“The Real Price of Gold”

The price of gold slipped slightly last week, which is in stark contrast to what the so-called “experts” said to expect long term.  Analysts at Morgan Stanley and UBS said Wednesday they expect gold prices to trade higher in 2009, benefiting from some safe-haven buying as well as long-term concerns about inflation.

One expert said that he expected gold to see $900 per ounce this year and $1000 by 2010.   That’s exciting, if you’ve already bought extensively.  It’s a little frightening, if you’re sitting on the sidelines.  And for all of us, it’s confusing, isn’t it?

While all of this is going on, the venerable National Geographic Magazine has a cover story on gold in this month’s issue.  It’s titled “The Real Price of Gold.”

I’ve always thought that the National Geographic writers tell a good story; this one doesn’t miss the mark.  It begins with the story of a Peruvian man who risks life and health to work in a gold mine high in the mountainous area of his homeland.  He works for free for 30 days of the month and in return, on the 31st day of that month, he’s “paid” by being allowed to mine all the rock and ore that he can carry out in four hours.

The work is back-breaking.  Other miners have died of cave-ins, toxic gases, and poorly controlled explosions.  But this miner continues, sure in the idea that someday, his luck will change and the mountain will give him some of her treasure.

The article is fascinating reading about the metal that has fascinated man since time began.   Wars have been fought, lives taken, and religions built around items made from gold.  Think about it: gold is not vital to our survival.  It’s only value is whatever value we attach to it.

Gold has a unique place in man’s life, down through the ages.  Pharaohs liked being buried in it, modern man uses it to symbolize commitment and to make replacement teeth.  But throughout, we have defined wealth and status using gold.  We have used it to adorn our bodies and our homes.  We have made it the standard to be attained.

The article is interesting.  It’s something that every person who is interested in gold as jewelry or as an investment should read.  And let me leave you with one thought that I gleaned from its pages.

“Gold has always had this kind of magic,” says Peter L. Bernstein, author of The Power of Gold. “But it’s never been clear if we have gold—or gold has us.”

Sweat of the Sun – Properties of Gold

From Mythology to the Economic Standard

The Incas called gold the “sweat of the sun”; the Pharaohs insisted on being buried in what they referred to as the “flesh of the gods”; and Isaac Newton established gold as the benchmark of a new global economy.

Sir Isaac Newton, England’s Master of the Mint, first standardized the price of gold in late 1717. First as gold coins, and later as backing for paper money, gold become the standard by which an economy was measured. It was not until 1971 when the U.S. dollar was no longer directly measured by a gold standard, that gold began to exhibit volatility as a freely traded precious metal.

Gold Properties and Mining

Gold, whose chemical symbol, AU, became valuable due to its unusual malleability, density, longevity, and perpetual shine, became the transcendent symbol of aesthetic and mystical beauty.

Gold ore appears in nuggets or grains in rocks as small veins or alluvial deposits–sediments deposited by flowing waters or rivers, called placer deposits. Alluvial placers form when dense particles such as gold or platinum accumulate where water velocity is no longer strong enough to transport deposits further. Placer mining was prominent in such times as the California Gold Rush.

Placer mining today is much more sophisticated, utilizing excavation methods such as water pressure (hydraulic mining) or by using surface excavation and tunneling equipment.

Gold Consumption

In all of history, only 161,000 tons of gold has been mined–and more than half of this amount has been excavated in the past 50 years. It is surprising also to learn that the U.S. is not the number 1 consumer of gold. But that India holds this title as the largest “gold nation” worldwide (773.6 tons of gold consumed in 2007), followed by China (363.3 tons)–who surpassed the U.S. (278.1 tons) in 2007 as the second largest gold consumer.

Although fine jewelry dominates gold as the primary use for the yellow precious metal, gold is also critical in numerous industries.

In 2007 alone:

• 2,398.7 tons of gold were used to create gold jewelry

• 310.6 tons of gold were used for electronics as a non-corroding conductor

• 253.3 tons of gold were used in exchange-traded funds which have gained immense popularity in the past several years

• 235.6 tons were used for gold investment (or bar hoarding)

• 137.0 tons were used for official gold coins

• 92.7 for various other industrials

• 72.6 tons for medals and special coins

• 57.8 tons for dentistry

Source: National Geographic, Jan. 2009

Uses in Gold Jewelry

14k gold remains the most popular gold karat of fine jewelry in the U.S.; 18k is the standard in most European countries; and 22k is the benchmark for Indian jewelry.

Due to gold’s relative softness as pure 24k gold, the yellow metal is mixed with other alloys to create ductility–the ability to shape gold without fracturing it. Gold color–such as white gold or rose gold–is another variant achieved by mixing various base alloys over others.

Copper is the most common alloy used in yellow gold–but higher concentrations of copper creates the subtle, beautiful pink hue or undertones of rose gold.

Common alloy distributions include:

14K Yellow Gold · 58.33% Gold · 4% Silver · 31.24% Copper · 6.43% Zinc

18K Yellow Gold · 75% Gold · 13% Silver · 12% Copper

14K White Gold · 58.33% Gold · 28.32% Zinc · 4.8% Nickel · 8.55% Titanium

18K White Gold · 75% Gold · 2.23% Copper · 5.47% Zinc · 17.80% Nickel

14K Rose Gold · 58.33% Gold · 2.08% Silver · 39.59% Copper

18K Rose Gold · 75% Gold · 5% Silver · 20% Copper

(Read more about white gold properties)

Because of this alloy comingling, a small percentage of the population experiences sensitivities or allergic reactions to white gold (which contains nickel)–therefore turning to platinum, or titanium as a hypoallergenic alternative.

An Amalgam of History

Gold Remains one of the most alluring of precious metals. It has been said that all of the world’s gold could fit in a 10 meter cube. Newer research suggests that the earth’s molten core may contain massive amounts of gold–”enough gold buried deep within the Earth’s core”, concludes one Australian geologist, Professor Bernard Wood, “to cover the entire land surface of the planet to a depth of half a meter”.

Whether this conclusion is incontrovertible, gold has been the focus of ages–of obsession, of love, of idolatry, and war. From Biblical references as early as Genesis–the blasphemous golden calf to the Old Testament Deliverer of Israel, Moses, who was said to be rich in gold and silver, gold has elicited a complex duality of responses from humanity. From Dirty Gold campaigns to the diminutive hopes of economies like West Africa’s reaping even the smallest of benefits from gold mining in their own lands. Gold remains, literally and figuratively, an amalgam of history.

Featured in this Post, from Apples of Gold:

Men’s Elliptical Link Bracelet in 14K Gold

Figaro Link Chain in 14K Gold

Greek Key Hoop Earrings in 14K Gold

Cushion Cut Blue Topaz and Diamond Pendant

Celtic Cross Pendant in 14K Gold

Snapshot: Gold Mining in the Philippines

The interesting thing about the internet these days is that we can see the inter-play of gold prices and the international economic climate.  We can read about laid-off retail workers in England, nervous buyers in Israel and the Mideast, and frightened consumers around the United States.

But we can also see a bright spot, like the gold market.  The gold market is steadying fears around the globe as well.  The reason?  Historically, gold has been the benchmark of wealth and luxury across centuries, including in stressful economic times like we’re seeing.  And because of the internet, we can peak into the history and current thinking in far away countries, for instance in the Philippines.

During the Great Depression that hurt the United States from the late 1920s to the early 1940s, a gold boom was underway in the Philippines, where Americans established the country’s first mining enterprises, according to a top Philex Mining Corp. official.

This bit of history has given Filipino miners hope that they can ride out a prolonged recession when it hits its hardest there in 2009.

It is only gold that offers a measure of hope for the industry next year, when the looming recession is expected to take its toll on the economy, said Louie Sarmiento, who is president of the Philippine Mine Safety and Environment Association.

“The gold mining activities will continue on account of the good price of gold, and there are projections they will be maintained, if not [escalate] next year,” he said.

According to the Jose Ernesto Villaluna, President of Philex Mining Corp., the sector takes comfort and refuge in the parallels between 2008 and the gold rush of the 1930s, when the US began experiencing the pangs of the 1929 depression.

“If you look at the Great Depression in the [1930s], the common denominator was gold,” Villaluna said. “[President Franklin Delano] Roosevelt upped the price of gold from $19 to $35 an ounce and that was when all the gold mines boomed.

He was referring to the enactment of a US Gold Standard, which defined the value of the currency of many countries against a specific volume of gold quantities.  That was retracted when the American government introduced a gold reserve law making it illegal for people to own gold.

This law pushed gold prices from $20.67 per ounce to $35 per ounce at the time.  Now it’s over $800 per ounce.

At the same time in world history, the gold industry experienced a boom, even in the Philippines growing from 89 mine claims applied for in 1905, to 544 mine stakes in 1906.

Gold has always been a store of wealth in times of uncertainty.  It will be the stable place to be during whatever lies ahead.  Gold continues to fulfill its role as an asset for uncertain times and demand is strong.  It’s an investment you can be certain of, even as we continue to watch the markets in turmoil.

Panning for Clues in the Gold Market

This weekend, I was in Phoenix, Arizona and then headed upstate to Kingman. A friend mentioned that there was a gold mine along the way that operated “when gold prices are good.”

I’m guessing it’s not in operation currently. There are many ways to get the gold out of the ground, including panning, sluicing, metal detecting and dredging.

Gold panning is mostly manual technique of filling a wide, shallow pan, then adding water. Gold is denser than rock, so it quickly settles to the bottom of the pan.

Gold panning is the easiest technique for searching for gold, but not the only ones for small mining operations. There is also sluicing. A sluice box is essentially a man-made channel with riffles set in the bottom. The riffles are designed to create dead zones in the current to allow gold to drop out of suspension. The box is placed in the stream to catch water-flow and gold bearing material is placed at the top of the box. The material is carried by water through the box where gold and other heavy material settles out behind the riffles. Sluicing can also be done on a large scale.

Larger commercial mining operations employ screening plants to remove the large extraneous debris such as boulders and gravel before moving the material to a sluice box or jig plant.

And of course, we’ve all seen what I like to call an “accidental prospector.” He (or she) is the one walking up and down the beach, carrying a piece of electronic equipment known as a “metal detector.” This piece of machinery gives a positive reading on whether a quantity of gold may be present up to a meter below the area being scanned. This is very popular among gold diggers.

Larger commercial mining operations employ screening plants to remove the large extraneous debris such as boulders and gravel before moving the material to a sluice box or jig plant.

Right now, some mines are shutting down because of the slowdown of the rest of the economy. As the dollar drifts down and weakens, gold prices are expected to shift upward as investors seek protection from the weakened economy. Either up or down, too much fluctuation is likely to keep many mines shut down. Small operations may be forced to sell at deflated prices, while larger operations are already shutting and canceling new projects. These changes may be ongoing for sometime to come. We’ll talk more about that in future blogs.