Gold +11%, Call for Kimberley Process to Expel Zimbabwe

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RAPAPORT… In the past month, gold has gained $105 per ounce; as of mid-morning today in New York, it is up 10 percent to $827.80 an ounce on the week. Platinum is up 2.7 percent to $807 an ounce, and silver is up 9 percent to $10.08 an ounce. We will bring you broadcast coverage of the Platinum Guild’s latest event on Wednesday, December 17; meanwhile, I’ll share some of the group’s observations on the demand for platinum. The guild surmised that, with platinum and gold prices about even, platinum demand is hot right now, both from the consumer jewelry market and from jewelry manufacturers for their future supply needs. Platinum prices are down 45 percent from one year ago, and they are down 65 percent from their record high in April 2008.

The dollar index has come under pressure in the past 24 hours — this appears to be a growing concern with regard to the coming two months, as the full extent of the recession grows clearer. On the week, the dollar index is down 2.3 percent to 83.66. This morning, investors weighed prospects of a deeper recession. They sold assets for cash overnight after the Senate rejected a bailout for U.S. automakers. Commodities fell, and gold zig-zagged between $806 and $820 an ounce in early trading.

In a note to clients this morning, Lu Wei at Jiangsu Holly Futures Brokerage Co. wrote that gold will continue tracking every dollar movement for now. “When everything is in a freefall, gold won’t be spared, but gold will continue to benefit from safe-haven flows.”

Gold and Diamonds in Zimbabwe

Gold production in Zimbabwe fell 65 percent in October to 125 kilograms, which was cited as an all-time low by Douglas Verden of Zimbabwe’s chamber of mines. He told Reuters that the gold-mining sector had basically shut down due to high costs of funding operations in the face of  hyperinflation, frequent power cuts and skilled-labor shortages. Production in September was 275 kilograms, he said, and they were expecting November’s results to come in close to 100 kilograms. Gold contributes about one third of the nation’s export earnings.

Transparent diamond data is not available — and that is a problem. Zimbabwe has in the past month carried out a full-scale crackdown on diamond diggers, and it is very difficult to tell whether the diggers are local residents or foreigners. There are conflicting reports on what exactly took place in the diamond fields. News organizations outside of Zimbabwe depicted an all-out war against the diggers. Today The Herald, a government-run newspaper, called the crackdown a success.

“…At the time of the blitz, we are told, some 35,000 people, including foreigners, had thronged the massive Chiadzwa diamond fields, creating an illegal mining frenzy of unprecedented levels. The clampdown, code-named Operation Hakudzokwi (“No Return”), saw the police and the army descending on the illegal diamond miners and traders with precision, power and speed.

“A heavy-handed approach was necessary to deal with stiff resistance, which in some instances degenerated into exchanges of gunfire with some armed thugs who had turned Chiadzwa into their private property.” The Herald stated that the job was completed in a few days, and that police arrested more than 2,000, and seized luxury cars, equipment and currency.

“We believe ridding Chiadzwa of the diamond dealers was something long overdue, considering the fact that, for over two years, some locals and foreigners had been allowed to squander the country’s wealth with impunity,” The Herald stated. “We want to commend the government for taking the operation to Mutare city, which had been turned into a hub of diamond trading, and where prostitution, armed robbery and other vices had become rife.

“Diamond deposits may still be in abundance, but there has been wanton destruction of forests and the place should rank as the worst example of land degradation. However, it is our hope that the illegal mining activities at Chiadzwa have been put to a stop forever. We now look forward to a time when the government will engage mining companies of repute that will go and extract the diamonds for the benefit of the whole country.”

So, that is their take on the incident. Here is our conclusion: Do not buy diamonds from Zimbabwe. Do not buy diamonds from any suppliers who refuse to guarantee that their diamonds didn’t originate in Zimbabwe. Furthermore, the Rapaport Group calls upon the Kimberley Process to suspend Zimbabwe immediately.

The World Diamond Council (WDC) called for stronger vigilance on the trade of illegal diamonds from Zimbabwe. The group expressed concern that “some natural resources in the country, including a small number of diamonds, are reportedly being exported illegally for the personal gain of a few.”

While the Kimberley Process aims to end the trade in conflict diamonds, it hasn’t addressed the human rights issue. “What is going on in Zimbabwe makes a case the Kimberley Process should have made for itself long ago: the use of violence, human rights abuse and extra-judicial killings in pursuit of Kimberley Process objectives cannot, under any circumstances, be condoned,” Ian Smillie, research coordinator of Partnership Africa Canada (PAC), told me this morning. “The Kimberley Process has to stand up and add its voice to those of ordinary Zimbabweans and those around the world who condemn what has happened in the country’s diamond fields.” Global Witness joined the call today urging the Kimberley Process to suspend Zimbabwe.

No matter what your view on bans, suspension or the ruling President Robert Mugabe — I’ll end this column with the following questions. Come Christmas morning, when Jack gives Jill a diamond ring and asks her on bended knee to marry him, will Jill wonder where that diamond came from? Will Jill wonder if that diamond was found in the diamond fields of Zimbabwe…and if a woman in Zimbabwe found the rough stone and sold it to a smuggler for half a loaf of bread? Are those the questions this industry wants asked at the start of marriage? Why, in 2008, five years after the launch of the Kimberley Process, am I still asking those same questions? 



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