Forget "Blood Diamonds", Here Comes "Conflict Gold"

Tyler Durden's picture

Update: The WGC has provided us with the following clarification to our rhetorical query on deciding who the blacklisted country is: "The reason the DRC is the focus is due to section 1502 of
the Dodd-Frank Act which specifically identifies that country as the reason for
the legislation. You can read our submission to the SEC on S. 1502 on our
website for further details on our POV.
"

Original post

In what could be the oddest development in the precious metals market in a long time, the World Gold Council has just unveiled an initiative whose sole purpose if to combat "conflict gold." From the just released notice: "The World Gold Council today announces that, working together with its member companies and the leading gold refiners, it has produced a draft framework of standards designed to combat gold that enables, fuels or finances armed conflict. The draft standards represent a significant, industry-led response to this challenge and are designed to enable miners to produce a stream of newly-mined gold which is certified as ‘conflict free’ on a global basis." While we are confused what exactly is being pursued with this action, aside from the creation of a black market for gold of course, it does seem that the logical end result will be a decline in the total supply of "certified" gold. On the other hand, it will also afford the WGC or any prevailing authority the ability to brand any country it so chooses (Indonesia?) a sourcer of "conflict gold" and effectively clamp down on the production of the yellow metal. Additionally, what better way to deprive a gold sourcing country of massive export revenues than to effectively make their product unsellable in the "legitimate" market. Which then would lead to a surge in fair market value due to supply considerations. Which begs the question: is this the preparation for the "golden" endgame?

More from the WGC:

After almost a year of work, the draft standards are currently being ‘stress-tested’ by leading gold mining companies and refineries, as part of the development process. The World Gold Council recognises the multi-faceted nature of this initiative and is seeking input that will foster a collaborative and comprehensive solution and is, therefore, undertaking consultations with stakeholders. Interested parties including governments, NGOs, the investment community, artisanal miners, end-users and other participants in the gold supply chain are being invited to review the draft standards and to provide their feedback by 1 September 2011. There will also be continuing work and dialogue on related issues such as recycled gold, audit and assurance.

Aram Shishmanian, Chief Executive of the World Gold Council, commented that: “Responsible gold mining contributes positively to economic and social development in producing countries both at a national and community level. The misuse of gold to fund conflict is wholly contrary to this mission and is a threat to the reputation of gold.”

The current focus of concern about gold as a factor in fuelling armed conflict is on the Democratic Republic of Congo (DRC) and adjoining countries. The World Gold Council standards address this situation for large-scale producers. In addition, the World Gold Council is working with the Organisation for Economic Co-operation and Development (OECD) and others on global guidelines for the responsible sourcing of gold.  The World Gold Council is committed to working with sector specific groups in the electronics and jewellery sector to seek an integrated solution for market participants.

Aram Shishmanian continued: “The gold market is uniquely complex. It is difficult to track specific consignments from the mine to the end user because it is easily melted down and co-mingled with other sources of gold.  So the success of any certification system will depend upon the co-operation and commitment of many parties in the gold supply chain. The work on the standards is well advanced, but we want all those committed to addressing conflict issues to contribute their ideas. We are aiming for a comprehensive framework which commands confidence, credibility and broad support. We look forward to working with organisations that use gold to in developing an integrated certification process that avoids duplication and meets the needs of all stakeholders.”  

As the release notes, the "current focus" is the Congo. What will be the focus tomorrow? And the day after?

The draft standards may be viewed on the World Gold Council website at the following link.

 

And another update from the WGC:

It is important for the gold industry to show that newly-mined gold is produced responsibly; to be responsive to market expectations; to engage pro-actively with governments and regulators; and to play its part in preventing gold from being misused to fund armed conflict or severe human rights abuses.

For further clarification, the framework represents a significant contribution to addressing the challenges posed by regulatory initiatives (including the US’s Dodd-Frank Act). The Framework reflects the global approach of the OECD guidelines on responsible minerals supply chain management. The World Gold Council is working closely with the OECD to ensure that the World Gold Council framework and the OECD guidelines on the responsible sourcing of minerals supplement on gold are mutually supportive. The World Gold Council framework is geographically broader than the DRC-focused requirements of the Dodd Frank Act in that it provides a framework for analysing gold’s impact on armed conflict situations wherever they may arise. In principle, the World Gold Council chain of custody scheme could be a significant element in helping manufacturers to meet Dodd-Frank’s requirements.

Regarding identifying conflict, the World Gold Council will not seek to make these sorts of judgements. Those countries which are defined by national legislation (e.g. the US Dodd-Frank Act) or by supra-national bodies (e.g. the UN) as being in such a level of crisis will automatically trigger an assessment by companies operating in those areas.