BARRICK GOLD (Toronto) has dismissed as "ludicrous and without merit" accusations that it and J.P. MORGAN CHASE (New York) manipulated the gold price since 1987. The lawsuit was filed by BLANCHARD & COMPANY (New Orleans), the largest U.S. retailer of rare coins and physical gold.
According to Blanchard’s CEO Donald W. Doyle, Jr., "Since the end of 1987the growth of global income and wealth would have lifted the gold price to approximately $740 if the price had been able to respond to the normal laws of supply and demand. If gold had kept pace with inflation, the price today would be approximately $760."
Whoa! What kind of conspiracy would push the price of gold down when producers need a decent return on their investments? Wouldn’t it make more sense to conspire to increase the price?
The good people at Barrick are shaking their heads. "We have 82 million ounces in the ground," said VP of corporate communications Vince Borg. "Why would we push the price down deliberately?"
There is no logical answer to that question.
Blanchard’s charges may defy logic but they do add up to big numbers. Its anti-trust suit filed in the United States accuses the defendants of "unlawfully combining to actively manipulate the price of gold" and making US$2 billion in short-selling profits by suppressing the price of gold at the expense of individual investors. Blanchard claims that Barrick and J.P Morgan Chase injected millions of additional ounces of gold into the market. (Has Blanchard forgotten the large sell-offs of gold from central banks around the world?) Furthermore, the suit alleges that the defendants used privately negotiated derivative contracts and practised off-balance-sheet accounting to conceal billions of dollars worth of physical gold. (Shades of Enron accounting.)
Blanchard has also cited a June 2001 CMJ interview with Barrick CFO Jamie Sokalsky as evidence that the gold miner knows it has the power to influence metal prices.
"Is Barrick a gold mining company, or is it a hedge fund with a mine out back?" asks Doyle.
That statement sounds like sour grapes. Sour or not, Barrick notes that Blanchard’s press release announcing its action contains numerous factual inaccuracies and defamatory statements. Barrick vows to "vigorously defend the lawsuit and pursue all its legal rights and remedies." It has to. We would expect the outcome to vindicate Barrick and J.P. Morgan, but getting there will be expensive.
Visit the following web sites to follow developments: www.barrick.com and www.blanchardonline.com .