OPEC Works so Why not An OGEC?

December 6, 1999

If I recall history correctly, it was a Venezuelan who fathered the concept of OPEC (Organization of the Petroleum Exporting Countries) about 25 or so years ago. And we all well know the monumental impact OPEC has had on world economics since. Within five years of the birth of OPEC, there was the largest transfer of wealth the world had ever experienced -- from the industrialized countries to the third-world.

Based upon how OPEC changed the world balance of wealth concentration, would it not be an intriguing idea to explore the possible ramifications if a similar cartel were conceived for the GOLD INDUSTRY? An OGEC, if you will: An Organization of the Gold Producing Countries.

The gold industry TODAY is as geographically dispersed, disjointed, uncoordinated in its business disarray as was world petroleum in the early 1970s. It took one man's evangelistic zeal to convince the mammoth Arab producing countries to put aside their petty jealousies in order to work together under OPEC. As we all well know, the rest is history.

So why not an "OPEC" for gold... an OGEC?

Organization of the Gold Exporting Countries

Since the idea of an OGEC is both plausible and feasible, the immediate question is WHO would be likely candidates for membership? Due to the fact silver has always moved in tandem with gold, it is logical to include the two largest silver producing countries in the world: Mexico and Peru. Certainly, the following list is a good start.

South Africa, Australia, China, Russia, Indonesia, Papua New Guinea, Mexico, Peru, Venezuela, Chile, Argentina... to name a few - plus a number of African countries with high gold producing potential.

South African is the world's number one gold producer, accounting for 25% of the globe's annual supply. Further, South Africa's platinum production accounts for approximately 85% of the world's annual supply!! And Australia is the third largest gold producer, just behind the US. Moreover, the gold producing potential between China and Russia is unimaginable. They have the untapped gold ore-bearing land, they just need the financing to exploit it - which would be forth-coming with much higher gold prices.

Whereas the Western world (USA and Europe) controls above ground gold inventories (about 20,000 tonnes), the below ground gold reserves are totally dominated by the proposed OGEC countries. Just South Africa alone possesses nearly 50% of the world's known gold resources. And if the price of gold were substantially higher, it would unleash vastly greater annual production of its mammoth marginal reserves.

Without fear of exaggeration, I venture an educated guess the proposed OGEC controls possibly 75%-80% of the world's annual production of precious metals (gold, silver and platinum), but possesses about 90% of precious metals reserves (gold, silver and platinum). An OGEC could wield the same cartel leverage as OPEC enjoys today.

Without a doubt the proposed OGEC countries have the capacity to control their own commercial destiny as do the crude oil producing countries. HOWEVER, OGEC must become a viable working entity.

A nascent OGEC might even use the slogan of the original 13 American colonies (later states), which is inscribed today on the back of every single US 25 cent piece (quarter): "E Pluribus Unum" -- United We Stand! Methinks an OGEC has much better odds at success than the 13 American colony union had in its independence fight against the world's Number One Colonial power of the time: Great Britain.

Food for provocative thought, eh?

A Vision

The thought of an OGEC has captured the imagination of many. I do not know if you are aware of the historic Gold/Oil relationship. Many world-acclaimed analysts have written much on the subject. Per these studies, the Gold/Oil ratio is 20:1 under normal circumstances. However, through the recent discovery of the Gold Cabal, everyone knows gold prices have been manipulated for many years - all orchestrated by the US FRB and the Bank of England (with possible aiding and abetting by the devious UBS). PERHAPS, the real sinister goal of the Gold Cabal is precisely to keep a lid on crude oil prices. The Western world needs cheap oil (i.e. low energy costs) to fuel the profits of Wall Street.

Recall that sometime in the 1970s, the price of oil was more or less what it is today -- about $26/barrel. About the same time the Dow Industrial Index was a mere 800. So while the price of crude stagnated for about 25 years, Wall Street stocks (Dow) soared from 800 to 11300 - an increase of more than 1,300% (that's thirteen hundred percent). It does not take a rocket scientist to realize something is dramatically wrong here. To put it into the vernacular, SOMEONE IS GETTING SCREWED!!!!!!!!!!!!

I submit that once gold is freed from the Price-Fixing machinations of the recently identified Gold Cabal, gold will soar to $1,000 to $1,200 per ounce. Furthermore, the historic Gold/Oil ratio of 20:1 would reassert itself, propelling the price of "Black Gold" (crude oil) to at least $50/barrel.

THINK what that would do for the presently sad condition of the economies of all the countries which might form an OGEC.

Would that the world's gold producing countries could find another "Venezuelan" with the same foresight and intestinal fortitude to follow in the footsteps of the Founder of OPEC.

Historical Note: A BRIEF HISTORY OF OPEC http://www.opec.org/history.htm

An OGEC Proposal

History is testament to the very linear relationship of gold with crude oil. On-balance and under normal circumstances (i.e. the Gold Cabal is not up to its Price-Fixing shenanigans), the ratio should be 20:1. What immediately leaps to mind is a joint-venture or marriage of OPEC and OGEC. Anyone remotely familiar with demographic aspects of the OPEC countries and those of the gold-producing nations are certainly aware of an unmistakable symbiotic relationship.

Undeniably, most OPEC members do not mine precious metals. HOWEVER, all of the prodigious oil producing Arab countries have a cultural affinity to gold - and therefore own large quantities of the noble metal. But apart from that, if the Western strangle-hold on gold prices were released, the Gold/Oil ratio would inevitably and eventually reassert itself. Consequently, not only gold prices would seek its real value, but crude oil would as rise well.

Let's take an objective view of crude oil (energy) as a basic staple to industrial life, like communication, transportation and mail service. During the last 25 years the cost per unit of communication (phone), electrical consumption, transportation and mail service has soared, while the price of crude oil is still stuck about $26/barrel. Years ago I needed only a nickel (5-cents) to make a local phone call, NOW it's 35-cents. The same inflation is prevalent in electrical consumption, transportation and mail service. In the not too distant past one needed only a 10-cent stamp to mail a letter - NOW, it's 33-cents! So pray tell, WHY is the value of crude oil still only $26/barrel -- a value it attained in the mid-1970s???!!! Most certainly, this must necessarily perplex the member countries of OPEC.

In light of the historical relationship between gold and "black gold," one may envision a "joint-venture" or marriage between OPEC and OGEC. The future of each group's product depends to some extent on how well the other fares.

One of the immediate productive gestures OPEC might make in this regard is to request crude oil payments in gold. Naturally, a crude oil buyer is not going to tote 30 tonnes of gold to Saudi Arabia in exchange for a specific volume of oil. The crude buyer would simply do as he does today: make an electronic transfer bank to bank. But instead of a US dollar transfer, it would be a gold accounting transfer. Mutual accounts (buyer/seller) could be set up via LBMA, who now trades 35-40 million ounces of gold DAILY. This translates to approximately US$10 billion DAILY. These are merely bookkeeping entries made electronically. LBMA's current daily gold transactions are the equivalent to 400,000,000 barrels per day -- far in excess of what is actually needed.

Indeed, OGEC goals are complementary to OPEC's objectives.

OPEC, OGEC and the Diamond Cartel of DeBeers

During the last 100 years one company has controlled the world price of diamonds: De Beers of South Africa!!!

Although its grip on the diamond market has slipped a tad in the last 10 years, it still markets almost 70% of world diamonds through its London Central Selling Organization -- and determines the market price.

Other diamond producers, and there are more and more of them, wonder if De Beers will be able to maintain even that much grip as they go into the new millennium. I believe De Beers will continue to dominate the market.

If JUST ONE COMPANY can dictate the price of its production, certainly 20 of the world's largest gold producers can demand a fair price for its production.

An OGEC vs a World Gold Council

Recently, someone suggested the Would Gold Council (WGC) serve as an OGEC. Let's take a close look at the suggestion. Let's examine the WGC carefully to appreciate the difference vis-a-vis an OGEC (Organization of Gold Exporting Countries) by comparing it to its counterpart in the crude oil industry.

For about 80 years there has existed an organization called the American Petroleum Institute (API for short). It is a TRADE ASSOCIATION, representing the entire petroleum industry: exploration and production, transportation, refining, and marketing. Since its creation in 1919, the API focus NEVER addressed the specific objective of selling its products (oil and gas) at a commercial price to ensure profitability. The API is simply a passive Trade Association for the dissemination of information among its members. The API has neither the objective nor the 'teeth' to seek reasonable prices for its products.

On the other hand the cardinal objective of OPEC is product price management. WHEREAS the API has never aggressively advertised nor engaged professional PR firms to promote higher crude oil prices, history is vivid testament how effective OPEC has been in acheiving its price management goals.

I submit the WGC's objectives are simply those of a passive Trade Association. Its passive actions in recent years do not represent those of a militant Organization of Gold Exporting Countries--which is what is direly needed. An OGEC would have for its raison d'être: To do whatever is necessary to counter-act the artificial forces, which are keeping a lid on gold prices; To ensure the gold price is solely a function of supply/demand dynamics, and; To take appropriate international legal action to guarantee its right to pursue its business, unencumbered by devious machinations of groups with their own 'agendas.'

Quite possibly the members of WGC would also compose the ranks of an OGEC. However, the specific focus of OGEC demands aggressiveness and singleness of purpose never demonstrated by the WGC.

The WGC is a Trade Association

Following is the stated MISSION OF THE World Gold Council.

MISSION

The World Gold Council is a non-profit association of gold producers world-wide, with headquarters in London and offices in major markets around the world.

The Council's mission is to maximise the offtake and retention of gold by:

Inducing lasting-effect structural changes in gold markets (e.g. removal of taxes, regulatory barriers, improvement of distribution systems and product) through acting as an "Agent-of-Change";

Inducing a sustainable and competitive level of marketing support for gold products by the manufacturing and distributing trades through the use of information and promotion incentives;

Influencing positively the attitudes and behaviour towards gold of actual and potential public and private sector holders of gold.

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

Seventy-five percent of all gold in circulation has been extracted since 1910

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