Dryblower: Rothschild exit a knife through gold's heart

Monday, April 19, 2004

THE spin merchants have been busy over the past few days telling anyone who will listen that gold is okay, that everyone still loves the metal, and that the withdrawal of Rothschild from the London Bullion Market Association is a mere drop in the ocean.

They're wrong – Dryblower knows they're wrong, and anybody not completely blinded knows they're wrong.

The loss of Rothschild from the LBMA is more than a body blow to the gold industry, it is a kick in the head, and a knife through the heart.

The sad part, separate from the nonsense spun by the spin merchants, is that it was preventable if only the gold industry had recognised the way the world has changed, and continues to change.

In a word, it is all about relevancy – and gold has become less, and less, relevant as the world has changed.

Today, it is simply not good enough to produce a commodity (the same one the industry has been pumping out for a few thousand years), deliver it to a bank, which then sells it to a jewellery fabricator, and expect the world to say thankyou.

It is also totally unacceptable to hang around waiting for the US dollar to fall, and for the price of gold to rise, because of a belief that the world is tiring of paper currencies and the dollar is over-valued.

Perhaps the dollar is over-valued, but why would you leave the fate of your business in the hands of another market?

Before getting completely wound-up about the idiocy of the gold industry and its inability to grasp the concept of marketing, branding and product development, Dryblower wants to put the Rothschild departure in perspective.

This is a family business which has played the gold market since 1810. It funded the Duke of Wellington at Waterloo. It rescued the Bank of England with a GBP10 million pound deposit of gold in 1825. It has chaired the meeting which "fixes" the price of gold twice daily in London since 1919.

But, it has voted with its feet. Tossed away almost 200 years of history, and effectively said there are better things to do with its time and money – well let's leave out that word effectively, that is precisely what Rothschild has done.

And, if you really want to understand what relevancy means and really want to understand why Rothschild has quit and why gold has lost its relevancy to a business partly built on gold consider this: Gold has fallen, over just five years, from 8.6% of the Rothschild business to 2.2% - now that's one hell of a measure of decline.

The spin merchants will say that it's all to do with an end to hedging, and perhaps that's a factor. They will say that someone will fill Rothschild's shoes with Barclays ready to move. They will say that Credit Suisse quit the LBMA in 2001 and no one seemed to notice, and they will say that gold will sail on regardless.

Yes, they are right. Gold will always be with us.

But, it has just received the loudest wake-up call ever heard. It has been told by a founding member of the ultimate gold club, the LBMA, that there are better things to do elsewhere, better profits to be made elsewhere, and greater growth opportunities elsewhere.

True believers in gold, many of them meeting in Perth this week at a series of gold conferences, will find a way of ignoring the Rothschild departure. Oh, they will say, but Rothschild will continue to act as a financier to gold projects.

Sure, and they will also lend to zinc, lead, copper, silver, housing, shipping, commercial high-rise, management buy-outs and any other project that comes through the door because they are bankers and will lend to anyone who can pay the fees.

The truth is that leaders of the world gold industry are blinded by their own propaganda. They only talk to their friends, other true believers in gold, and people who write, and say, nice things about gold.

They do not want to face reality, they are rude to their critics or anyone who questions them, and refuse to see that gold is losing its lustre. It is becoming just another commodity, and it is slipping down the scale of relevancy as more fun (and higher profits) are made elsewhere – if in doubt, just as the man from Rothschild.

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