Gold

by Matthew Hart

  Friedland was looking for money anyway: Trish Saywell, “Ivanhoe Sells Jinshan Stake,” Northern Miner, April 21, 2008, http://northernminer.com/news/ivanhoe-sells-jinshan-stake/1000220684/. See also “Ivanhoe Mines to Sell Controlling Stake in Jinshan Gold Mines to China National Gold Group Corporation,” joint press release from parties, April 10, 2008, http://www.turquoisehill.com/i/pdf/2008-04-10_NR.pdf.

  Eventually Friedland’s joint venture partner in Mongolia: Euan Rocha, “Friedland Exits as Ivanhoe, Rio Sign Finance Deal,” Reuters, April 18, 2012, http://www.uk.reuters.com/article/2012/04/18/uk-ivanhoe-rio-idUKBRE83H0WL20120418; Ian Austen, “Mining Chief Resigns as Part of Deal with Rio Tinto,” New York Times, April 18, 2012, dealbook.nytimes.com/2012/04/18/mining-chief-resigns-as-part-of-deal-with-rio-tinto/.

  Inner Mongolia’s fountain of coal: Ben Woodhead, “Where China’s Million Millionaires Live,” BRW (Business Review Weekly), August 2012, http://www.brw.com.au/p/sections/eco/where_china_million_millionaires_hlqEoC5O8nBfGHR8YNcMwJ; see also Kristine Lim, “Ordos Millionaires Fuelling Property Boom in Inner Mongolia,” channelnewsasia.com, August 29, 2011, http://www.allvoices.com/news/10186482-ordos-millionaires-fuelling-property-boom-in-inner-mongolia.

  A month before I visited in June of 2011, Mongol protests: Andrew Jacobs, “Chinese Try to Appease Mongolians,” New York Times, May 29, 2011, http://www.nytimes.com/2011/05/30/world/asia/30mongolia.html.

  China executed the truck driver: “China Executes Truck Driver for Running Over Mongolian Herder,” Associated Press, August 25, 2011, http://www.guardian.co.uk/world/2011/aug/25/china-truck-driver-executed-mongolian-herder.

  Chang Shan Hao had nineteen drill rigs: X. D. Jiang, interview with author; mill expansion and production forecast from “China Gold International Resources Provides Preliminary 2012 Operating, Production and Exploration Highlights and 2013 Outlook,” http://www.chinagoldintl.com/i/pdf/NR-Jan-29-2013.pdf.

  The mining contractor was China Railway: For the size of China Railway, see for example Wu Zhong, “Blowing the Whistle on ‘Big Brother,’ ” Asia Times, May 7, 2008, http://www.atimes.com/atimes/China/JE07Ad01.html.

  Notoriously corrupt: “Ex China Rail Minister Liu Zhijun Charged with Corruption,” BBC News, April 10, 2013, http://www.bbc.co.uk/news/world-asia-china-22089011.

  In the 1980s, before China opened exploration to Western companies, the government tried to stimulate production: Gong and Zhu, The Gold Mining History of Zhaoyuan, 91–92. Gong and Zhu cite “Circular About Key Points in Increasing Production of Gold and Silver,” issued August 30, 1985, by the State Council, stating in part its purpose as “invigorating the gold economy and taking care of gold industry.”

  Gold seekers ransacked prospective ground: X. D. Jiang, interview with author; also Gong and Zhu, The Gold Mining History of Zhaoyuan, 94.

  In 1988 the Chinese government reversed its liberalizing policy: Gong and Zhu, The Gold Mining History of Zhaoyuan, 102, 117.

  In 1989 the Christian Science Monitor: James L. Tyson, “Farmers Drop Hoes to Dig for Gold,” Christian Science Monitor, November 21, 1989, http://www.csmonitor.com/1989/1121/drush.html.

  In Henan province, 178 small-mining teams: Gong and Zhu, The Gold Mining History of Zhaoyuan, 117.

  In an incident at the Wenyu mine: Ibid., 118.

  Even large state companies used min cai to recover hard-to-get-at ore: Ibid., 30.

  But in 2001, in another shift of central government sentiment: Ibid., 31.

  In 1995 “gold lords” and their bands of peasant miners were still defying the government: Patrick E. Tyler, “Gold Hunters, Defying Beijing, Mine Vast Areas of Rural China,” New York Times, July 17, 1995, http://www.nytimes.com/1995/07/17/world/gold-hunters-defying-beijing-mine-vast-areas-of-rural-china.html?pagewanted=all&src=pm.

  In 2012, nomadic Tibetan shepherds in Qinghai: Marc Howe, “Tibetan Nomads Clash with Gold Miners over Sacred Mountain,” Mining.com, August 13, 2012, http://www.mining.com/tibetan-nomads-clash-with-chinese-gold-miners-over-sacred-mountain-50519/.

  In 2010 the World Gold Council warned: China Gold Report: Gold in the Year of the Tiger (London: World Gold Council, 2010), 62–63.

  The China-running-out-of-gold scenario raises the specter of “peak gold”: See for example Liezel Hill, “Iamgold Sees ‘Peak Gold’ Forging $2,500 Price,” Bloomberg, January 17, 2013, http://www.bloom berg.com/news/2013-01-17/iamgold-sees-peak-gold-forging-2-500-price.html; Ambrose Evans-Pritchard, “Barrick Shuts Hedge Book as World Gold Supply Runs Out,” Telegraph, November 11, 2009, http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/Barrick-shuts-hedge-book-as-world-gold-supply-runs-out.html; Richard Kerr, “Is the World Tottering on the Precipice of Peak Gold?,” Science, March 2, 2012, 1038–39, http:www.sciencemag.org/content/335/6072/1038.

  CHAPTER 9: THE SPIDER

  The volume of bullion coming to market today: United States Geological Survey, “Gold Statistics and Information,” http://minerals.usgs.gov/minerals/pubs/commodity/gold/, 2012 world production 2,700 tons. Gold today as multiple of Spanish imports in sixteenth century: there are no reliable figures for world production, but here is my back-of-the-envelope calculation. I took pre-sixteenth-century world supply of 42 tons from Bernstein, The Power of Gold (2 cubic meters). In the sixteenth century that supply grew by about five times. 210 tons minus 42 tons = 168 tons for a century’s production, or 1.68 tons a year. Divide 2,700 tons by 1.68 = 1,607 times the earlier production.

  In 2011, the total value of mined gold was about $143 billion: I took 2,700 metric tons production figure for 2011 from the United States Geological Survey, converted at 31 grams = 1 troy ounce, and used a mean gold price for 2011 of $1,650.

  In one three-month period alone, 11 billion ounces of gold worth $15 trillion changed hands in London: Jack Farchy, “Sizing Up the Gold Market,” Financial Times, September 9, 2011, http://www.ft.com/cms/s/0/eb342ad4-daba-11e0-a58b-00144feabdc0.html#axzz2NiR9WqWu.

  Most of the trade is in the hands of a cabal of banks in London: See http://www.goldfixing.com, and also for example Robert D. Hershey, Jr., “Gold ‘Fixing’: London Tradition,” New York Times, February 12, 1979, http://query.nytimes.com/mem/archive/pdf?res=FA0 E1EFD3A5413718DDDAB0994DA405B898BF1D3.

  The London Bullion Market Association polled its members: See Farchy, “Sizing Up the Gold Market,” but I checked the calculation: 11 billion troy ounces = 341 billion grams = 341,000 metric tons = 126 times 2011 production of 2,700 metric tons (from the United States Geological Survey) and twice the 170,000 metric tons in the world.

  The Spider is an exchange-traded fund: Spider account from author’s interviews with Jason Toussaint and George Milling-Stanley, executives of SPDR Gold Shares.

  There was more gold in the Spider’s stash than in the central bank of China: At the time, China’s stated reserves were about 1,000 tons, although the central bank was thought to have more. See “China Could Soon Announce That Their Gold Reserves Have Doubled,” Business Insider, January 22, 2013, http://www.businessinsider.com/russia-turkey-ukraine-buy-gold-but-bullion-tiny-part-of-fx-reserves-2012-8; “The World’s Biggest Gold Reserves,” CNBC, http://www.cnbc.com/id/33242464/page/10.

  Some of the owners’ positions show up in 13F filings: See for example “Soros Doubles Down on Gold,” New York Times, February 2, 2010, dealbook.nytimes.com/2010/02/17/soros-doubles-down-on-gold/.

  In a DealBook column: Steven M. Davidoff, “How to Deflate a Gold Bubble (That Might Not Even Exist),” New York Times, August 30, 2011, dealbook.nytimes.com/2011/08/30/how-to-deflate-a-gold-bubble-that-might-not-even-exist/.

  Goldline’s most famous pitchman is Glenn Beck: Eduardo Porter, “All That Glimmers,” New York Times, November 7, 2011, http://nytimes.com/2011/11/08/opinion/all-that-glimmers.html.

  Television business commentators predicted: “$4,000 Gold? A Billionaire’s Remarks at a Private Club Rivet New York,” New York Sun, September 30, 2010, http://www.nysun.com/editorials/4000-gold/87099/; James O’Dell
, “Paulson Predicts $4,000 Gold,” Morgan Gold, May 5, 2011, http://www.morgangold.com/news/20110505-paulson-predicts-4000-gold.html.

  Leaving aside the holdings of gold coin speculators: 2,250 metric tons in ETFs: Davidoff, “How to Deflate a Gold Bubble.”

  On November 3 the Santa Monica, California, city attorney: Stuart Pfeifer, “Goldline Metals Dealer Is Charged,” Los Angeles Times, November 3, 2011, http://articles.latimes.com/2011/nov/03/business/la-fi-goldline-charges-20111103.

  Goldline agreed to refund as much as $4.5 million to buyers: Matthew Mosk, “Goldline Agrees to Refund Millions to Customers,” ABC News, February 22, 2012, http://www.abcnews.go.com/Blotter/goldline-agrees-refund-millions-customers/story?id=15768897; Stuart Pfeifer, “Goldline Agrees to Refund up to $4.5 Million to Former Customers,” Los Angeles Times, February 23, 2011, http://articles.latimes.com/2012/feb/23/business/la-fi-0223-goldline-settlement-20120223.

  As the gold price fell: Julie Creswell, “A Gold Rush Wanes as Hedge Funds Sell,” New York Times, September 22, 2011, http://www.ny times.com/2011/09/23/business/economy/after-huge-gains-in-gold-hedge-funds-sell.html.

  As it happened, this quality was crucial: The WGC’s position is laid out in three documents: “The Importance of Gold in Reserve Asset Management,” June 2010; “Gold as a Source of Collateral,” May 2011; “World Gold Council Position on Capital Requirements Regulation,” August 2011.

  Barrick Gold’s research department once determined: Jim Mavor, phone interview with author.

  The gold price dropped like a shot crow: London afternoon fix September 6, $1,895, London morning fix September 7, $1,844, http://www.kitco.com/londonfix/gold.londonfix11.html.

  Suspicion turned to Libya: “Libyan Central Bank Sells Gold, Says Assets All Safe,” Reuters, September 8, 2011, http://www.reuters.com/article/2011/09/08/libya-centralbank-idAFV9E7J300N20110908; Michael Peel, Jack Farchy, and Rouala Khalaf, “Gaddafi Regime Sold $1bn of Gold,” Financial Times, September 8, 2011, http://www.ft.com/intl/cms/s/0/85c0912a-da1e-11e0-b199-00144feabdc0.html#axzz2NiR9WqWu; “Gaddafi May Escape with Central Bank Gold, Says Ex-Libyan Governor,” CentralBanking.com, August 25, 2011, http://www.centralbanking.com/central-banking/news/2104624/gaddafi-escape-central-bank-gold-libyan-governor.

  Europe was in danger of unraveling: “In the Brussels Bunker,” Economist, September 17, 2011, http://www.economist.com/node/21529064.

  Meanwhile, American stocks lost $1.1 trillion: Nikolaj Gammeltoft, “Dow Falls Most Since October 2008 on Economic Growth Concerns,” Bloomberg, September 23, 2011, http://www.bloomberg.com/news/2011-09-23/dow-average-declines-most-since-october-2008-on-economic-growth-concerns.html.

  Bitter partisans haggled in the Congress: See for example Jennifer Steinhauer, “Dispute on Disaster Aid Threatens Bill to Avert Government Shutdown,” New York Times, September 21, 2011, http://www.nytimes.com/2011/09/21/us/politics/dispute-on-disaster-aid-threatens-bill-to-avert-government-shutdown.html?_r=0.

  In a single week it lost $200: London morning fix September 19, 2011, $1,817; London morning fix September 26, $1,615, http://www.kitco.com/londonfix/gold.londonfix11.html.

  In the face of increased volatility: Garry White, “Gold Slumps as CME Ups Margin Requirements,” Telegraph, September 26, 2011, http://www.telegraph.co.uk/finance/financialcrisis/8788926/Gold-slumps-as-CME-ups-margin-requirements.html.

  The aggregate increase, according to a client note: September 26, 2011, client note from BMO Capital Markets.

  Also preying on the gold price were suspicions about ETFs: Chris Flood, “Commodities: Investor Appetite for Gold ETPs Wanes,” Financial Times, September 23, 2011, http://www.ft.com/intl/cms/s/0/657a9358-e14d-11e0-ac59-00144feabdc0.html#axzz2NiR9WqWu; Agustino Fontevecchia, “Is GLD Really as Good as Gold?”, Forbes, November 15, 2011, http://www.forbes.com/sites/afontevecchia/2011/11/15/is-gld-really-as-good-as-gold/; Joe Weisenthal, “MYSTERY: Why Did GLD’s Published List of Gold Bars Shrink?,” Business Insider, October 27, 2009, http://www.businessinsider.com/mystery-why-did-glds-published-list-of-gold-bars-shrink-2009-10.

  September 2011 closed with words like “bruising,” “brutal,” “turbulent”: Eric Dash and Julie Creswell, “Investor Fear over Morgan Stanley Sharpens,” New York Times, September 30, 2011, http://www.nytimes.com/2011/10/01/business/investor-fear-over-morgan-stanley-sharpens.html.

  In 150 years the world supply: From Hartwig Frimmel, head of Geodynamics and Geomaterials Research, Institute of Geography and Geology, University of Würzburg.

  CHAPTER 10: SHADOW GOLD

  Consider the arcane practice of fixing the price: See note in Chapter 9 above (page 264), Most of the trade is in the hands of a cabal of banks in London.

  A group of London criminals discovered this painful truth: Tony Thompson, “Curse of the Brink’s-Mat Heist Claims Its Latest Victim,” Observer, November 24, 2001, http://www.guardian.co.uk/uk/2001/nov/25/ukcrime.tonythompson; Mark Townsend, “Trail of Gold Grains Offers £8m Clue to Mystery of Brink’s-Mat Robbery,” Observer, June 7, 2008, http://www.guardian.co.uk/uk/2008/jun/08/ukcrime; Matt Roper, “Fool’s Gold: The Curse of the Brink’s-Mat,” Mirror, May 12, 2012, http://www.mirror.co.uk/news/uk-news/the-curse-of-the-brinks-mat-gold-bullion-robbery-829220; Wensley Clarkson, “The Curse of Brink’s Mat: An Ex-Cop with an Axe in His Head—And a Great Train Robber Shot Dead in Marbella,” Daily Mail, May 5, 2012, http://www.dailymail.co.uk/news/article-2139945/Brinks-Mat-An-ex-cop-axe-head-Great-Train-Robber-shot-dead-Marbella.html; “Road Rage Murderer Kenneth Noye Loses Attempt to Appeal Sentence,” BBC News, March 12, 2013, http://www.bbc.co.uk/news/uk-england-21760003.

  One of the sublime rituals of money: http://www.royalmint.com/discover/uk-coins/history-of-the-trial-of-the-pyx.

  One such passage shook the market: See for example Rowena Mason, “Secret Gold Swap Has Spooked the Market,” Telegraph, July 11, 2010, http://www.telegraph.co.uk/finance/markets/7884272/Secret-gold-swap-has-spooked-the-market.html.

  Suspicion switched to the IMF: Ibid.; see also for IMF as gold seller: Sandrine Rastello and Kim Kyoungwha, “IMF Sells Gold to India, First Sale in Nine Years (Update2),” Bloomberg, November 3, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ac4.u0JfPtWE.

  No sooner did opinion settle on the IMF, than the BIS itself torpedoed it: For BIS announcement and general analysis: Carolyn Cui and Liam Pleven, “Commercial Banks Used Gold Swaps,” Wall Street Journal, July 7, 2010, http://online.wsj.com/article/SB10001424052748704545004575353403943560776.html.

  As the speculation crackled on: For GATA conspiracy belief: “About GATA,” at http://gata.org/about.

  In 2000 a GATA-funded litigator sued the bank: For details of the GATA suit, see presiding judge’s order posted at goldensextant.com. Scroll to “Legal Materials,” click on “Gold Price Fixing Case,” and select “Memorandum” and “Order for Dismissal.”

  Chilled by the steady drizzle of apprehension: Swap explained: Jack Farchy and Javier Blas, “BIS Gold Swaps Mystery Is Unravelled,” Financial Times, July 29, 2010, http://www.ft.com/intl/cms/s/0/3e659ed0-9b39-11df-baaf-00144feab49a.html#axzz2Nv4F1Xkn.

  A reasonable suspicion about the gold-for-dollars swaps: Ibid.; Cui and Pleven, “Commercial Banks Used Gold Swaps.”

  The banks had borrowed it, mostly from their own customers: Farchy and Blas, “BIS Gold Swaps Mystery Is Unravelled.”

  As long as the hoard has not been compromised: Felix Salmon, “The Problem of Fake Gold Bars,” Reuters, March 25, 2012, http://blogs.reuters.com/felix-salmon/2012/03/25/the-problem-of-fake-gold-bars/; Robert Cookson, “HK Gold Market Hit by Sophisticated Scam,” Financial Times, December 2, 2010, http://www.ft.com/intl/cms/s/0/f7b05cf2-fcfc-11df-ae2d-00144feab49a.html#axzz2Nv4F1Xkn.

  A Zurich-based executive of Stonehage: Martin de Sa’Pinto, “Fund View: Rich Trim Gold Holdings, Buy Art,” Reuters, September 1, 2011, http://www.reuters.com/article/2011/09/01/us-stonehage-id USTRE7803NM20110901.

  Among those battered in the fall was John Paulson: Julie Cre
swell, “Even Funds That Lagged Paid Richly,” New York Times, March 31, 2011, http://www.nytimes.com/2011/04/01/business/01hedge.html.

  The New York Times calculated: Azam Ahmed and Julie Creswell, “Bet on Gold Nets Paulson $5 Billion,” New York Times, January 29, 2011, http://www.nytimes.com/2011/01/29/business/29paulson.html.

  His fortunes started to turn: Kelly Bit, Christopher Donville, and Matt Walcoff, “Paulson May Deal Clients $720 Million Loss,” Bloomberg, June 21, 2011, http://www.bloomberg.com/news/2011-06-21/paulson-dumping-sino-forest-may-deal-clients-720-million-loss.html; Azam Ahmed, “Paulson Speaks Out on Sino-Forest,” New York Times, June 24, 2011, dealbook.nytimes.com/2011/06/24/paulson-speaks-out-on-sino-forest/.

  In June that year a firm of short sellers called Muddy Waters: Ye Xie and Victoria Stilwell, “Muddy Waters Retreats on Short Selling Chinese Stocks,” Bloomberg, November 27, 2012, http://www.bloomberg.com/news/2012-11-27/block-gives-up-as-short-selling-declines-china-overnight.html.

  One report said Paulson was so angered: Azam Ahmed, “Another Traumatic Month for Paulson,” New York Times, October 10, 2011, dealbook.nytimes.com/2011/10/10/another-traumatic-month-for-paulson/.

  He sold a third of his company’s position in the Spider: Kimberley Williams, “Paulson & Co Holdings in 3rd Quarter: 13F Alert,” Bloomberg, November 14, 2011, http://www.bloomberg.com/news/2011-11-14/paulson-co-holdings-in-3rd-quarter-13f-alert.html.

  According to an unnamed source cited by Reuters: Eric Onstad, “UPDATE 3—Paulson Not Seen Deserting Gold After $2 Bln ETF Sale,” Reuters, November 15, 2011, http://www.reuters.com/article/2011/11/15/gold-paulson-idUSL5E7MF1SS20111115.

  The Oxford dictionary: The Shorter Oxford English Dictionary (Oxford: Oxford University Press, 1973).

  Gold is a doubtful sanctuary: Jan Harvey and Amanda Cooper, “Gold Tumbles as EU Leaders Reassure on Greece,” Reuters, September 15, 2011, http://www.reuters.com/article/2011/09/15/markets-precious-idUSL5E7KF1A420110915; Jan Harvey, “Gold Turns Lower as Wider Markets Slide,” Reuters, October 4, 2011, http://www.reuters.com/article/2011/10/04/markets-precious-idUSL5E7L419F20111004.