Zak Mir on the gold whistle-blowing story

4 mins. to read

As we have seen in the recent past what with the examples of Julian Assange and Edward Snowden; next to being a martyr, being a whistleblower probably counts as one of the worst experiences one can endure in life!

At the very least, even without the attendant blast of media notoriety / infamy, someone who is by definition out to do a selfless and moral deed, is going to face the worst types of personal, professional and emotional duress that can be imagined. They say good always prevails. Well, in my experience, on many occasions “evil” puts up a pretty good fight…

As well as the psychological aspects of “blowing the whistle”, there is of course very often physical danger. The problem as well is that it is not only our “hero” who is under threat, but also his or her immediate family. This consideration is clearly a massive deterrent for anyone attempting to highlight serious wrong doing.

In the case of Amjad Rihan, who headed up an Ernst & Young team auditing Dubai Gold refiner Kaloti, the personal price paid has been very high. This I know as he and his family are actually close friends of a friend of mine. To be perfectly honest, from what I know at this stage, I am not sure many people would have the self belief and nerve to see another episode of trying to right wrongs through (that is with the exception of our dear founder Richard Jennings who frankly shirks from no one from what I have seen!)

In fact, in the wake of Rihan’s Newsnight appearance this week, and the extensive media coverage his story has seen, it would appear that this particular story regarding Gold is analogous to many of the other scandals not only in the precious metals markets over the years, but also the financial area.  It smells once more of the all too familiar story of the “rules not applying to the big players”. Even worse and quite typical, the regulators have a suspiciously selective approach in terms of deciding when to act and when to give matters the nod. It seems, as ever, that it is he who pays the piper that calls the tune…

From my own perspective, both as far as regulators and auditors are concerned, there is little point having them successful identify trivial misdemeanours, but then be too scared, incompetent, or just plain unwilling to act when it really matters.

One could argue that it is such a lacsadaisical attitude that led to the subprime bubble, the PPI & Libor scandals that we have had to swallow in recent years and will no doubt have to continue to swallow.

For the Gold market, Mr Rihan has of course reminded us of how bent the commodities market is in general, and how very often the fine reputation of a company like Ernst & Young can merely be the ultimate example a false sense of security prevailing (as the poor clients of Worldspreads will pay testimony too!!).

Of course, while we admire the sacrifices and the bravery of Amjad Rihan in attempting to stand up for the truth and righteousness, it may be that in some ways we all know what the ultimate outcome will be here. This is likely to be an investigation which goes on long enough for the dust to settle on the media splash that is made, various slaps on wrist fines and promises to have checks and balances put in place subsequently… You know the script? Sadly, none of the perpetrators are likely to be fingered.

It thus seems highly unlikely to change what is in essence a highly corrupt and manipulated market as far as Gold is concerned. I have my suspicions that periodic massive futures contracts sales on Comex last year were the result of an attempt to effectively prop up the relative value of the U.S. Dollar. They were timed to coincide with the run up / aftermath of key Federal Reserve announcements / QE, as well as the U.S. budget gridlock.  And of course, “allowing” massive quantities of “dirty” Gold from the fiefdoms of warlords and tyrants to pass through Dubai would hardly damage such a greenback support strategy. Call me an old cynic…

On a lighter note, one of the observations I have enjoyed making since just before the latest rebound for Gold is that from George Soros down, hardly anyone has called this market right from the autumn 2011 peak over $1,900 (once more aside from our dear founder Mr Jennings who called it short in 3Q 2012 and then, in his Titan funds, hoovered up gold miners in the last quarter of 2013 – coup is the word that springs to mind). Illegally sourced quantities of the metal being dumped on this market would hardly have made it easier to call the turn of course! Although it can be said now that if the Dubai Gold laundering scandal is closed down it may actually act as a positive trigger to continue to fuel the rally which has been in place over recent weeks.

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