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Swiss gold: Switzerland caught in the middle of illegal import racket

By Indrabati Lahiri

14:47, 29 September 2022

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Bank reserve gold bars arranged in rows
Switzerland has recently been criticized as it continues to support illegal gold mining in South America – Photo: Getty

Three months after Switzerland pledged to stop imports of illegal gold from Brazil and the Amazonian basin, the country has once again come under public scrutiny. Switzerland’s gold imports are currently at the center of a Human Rights Council session held at the United Nations headquarters in Geneva.

Switzerland imports gold worth approximately $92.3bn, as of 2021, with approximately 1,040 tonnes of gold reserves, making it the biggest gold importer globally last year. About two-thirds of the global gold trade in gold traverses through Switzerland, making it an absolutely key player for the precious metal.

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Switzerland was the biggest gold importer in 2021

What is Switzerland’s illegal gold racket all about?

In recent months, Switzerland has gone on record to pledge to ban gold imports from Russia, backing up other major Western countries such as the US and the UK to impose international sanctions on Russia for the ongoing Ukraine war.

However, according to Bloomberg, Swiss gold imports from Russia rose to more than a 2-year high in August, which completely undermined this supposed pledge. This also raised questions about whether these imports were legal or whether Switzerland was taking advantage of cheaper black-market prices to shore up its reserves.

Now, the question of illegal gold has intensified as Switzerland has been accused of supporting the sexual, physical and emotional abuse of workers in Venezuela and in the Amazonian Basin. This especially affects women, as well as children, as the illegal gold mining business in Brazil and Venezuela sees vey high rates of child labour.

Not only that, but the issue of a high risk of mercury poisoning has also been raised by the Human Rights Council, which could cause long-term impacts to both the mining workers, as well as the indigenous communities living in these areas.

The Human Rights Council has repeatedly emphasized that Switzerland, as a key player in the gold trade and home to various human rights organizations, needs to take a particularly active and leadership role in the condemning of these practices.

Which are the major players involved?

Switzerland’s three major gold refiners, Valcambi, Argor Heraeus and PAMP are some of the foremost players involved in the continued import of questionable gold reserves, This is likely due to the lower prices obtained from these routes as well as the ease of process, by dodging required import and other legal processes.

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However, the real impact of these operations are often felt by the indigenous communities of these areas, who have protested against the environmental, social and economic toll that mining operations take on their communities.

These can include toxic waste from mining operations, increased sexual abuse, poor working conditions and unfair wages. Brazil, being a major gold producer receives most of the heat for this. However, smaller producers such as Venezuela and Ecuador are also starting to be exploited now.

How will Switzerland’s illegal gold racket affect the precious metal?

By pledging to ban the import of Russian gold a few months back, Switzerland had already contributed to rising gold prices, at least initially. This saw gold pushed to peaks of about $2,070 per troy ounce in early March, before crashing more than 20% to its current levels of about $1,647.5 per troy ounce.

However, as recent reports reveal that the ban may not really have been as effective as previously thought, it is plausible that Switzerland’s illegal imports of gold from both Russia and South America may have contributed somewhat to gold’s fall from grace since March.

With more scrutiny and global attention on the country at the moment, however, Switzerland may be forced to take some very drastic steps and greatly reduce its illegal gold imports. This could go some way in helping push gold prices up once more, as the world deals with a shortage of the precious metal.

However, there are still very strong countering factors, which are working towards keeping precious metal prices down, such as a stronger US dollar (DXY), which is still perched at around 20-year highs. More aggressive monetary policy tightening by major central banks such as the US Federal Reserve, Bank of England and European Central Bank could also go a long way in putting a cap on any gains gold might get in the coming future.

 

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