A large U.S. metals dealer is suing Canada's biggest gold mining company and one of the largest banks in the United States, alleging the two conspired to drive down the price of gold and manipulate world financial markets for the past 15 years.
The lawsuit, filed by New Orleans-based metals dealer Blanchard & Co. in Louisiana District Court, says Barrick Gold Corp. and J.P. Morgan Chase hatched a scheme to sink gold prices through a complex system of derivatives trades and off-balance-sheet deals.
The suit claims that, if not for Barrick and J.P. Morgan's intervention in the market, gold would now be worth close to US$740 an ounce, more than double the US$343.25 it closed at yesterday.
Barrick calls the suit "ludicrous."
Barrick, controlled by multi-millionaire chairman Peter Munk, promised yesterday to vigorously defend itself.
In its statement of claim, Blanchard said Barrick's alleged actions have "pointedly reduced market interest in Blanchard products and resulted in a significant loss of business."
It said the effects on its bottom line "continue to this day," saying in the claim that the alleged price-manipulation caused many of its customers to stop buying gold.
None of Blanchard's allegations have been proven in court.
Vince Borg, a Barrick spokesman, said the company had not received an official copy of the suit, but a press release issued by Blanchard contained numerous inaccuracies and defamatory statements. A J.P. Morgan spokesman said the bank had not yet received copies of the suit and therefore had no comment.
Several investors and analysts said the case may finally air out one of the most enduring controversies in the public markets.
For years, investors and obscure mining newsletters have accused Barrick and its partners of using complicated hedging strategies to capitalize on, and even actively encourage, a decline in the gold price.
Barrick has steadfastly denied these allegations, claiming their derivative trades are intended to mitigate risk of falling prices and do not unfairly sway the market.
Conspiracy theories, often propagated through Internet chat rooms, have gone far beyond criticism of Barrick's hedging strategy to allege some of the most powerful figures in the world financial markets have conspired to depress the price of gold to prop up the U.S. dollar and world stock markets. Some conspiracy theorists have also cited Alan Greenspan, chairman of the U.S. Federal Reserve, and other leading central bankers as key players.
This lawsuit represents the first attempt by a large and well-financed market player to force more disclosure about what role major mining companies may have played in the 49 percent drop in the price of gold since 1987.
Gold was once an important asset class. But over the past two decades, its appeal has waned. Many long-suffering gold investors claim heavy selling by mining companies and banks has unfairly hastened its fall and has cost investors untold millions.
"There have been rumours for years around J.P. Morgan's gold derivatives, and more recently there have been questions raised about Barrick's off-balance-sheet items, and the extreme complexity of their derivatives," said Jean-Marie Eveillard, who owns Barrick stock in the gold mutual fund he manages for Société Générale Asset Management Corp. in New York. "In a sense, this lawsuit is an attempt to find out if there is any truth to the rumours."
Barrick confirmed yesterday it has made hedging profits of about US$2-billion since the program was started in 1987, allowing it to become one of the world's biggest gold miners. But this year the price of gold has surged, and Barrick has promised to reduce its hedging program by the end of 2003.
The threat of legal action has already hit Barrick's stock. Yesterday, when the price of gold surged to a five-year high and almost all other mining stocks were rising, Barrick's shares fell 20¢ to $24.45.
