misery. This true story sounds a bit like a modern-day fable, nicely illustrating some of the ways in which gold is truly a unique commodity: in its promise, in its impacts, in its links to power and, perhaps implicitly, in the challenges it poses for those who seek to govern it.

The argument we make in this book is straightforward: gold is uniquely impactful on the lives of people and the planet. It is also uniquely difficult to regulate. This is because of its historical importance in centres of geopolitical and financial power, its deep cultural resonance across time and space, its physical characteristics and the complexity of its supply and demand, and the culture that continues to permeate the industry itself.

There has been no shortage of new and exciting regulatory initiatives emerging that aim to mitigate some of the worst social and environmental issues driven by gold production and consumption. But, despite these often valiant efforts, and despite popular claims to the contrary, these initiatives have so far fallen short of making gold a force for good. And the situation only appears to be getting worse. Changes in the gold industry, driven by power shifts at the highest levels of the global political economy, are making gold supply chains even more difficult to govern.

In this book, we aim to explain why this is the case. Why is gold uniquely impactful and, relatedly, why is gold so difficult to regulate? Why are current efforts to regulate gold falling short and why will efforts to govern gold likely become even more difficult in the future? And, perhaps even more importantly, what can we do about it? While we do not profess to hold all the answers, we offer our informed perspective on what has gone wrong, while also suggesting how we might refocus our attention on areas in which real progress could be made.

Gold’s continuing relevance

For some, gold rushes might seem like an occurrence of the past. Compared to other resources, gold might even seem to be a bit old fashioned. After all, the gold standard is long obsolete, and financial markets seem preoccupied with abstract derivatives or energy commodities such as oil. Yet gold is still highly sought after, and gold rushes still occur with regularity. If anything, the story of gold is more important to the global economy now than ever before. It is a commodity with high liquidity. It can be smuggled. It is traded for political favours. It is the embodiment of power. The Amazonian Gold Rush of which Genesio Ferreira da Silva unwittingly became the centre took place in the 1980s. Yet now history is repeating, as a new gold rush gains momentum in the jungle.

Gold mining had gone relatively quiet in the Amazon until prices spiked in response to the global financial crisis of 2007–8. Now, once again, the sounds of chainsaws and earthmovers startle macaws from their trees. This modern-day gold rush rivals those in nineteenth-century California and the Klondike in the fervour it has stirred and the fortune seekers it has attracted. It is also widespread throughout the Amazon region, spanning several countries. And, like the gold rushes of old, it isn’t well regulated.

In Colombia, for example, the government admits that profits from illegal mining far outstrip those from drug trafficking – perhaps as much as three times over – with much of the money funding various criminal organisations and guerrilla groups.² It has sparked ecological destruction on a global scale and is a human rights catastrophe that is being compared to that associated with African ‘blood diamonds’. Credible allegations of sex trafficking and child labour abound.³ The Colombian Amazon has always been popular with drug kingpins, but now they are laundering billions of dollars through gold mining, diversifying their coca business.⁴

After passing through many middlemen along the way, Colombian gold has been smuggled to huge refiners, including NTR Metals in the United States. Reports indicate that NTR seemed to have supplied the refined metal to major brands, ranging from Apple (for electronic parts) to Tiffany & Co. (for jewellery), before the companies cut ties when word got out about the refiner’s dodgy practices. This eventually led to criminal charges for three gold dealers working for NTR Metals.

Breakaway factions of the country’s guerrilla movements, FARC and the National Liberation Army (or ELN), are active in this part of the Colombian jungle, and across the border in Venezuela as well. These groups have been blamed for the murders of miners on the border. Neither the gold nor the trouble stays long in the jungle. They permeate porous borders and infiltrate both national and international politics and the highest echelons of power in the global political economy.

In Caracas, the government has been cashing in on the gold rush. With oil production floundering and US sanctions taking hold, President Nicolas Maduro’s government has turned to gold to ease the pressures of crippling debt amid limited options.⁵ The US and its allies have wanted Maduro ousted from power for some time, and they have imposed economic sanctions on both oil and gold to put pressure on his government. But gold remains relatively easy to smuggle and to sell. In 2018, Turkey purchased mass quantities of Venezuelan gold, to the tune of 20 metric tonnes, or about US$1 billion worth.⁶ Turkey has been buying significant quantities of gold lately and has not appeared worried about US sanctions. In fact, according to Suzanne Maloney, senior fellow and deputy director of foreign policy at the Brookings Institution, Turkey has long used its gold to buy Iranian oil in circumvention of US sanctions.⁷ And she believes Turkey will do the same with Venezuelan gold.⁸

While this particular situation is clearly still evolving, these events are rather telling in terms of defining gold’s role in politics and the economy. Gold continues to change lives and landscapes wherever it is found, while trickling like a bright, bitter seam through the world’s geopolitical and financial centres. This book is the story of gold today. From the half a billion dollar open pit mine soon to commence operation in Siberia, to the insatiable demand for gold in the electronic devices that permeate our daily lives, or the environmental desolation driven by gold mining in the Amazon that threatens the stability of Earth’s ecosystems, this is a story we overlook at our peril.

Gold’s continuing allure

One of the curious things about gold, unlike many other geopolitically significant resources such as oil, is that it is fairly evenly distributed geographically around the world. Although it is mined on every continent, gold remains extremely scarce, which adds to its value. But why is it so valuable in the first place?

Gold holds monetary value and is extremely fungible. But, in contrast to paper money or electronic currency, gold has high inherent value as a material. Its many uses include jewellery of course. It is naturally beautiful and has been the precious metal of choice for artefacts and adornment fashioned in almost every civilisation. The shiny metal has never lost its fascination for us, and this is probably its most visible and familiar manifestation. But gold has many practical uses. It is highly malleable, making it suitable for moulding anything, including jewellery but also dental products. Gold is also a superb conductor, and so remains an essential input sought after by the electronics industry. In fact, it is perhaps thanks to this industry that most people’s relationship to gold might be closer than it first appears.

For example, the average person in the developed world will hold gold in their hands for about four hours per day. That’s how long we spend on our smartphones daily, and every smartphone contains gold. The precious metal is an excellent conductor. Faster than copper, and more durable than silver, it is a key component in laptops, tablets and PCs. Gold permeates our lives. It links us, economically and ethically, to the people who mine it, manufacture it and trade it. From the miner working with shovel and pickaxe in the Democratic Republic of Congo, to the assembly line worker soldering circuit boards in China, to the hedge fund manager in a tailored suit trading gold futures in London, to the consumer on the high street, the lifecycle of gold today is truly global.

But it isn’t only the physical nature of the metal that makes it such a fascinating resource. It is the symbolism we have attached to it. As the Amazon vignette clearly illustrates, throughout history, gold has been associated with power, prestige and promise. The powerful have sought it out, sometimes through market exchange and at other times through conquest and conflict. Indeed, governments still hoard vast amounts of it. Wealth in gold is perhaps the closest we come to a physical manifestation of power; it is power in fungible form. It represents both stability and opportunity, and this symbolism is near universal.

Gold does not corrode or tarnish easily, and perhaps it is this enduring quality that also imbues it with symbolism for us. It suggests timelessness. No wonder the phonograph records on NASA’s space probes Voyager spacecraft 1 and 2 are made of gold. The two records contain sounds and images of life and culture on planet Earth. And, as the two NASA vessels journey beyond our solar system into interstellar space, the gold will endure, longer than we shall.

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