Reserve Bank hikes gold prices 757 percent

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ZIMBABWE'S central bank on Wednesday increased the price of gold by 757 percent in a bid to curb rampant smuggling of the precious metal and cover soaring production costs.

"With immediate effect, the support price has been increased from the current Z$350 000 per gram (US$1400 on the official market, but two US dollars on the parallel market) to Z$3-million per gram," Reserve Bank Governor Gideon Gono said in a statement.

"As a country, our gold production levels have lately fallen victim to escalating costs as well as elements of indiscipline, sidemarketing and smuggling."

Gold miners are paid 60 percent of their money in US dollars while the balance is paid out in the local currency.

Gono expressed concern at suppliers who increase the prices of their goods and services each time the central bank increases the price of gold, eroding the benefits of the producers.

"What we have noted with serious concern is a callous pattern whereupon each enhancement in the gold support price triggers a wave of unjustified increase in these dealers' prices and charges," Gono said.

A mining economist said the gold price review was long overdue.

"The previous price of Z$350 000 an ounce did not make any sense at all," said the economist who spoke on condition of anonymity.

"Despite the price review this does not mean production will suddenly increase since the gold mining industry does not have control in the supply of electricity," he said in reference to frequent power cuts.

Gold is one of Zimbabwe's major foreign currency earners but the mining sector has been hamstrung by foreign exchange shortages to renew equipment and replenish supplies.

Shortages of cyanide, drill steel and compressor spares have also hampered production.

Zimbabwe's gold production is this year expected to drop to about 8700 kilogrammes from 11 354 kilogrammes last year, a far cry from 27 000 kilogrammes produced in the industry heyday in 1989. - AFP
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