People are questioning whether the bull  run on gold over the last decade reached its climax with the December 2009 high of $1227 and we are on a downward slope. Let’s compare the conditions in 1980 with today and we will find that they are quite different.

1980

In 1971, the United States suspended the free exchange of U.S. gold for foreign-held dollars, then in 1974 lifted its four-decade ban on the private purchase of gold. At that time, gold bullion was being traded in European markets at highs approaching $200 an ounce. In 1975, the U.S. government began to sell some of its holdings on the open market and in 1978, along with most other nations, officially abandoned the gold standard. After being released from government control, the price of gold soared and touched $850 in January 1980.  In the three years before 1980 gold price grew eightfold  as the result of mainly fear but also greed

In Dec 2009 the gold price soared to $1227 per ounce. So was this the zenith and comparable to the 1980 high? Was this the end of the bull market that was running for almost a decade?.

There are many differences between 1980 and today not least of which the world is not the same following the most significant financial crisis since the great depression of the 1930’s, global warming threatening our existence and the economic balance between East and West swinging to the East. In 1980 the cold war still raged, the Berlin wall separated East and West Germany, and Eastern Europe was in soviet control, the Russian bear was feared. We must also remember that gold in real terms is trading at only half of the high reached in 1980 as the $850 to day equates to approximately $2200 when inflation is applied.

Political Fear – The Soviets had  signed a “bilateral treaty of cooperation” with Afghanistan in 1978, but by the next year relations had deteriorated and  the Soviet Invasion of Afganistan, which began around Christmas 1979, was a terrible global shock., Russian forces seized all major governmental, military and media buildings in Kabul, including their primary target – the Tajbeg Presidential Palace, where they killed President Hafizullah Amin and announced on Radio that Afghanistan had been liberated

It was a slap in the face to a cold war America.

At the same time the Russians were building up their strength  in southern Yemen close to Saudi Arabia and the oil fields. Also in Bulgaria’s border with Yugoslavia, a liberal communist country, whose 87 year old president Tito solely responsible for binding the  Serbs, Croatians and Muslims together since the end of WWII was very ill.

Iranian fundamentalists took over the US embassy in Tehran in November 1979 anther slap for America.  Ayatollah Khomeni became supreme leader in December and relations ships with Sadam Hussein’s Iraq were at an all time low eventually leading to the Iran –Iraq war.

Economic Fear – The 70’s were a period where inflation was spiraling out of control, stagflation unemployment, oil embargoes and subsequent spike in oil prices spread gloom and despair.  In 1979 inflation in the US was at 12% and was in double figures in most western countries  In the UK the winter of 1978-9 was known as the “winter of discontent” and during 1979 nearly 30 million working days were lost due to strikes.  Debt in the USA had risen to almost $1 trillion and the dollar was weak.

Another catalyst that shook the markets was Bunker Hunt’s run on silver. Hunt, an oil billionaire, his brother and friends by October 1979 had bought up all the silver paper propositions to the tune of 192 million ounces.  In early January 1980 , it became evident that COMEX intended to change the rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. Of course, the CFTC promptly backed up the ruling. The escape hatch for the Hunts and some of the other large longs was simply to convert their futures contracts into physicals, On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt’s silver position was worth $4.5 billion dollars. This caused chaos as there was no silver to be had to supply and the Hunts were driven to ruin.

Oil revenue to Gold – The rapid rise in oil price produced a sudden surge of wealth in  Saudi Arabia and the Gulf States  and enormous sums were diverted into gold. This was further accelerated by the fall of the Shah which exposed vulnerability of people in power in the Middle East and led them to protect their positions. It was common for Saudi dealers to bid for 50-100,000 ounce in a morning and one bank was asked to buy 300,000 ounces for a single client.  Speculators also used the opportunity to dupe the market to increase the price of gold by bidding for huge sums  through a Gulf bank giving the impression that Arabs were pouring money into gold, a story carried by media for some time.

Greed – Of course speculation reached the phase of public awareness which is always the last phase close to the peak just before the decent.

The world was in turmoil and inflation was out of control so everyone was scared. When people are scared fiat currency is not enough. They return to traditions going back to the beginning of civilization to secure wealth in physical gold that gives portability and liquidity. During times of crisis and fear gold rises and individual governments can’t stop it; but in peaceful times governments are able to maintain control. The future of the American economy and American power did not feel at all certain. As a safe haven in times of panic and strife, gold simply reflected that fear. As soon as the emotion subdued and rationality returned  the buying panic quickly subsided and turned to selling phase taking down the price.

The Fall – Prices will rise as supply cannot meet demand but in 1980  when the price touched $850 all over the world people began dishoarding their coins and  old jewellery in an unprecedented scale to the extent that dealers were running out of money to pay for the re cycled gold and Refinieries  had more than enough scrap gold. Thus supply quickly out grew demand.

In early 1980, Paul Volcker’s (Fed Chairman) new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted. There was a rush out of Gold and back to Dollars. The Dow was already rising in 1979 and really took off in 1982.

The gold price dropped off dramatically after its January 1980 high in short because people lost their fear as inflation the bane of the 1970s was finally coming under control, interest rates and the stock markets rose making other investments more attractive. Supply was greater than demand and the Middle abruptly exited the gold market.

2010

The financial crisis that rose its ugly head in 2008 and continued through 2009 is comparable to the fear generated in 1979-80 and was one of the reasons for the rise in gold as people sought a safe haven. The dollar has been weak, a norm for a corresponding high gold price and this was catalyzed by India buying 200 tonnes from the IMF to drive the price to the December high.

The Future – The difference between 1980 and today is that in 1980 we were exiting a terrible decade and the future looked bright economically. Today the future is far from bright and whilst we have managed the worst financial crisis since the depression and are even complacent; but the truth is we are not out of the crisis. The economy is recovering slowly and is still very volatile and in the UK we have £1.4 trillion in sovereign debt to face. According to the IMF spiralling sovereign debt in Europe, the US, and Japan has emerged as the top threat to the world economy and risks setting off a fresh financial storm. The eurozone is heading for one per cent growth this year, limping out of recession under the threat of a sovereign debt crisis. The main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion. The economies of Ireland, Spain and Portugal will shrink. The US’s ratio of total debt to GDP is likely to exceed 90% this year, making it more indebted even than Spain and Portugal. It is similar to Weimar Germany but for different reasons and has printed trillions of dollars of fiat currency which will eventually lead to debasement. The dollar is weak and is likely to get weaker. The Chinese Yuan is undervalued but it is not in China and the worlds interest to drop the dollar just yet but the time will come and dollar will fall. The Chinese are on the unmistakable path towards challenging the dollar and the ultimate aim is financial supremacy The dollar’s status as the worlds reserve currency is under threat and both Russia and China are pushing or an alternative in which gold must surely take a part.

Today we have a world of low interest rates where it is almost impossible to obtain an interest rate that does not lose on the capital invested each year when taking into account inflation and tax. With the right gold product tax on profit can be eliminated.

In 1980 Central banks were auctioning off gold, today central banks are turning to gold as many countries increase their gold reserves. Last year India bought 200 tonnes from the IMF to meet its international commitments. China has increased its reserves to 1054 tonnes and announced its intent to continue buying.

India is currently the largest consumer, China the largest producer and second largest consumer and Russia were not players in 1980 and it is these countries where the demand is currently driven. China is consuming all it can produce and quietly everything it can buy with out upsetting the price.

Public Awareness – In 1980 public awareness led to speculation and to frantic selling of gold, de hoarding which was contributory to the drop in price as the amount of scrap gold created an over supply. Today you can hardly open a newspaper or watch television without seeing an advert to persuade you to sell your old gold. This is the reverse of 1980 as the refineries need the re cycled gold to ease the demand. Also investment has not yet reached the public awareness stage. From the chart below  you will see that there is no slide just a correction which is normal

In conclusion gold is still a safe hedge, the world is uncertain with threats of sovereign debt, inflation and the weakening of the dollar. Gold is finite all the gold ever produced would fit into a 20 metre cube. As mining becomes more difficult production costs are rising to almost $800. The demand from the East cannot be met so demand is greater than supply and there will be more pressure on supply as the gold fields dry up. I have seen an analogy where more gold can be extracted per ton by harvesting old mobile phones than the majority of modern mines. Were are currently in a period of correction fed by a certain amount of complacency but trends indicate that we should see a breakthrough of $1300 by Q4 2011.

Maurice Hall

Over the past few years, China has experienced economic prosperity and rapidly increasing wealth.  During the same period, the Western world faced deep recession and is only now beginning to recover.  Today China has an insatiable appetite for gold which looks likely to continue in an environment where domestic mine supply lags behind demand. According to the latest World Gold Council Analysis, Chinese demand for gold is set to double in tonnage terms within just ten years. Over the past 5 years the demand for gold has risen by and average of 13% per annum and there is significant untapped potential in the Chinese gold market.

The rational behind the belief that a doubling of demand comprises of a number of elements:

1. China’s need to diversify from USD assets without destroying the dollar as it holds 2.4 trillion in reserves
2. China’s intention to increase it’s gold reserves from its current 1.6%
3. Sustained GDP and subsequent wealth creating a higher saving rate
4. China’s gold consumption per capita is very low in comparison with other gold consuming nations
5. The growth in jewellery ownership is expected to take off in relation to the increase in spending power
6. Citizens are encourage to put a proportion of their savings into gold and similarly the Central Bank is looking to diversify
7. Gold demand is increasing as is production but according to WGC research reserves account for only 4% of known global gold mining reserves and could be exhausted in 6 years
8. Its is likely that demand will outpace domestic supply with subsequent impact on the global gold market

1. Diversification

One factor that the Peoples Bank of China (PBoC) will consider is the future performance of the US dollar. Over the last 12 months, the US dollar has depreciated against major currencies and has not fared well as a preserver of capital. China, along with Japan, are the biggest single holders of US Treasuries and will certainly not benefit in precipitating a US dollar crisis since this will further devalue their trillions of US dollars in reserves and adversely impact the purchasing power of the US consumer – their major export customer. PBoC has been purchasing local gold mine production and local refining of recycled gold in local currency. The PBoC prefers not to be seen switching out of the US dollar at this juncture when such a large proportion of China’s foreign exchange reserves are already in dollar-denominated assets. A withdrawal of such significant volumes out of the gold-hungry domestic market would also further increase the domestic supply-demand gap in the Chinese private sector and escalate the “snowball” effect in China. Hence, we would not be surprised to see the PBoC proceed on a gradual strategy ( see article on China’s strategy and dilemma) , if it decides to increase its allocation. The media has stated that China should allow its currency to appreciate against the US dollar this year. This, in turn, would be bearish for the US dollar and positive for real asset prices, such as gold, that are denominated in dollars.

2. Reserves

The State Council advisor Ji Xiaonan believes China should start investing in at least 1,000 tonnes of gold per annum for its official reserves. Mr Ji has been quoted in the Chinese media as suggesting that the nation’s gold reserves should reach 6,000 tonnes in the next three to five years and perhaps 10,000 tonnes in eight to 10 years. The adjustments could be motivated by the following reasons:

• Increasing gold as an essential component of PBoC’s book could help the country meet future requirements in terms of safety and diversification of the portfolio;
• Purchasing gold using reserves would allow PBoC to withdraw billions of Yuan now in circulation, decrease the proportion of its US$2.4tn foreign currency reserves held in US dollar-linked investments and ease pressure on the appreciation of the Yuan. If the PBoC were to rebalance its reserve portfolio back to its recent peak ratio of 2.2%, we estimate that the incremental demand from taking this action would amount to around 400 tonnes at today’s gold price. Even an increase of 10% on its current gold reserve holding would translate to approximately 100 tonnes.

3 GDP

The Chinese economy grew at an unexpectedly high growth rate of 8.7% in 2009, with GDP reaching 10.7% in the last quarter. The country also saw rapid growth in foreign direct investment, fixed asset investment, new loans and rising money supply Continuous improvements in living standards, higher savings rates amongst private individuals and rising income levels are expected to generate robust gold demand in China. The World Bank (WB) recently raised its China GDP growth forecast for 2010 from 9.0% to 9.5%33. WB said that Chinese trade and household consumption should continue to grow strongly as the stimulus is withdrawn. The ongoing structural shift in Chinese gold demand and supply, as well as the structural trends within the world’s second largest gold market potentially creates a brave new world for China’s gold industry.

3. Consumption per capita

Chinese consumers are catching up relative to the Western world in terms of gold ownership. This is because market liberalization tends to have a dramatic impact in a local market. In India, for example its gold consumption more than doubled from roughly 300-350 tonnes in the early 1990s to over 700 tonnes at the end of 2008. Chinese gold demand has increased by 106% from 2002 to an estimated 443 tonnes in 2009, or an average of 8% per annum during the same period and 13% pa over the last 5 years. Nevertheless, the country has one of the lowest gold consumption intensity rates compared to Western economies, and to countries with similar gold cultures. In 2009, per capita gold consumption in China was 0.33gm, up from 0.17gm in 2002. WGC estimates that total incremental demand based on 2009 consumption and IMF population forecasts, ranges from 1,000 tonnes at USA and Japanese per capita consumption levels to more, if Chinese consumption per capita were to rise to Taiwanese levels.

4. Jewellery

China’s gold jewellery market is unique; local consumers are well aware of gold’s benefit as a store of value. Gold jewellery (especially 24 carat gold jewellery which accounts for at least 80% of total gold jewellery demand in China) has always been regarded as an investment by the Chinese. However, in recent years, there has been a shift of demand into 18 carat jewellery with Italian inspired design, which has been a success in attracting younger, urban cosmopolitan consumers to gold jewellery. During the last ten years, China’s jewellery off-take has averaged 250 tonnes of gold per annum. In 2009, the country ranked second in the global gold jewellery market, behind India. found per capita consumption of 0.26gm in 2009 to be low. If gold jewellery were consumed in China at the same rate per capita as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by at least 100 tonnes to as much as 4,000 tonnes in the jewellery sector alone. There is also a significant potential for growth in Chinese gold jewellery demand,

5. Investment

Net retail gold investment is still developing in China. Investors looking to protect their wealth, and institutional and retail investors looking to manage portfolio risk are increasingly turning to gold. PBoC is also playing an increasingly supportive role on the demand side. We believe the reasons why central banks such as the PBoC would want to own gold are the same as the reasons why investors would want to own gold –namely its diversification properties, insurance against unexpected events and gold’s ability to outperform during crises. If PBoC  decides to rebalance its books back to its recent peak gold holding ratio of 2.2% at Q4 2002, we estimate that the incremental demand would amount to a further 400 tonnes at the current gold price. The ratio is nevertheless a fraction of the other key economies such as the USA (70.4%) and Germany (66.1%).

During China’s Eleventh Five-Year Plan period (2006-2010), gold investment among private individuals in China has been developing rapidly as Chinese investors catch up with their foreign counterparts in terms of gold ownership. There is a growing interest among the Chinese in commodity investment, stimulated by a high savings ratio, but also because there are not enough domestic investment opportunities available to Chinese investors. Chinese consumers are high savers, having accumulated wealth since 1978 when the Chinese government shifted the burden of retirement income to individual households. The Asian currency crisis added additional impetus to this savings culture. One should not forget that less than nine years ago there were regulatory restrictions on gold trading, ownership and investment in China. In 2001, the Chinese central bank announced the abolition of China’s long-term government monopoly of gold. Over the last century, the deregulatory tide in economic governance has helped to reduce the number of barriers to gold ownership around the world. In some cases the results have been spectacular. For example during the 1990s in India, when the liberalisation process was in full swing, Indian gold demand more than doubled from around 300-350 tonnes in 1992-93, to over 700 tonnes at the end of 2008. Chinese net retail investment in gold has increased from 65.9 tonnes in 2008 to 80.5 tonnes in 2009 (up 22% year-on-year). We expect this level to rise further despite recent gold price performance. In the WGC’s Gold Demand Trends Report for the fourth quarter and full year 2009, it was highlighted that Chinese consumers continue to buy gold in a rising gold price environment. Investment in China in the form of gold coins and bar hoarding has shown a strong growth momentum in recent years, although this market still accounted for less than a third of total domestic gold demand in 2009. The amount of Chinese gold coins and bar hoarding holdings in private hands is much less than in countries such as India and Vietnam. Chinese consumers are currently in the process of accumulating them, which may suggest that they are less willing to sell back their holdings as the gold price rises, compared to consumers in other parts of the world.

6. Internal Supply

Chinese mine production has been driven by gold prices. Despite being the largest producer in 2009 at 314 tonnes, the Chinese gold industry is simply not responding fast enough to bring in new supply. During the period from 2006 to 2009, average annual gold mine output grew by 8% per annum in China. This is more than targeted growth rate of 5% set out in its Eleventh Five-Year Plan (2006-2010) and it is more than three years since China moved three of its larger gold mines into production. On a longer term basis, supply issues such as higher mine development costs, rising input costs and potential threats relating to supply disruption, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price than was previously the case. During the last decade, Chinese gold miners have boosted output by 84 percent, but the nation’s known reserves account for just 4 percent of the total global gold reserves. China may exhaust its domestic supply within 6 years

7. Demand

Demand from China’s two largest sectors (jewellery and investment) reached a combined total of 423 tonnes in 2009 but domestic mine supply contributed only 314 tonnes during the same year. Chinese gold demand has the potential to double from today’s levels within a decade. Assuming that long term gold demand growth is in line with the supply growth target of 5% per annum (as set out in the Eleventh Five Year Plan), China could experience strong demand for decades to come. Demand growth looks set to continue to outpace global and domestic production capacity. The limited range of gold reserves and resources forecasts may restrict new supply, especially if existing domestic production lags behind demand. This shortfall creates a “snowball” effect as China’s gold industry may not be able to catch up with the annual leap in domestic consumption. This would effectively extend the gold cycle in China.

Conclusion

Over the past few years, China has experienced economic prosperity and rapidly increasing wealth. The Chinese economy grew at an unexpectedly high growth rate of 8.7% in 2009, with GDP reaching 10.7% in the last quarter. The country also saw rapid growth in foreign direct investment, fixed asset investment, new loans and rising money supply. During the same period, the Western world faced deep recession and is only now beginning to recover. Continuous improvements in living standards, higher savings rates amongst private individuals and rising income levels are expected to generate robust gold demand in China. The World Bank (WB) recently raised its China GDP growth forecast for 2010 from 9.0% to 9.5%. The ongoing structural shift in Chinese gold demand and supply, as well as the structural trends within the world’s second largest gold market potentially creates a brave new world for China’s gold industry. Today China has an insatiable appetite for gold which looks likely to continue in an environment where domestic mine supply lags behind demand. Looking further ahead, WGC expects Chinese gold demand to double from today’s levels over the next decade. Jewellery and investment growth are expected to be the chief drivers of this demand. The motives that drive demand in those sectors can differ: Jewellery is cyclical, and investment demand has both a cyclical and counter-cyclical element to it. There is a strong growth opportunity in the gold jewellery market given the very low per capita consumption of gold jewellery in China, which has almost doubled since the deregulation of the market. The recent financial crisis has also increased caution in Asia and made Asian investors aware of the need for a hedge against the possibility of further weakening in the US dollar, to which they are heavily exposed. Gold’s dollar hedging properties make it both appropriate and ideal for this purpose.

With ongoing uncertainties surrounding the economic recovery, currency and inflation, the search for alternative international asset choices for both investors and the central bank should clearly involve consideration of gold. The real value of gold for investors lies in the reliable diversification it provides and to consistently  deliver a lower average volatility than most mainstream assets and commodities.

Gold can be seen as an insurance policy, as an effective hedge and gives investors the confidence to manage unknown risk. Its value holds in good times and bad and show resilience during extreme conditions. Gold as an asset class has performed impressively for nearly a decade, both in China and internationally. Today, the combination of a healthy outlook for gold demand and its relatively inelastic supply creates a bright future for gold.

WGC report summarised by Maurice Hall

This chart illustrates the general steps in open-pit gold mining. The specifics of the process vary from mine to mine.

1. Geologists use the latest technology, such as satellite surveys and geochemistry, to locate an ore deposit.

2. Computers are used to design the mine, which requires precise and accurate measurement of the ore deposit. Construction begins following the lengthy process of receiving permits.

3. Samples of ore are examined to determine grade and metallurgical characteristics. Broken rock is marked by type for efficient processing.

4. Based on its metallurgical makeup, a dispatcher directs truck operators to deliver the ore to the correct processing location.

6. The gold is absorbed (collected) out of solution onto activated carbon. The remaining cyanide solution is recycled.

7. The gold loaded carbon is moved into a vessel where the gold is chemically stripped from the carbon which is then recycled.

8. Gold is precipitated from the solution electrolytically or by chemical substitution.

9. The pure gold is then melted into dore’ bars containing up to 90 percent gold. Dore’ bars are then sent to an external refinery to be refined to bars of 999.9 parts per thousand pure gold.

Reclamation is a long-term investment made by every gold mining company, and can cost anywhere from $2,000 to $10,000 per acre. It is the cornerstone of every mine plan and is considered the first and last step of the mining process.

Gold is produced at some mines as part of the process of mining and refining other metals, such as copper. At those operations, gold is refined to an acceptable purity as part of the copper production process. At most gold mines, the gold “dore” is sent to a refinery for further processing.

Every winter, an ice road is laid across 400 km (250 miles) of tundra to carry supplies to one of the world’s most isolated gold mines.

Kupol Russian Arctic Mine

There is no other way for heavy machinery to reach Kupol, the $700 million Arctic mine behind a resurgence in Russian gold production after five straight years of decline.”It’s one of the harshest climates I’ve worked in, and I’ve worked in the Atacama desert in Chile and at 15,000 feet in Indonesia,” said Patrick Dougherty, general manager at Kupol. “But I don’t get to pick where the gold is.”

Only South Africa holds more gold than Russia, but Moscow’s fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.Russia is the world’s biggest energy supplier, but falling prices and reduced demand have cut income from natural resources to about 8 percent of its gross domestic product in the first quarter of 2009, from nearly 11 percent a year ago.

Gold, on the other hand, has been helped by recession. Its safe-haven appeal has shielded it from a demand slump that shredded other commodity prices, lifting it to over $1200 an ounce in December 2009

Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia’s gold in the first half of this year. Gold is the region’s passport to growth after Abramovich quit as governor last July.Russia ranked fifth among the world’s gold miners last year, between Australia and Peru, with an 8 percent share of output. Production rose 13 percent in 2008, the first increase in six years, and jumped another 25 percent in the first half of 2009. “This was solely due to the commissioning of Kupol,” said Olga Okuneva, mining analyst at Deutsche Bank in Moscow. “If other large projects in the Far East start producing gold, this will be a major growth driver for the Russian gold industry.”

Kupol — meaning dome in Russian — is named after a rounded outcrop of rock that juts skyward from the tundra in central Chukotka, over 200 km (125 miles) from the nearest settlement. The mine took five years to build. It is the largest tax payer in Chukotka, a land twice the size of Germany where reindeer outnumber people four to one. “With a deposit as large as Kupol, mining’s contribution to the regional economy is expected almost to double to 37 percent this year,” said Roman Kopin, the 35-year-old who took over as governor when Abramovich resigned.

Kinross Gold Corp, the Canadian miner which owns 75 percent of Kupol, is unusual among foreign investors for holding a majority share in a major Russian mineral deposit. The government of Chukotka owns the other 25 percent. Untangling the red tape that stifles some foreign investors in other parts of Russia was one of the main achievements of Abramovich’s more than seven years as governor, Kopin said. “The investment climate here, perhaps, is a little bit different, because we understand that it’s very difficult to work in Chukotka,” he added.Kinross has been the top performing gold stock on the New York Stock Exchange for the last three years, when the company’s value rose more than 160 percent. Kupol will supply about a third of its total output this year and 15 of 24 equity analysts polled by Reuters retain a bullish rating on the stock

ARCTIC CORRIDOR

About 1,400 jobs are related directly to Kupol, and Chukotka’s population totals around 50,000. Miners and catering staff spend four weeks on site and four weeks off, earning an average monthly wage of 50,000 roubles, 25 percent above the regional average. “We have equipment that works here,” said Alexander Puzovets, 48, a drill rig operator who works 10-hour shifts at the pit face. “I’ve been in mines where we’ve used hammers.”The mine’s in-house electricity plant could generate enough to power the regional capital, Anadyr.In winter, miners walk the purpose-built Arctic Corridor — an enclosed, 900-meter tunnel from camp to mine — to avoid temperatures that drop more than 50 degrees Celsius below zero (minus 58 degrees Fahrenheit).

About 60 percent of Kupol’s gold is mined underground. Zurab Samteladze, a 55-year-old Georgian more than 7,000 km from home, hauls 45-tonne rock loads to the surface in a Caterpillar truck.In deeper parts of the mine, skilled operators maneuver drill rigs by remote control. This avoids the need for miners to work long hours beneath areas vulnerable to rock falls.

“With all the video games they play, the younger generation has a better chance of operating these units,” said Dougherty, a native of Arizona. Alcohol is banned. Miners pass their time playing pool, in the gym or watching television. Popcorn is a popular snack, while eight tons of reindeer meat was served up last year. “I play guitar — they have a music room. I like basketball — they have a sports hall,” said Andrei Aksanov, 34, a mechanic in the truck shop.Like 80 percent of the miners at Kupol, Aksanov comes from Magadan, the port city 1,500 km (940 miles) to the southwest.

A worker cast an ingot at the Koylma refinery Magada

This is where mining began in Russia’s Far East. Stalin, needing bodies to unearth new-found gold reserves, sent hundreds of thousands of prisoners to slave in the region’s labor camps over two decades from the early 1930s.From such grisly beginnings, Magadan has developed into the hub of gold processing in the Russian Far East. Kupol flies its dore  (bullion bars)  to be processed into almost pure metal to be refined at the Kolyma Refinery to the north of the city. Vladislav Feoktistov, the refinery’s 71-year-old director, raised a glass of vodka to visiting officials from Kinross Gold. Supplies from Kupol will guarantee the plant’s biggest turnover in its 11-year history, he said.”This a business that’s only as good as its suppliers,” he said. From here, 15 kg (33 pound) gold bars worth more than $450,000 each at current prices are delivered to Russian banks.

Kinross report – The production at Kupol mine was started during the second half of 2008. During the second half of 2009, Kupol mine reported production of 234,265 gold equivalent ounces. Out of this, Kinross has produced 75% or 175,699 gold equivalent ounces. The production includes 151,327 ounces of gold and 1,633,673 ounces of silver. Kinross says that, with a cost of sales of about $205 per ounce on a co-product basis using a gold price of $400/oz and a silver price of $6/oz, Kupol will become one of the lowest-cost gold and silver mines in the world.

Processing – The Kupol mill is a conventional gold/silver cyanidation plant that incorporates a CCD thickener washing circuit and Merrill-Crowe zinc precipitation because of the high silver ore grade. Cyanide destruction is accomplished with calcium hypochlorite. The Kupol mill is designed to process about 3,000t of ore per day (1,100,000t per year). Run-of-mine ore is crushed in a jaw crusher and conveyed to a crushed ore storage bin. The crushed ore is ground in a SAG grinding mill followed by a ball mill. Gravity separation of free gold and silver will be carried out with a Knelson concentrator in the grinding circuit.

MORE GOLD TO MINE

There should be more to come. Polyus Gold, owned by billionaires Mikhail Prokhorov and Suleiman Kerimov, plans to launch Natalka, the world’s third-largest gold deposit, in 2013. Annual production of between 25 and 30 tonnes will put Natalka on the same scale as Kupol. Beyond 2017, Polyus plans to raise output to more than 40 tonnes a year. “It’s a deposit with reserves of more than 1,000 tonnes that will create jobs, infrastructure and become a major center for Magadan region,” said German Pikhoya, Polyus Gold’s deputy chief executive for strategy and corporate development. If Chukotka is to retain its leading position, it must do more. Current reserves at Kupol will last only until 2016. To extend the mine’s life beyond this date, more reserves must be found, mapped and registered with Russian authorities. Kinross and others are already exploring. “Chukotka is definitely a key gold-producing region, particularly in the long term,” said Vitaly Nesis, chief executive of St Petersburg-based miner Polymetal. His company plans to launch the Mayskoye gold deposit in Chukotka by 2011.

Maurice Hall from Sources Reuters, Kinross and mining-technology.com

The discovery of gold in Australia in the mid 19^th Century had more of an affect on the nation than its discovery in any other country, transforming Australia from a British penal colony to a nation that integrated many nationalities. To this day a term of endearment for Australians is “Digger”.   It was not an easy passage and on the way there was greed, dispute, revolution, racism and a new type of outlaw “the bushranger; but gold was responsible for the building of infrastructure, the end of transportation and financial viability. Britain no longer had any excuse for withholding self-government from its Australian colonies eventually leading to the formation of the Federation of the Commonwealth of Australia after the referendum of 1900. As for gold itself some of the biggest nuggets ever formed came out of Australia which gave the name to famous “nugget” gold bullion coin of today.

It all began when Edward Hargraves returned from the Californian goldfields and was convinced that there was  similarity in geological features between Australia and the California. In February 1851, Hargraves took his pan and rocking-cradle and with his guide, John Lister, set out on horseback to Lewes Pond Creek, a tributary of the Macquarie River close to Bathurst where he filled and washed several pans, some of which did indeed produce gold. He named the place ‘Ophir’ after the biblical golden city, reported his discovery to the authorities, and was appointed a ‘Commissioner of Land’. He received a reward of £10,000, plus a life pension

Australian gold fields

Word spread quickly and within a few days 100 diggers were frantically tunneling for instant wealth. The road over the Blue Mountains from Sydney became choked with men from all walks of life, carrying tents, blankets, and rudimentary mining equipment hastily bought at inflated prices. By June there were over 2000 people digging at Bathurst, and thousands more were on their way. Gold fever gripped the nation and the colonial authorities responded by appointing ‘Commissioners of Land’ to regulate the diggings and collect licence fees for each ‘claim’.

Hargraves could never have dreamt how significant his discovery would be. New South Wales yielded 26.4 tonnes (850,000 ounces) of gold in 1852. This was a mere drop in the ocean compared to the yield from neighbouring Victoria when they joined the rush for gold.

The Victorian authorities, eager to prevent its population from joining the gold frenzy in NSW, offered a reward of £200 for any gold found within 200 miles of Melbourne. In 1851, six months after the New South Wales find, gold was discovered at Ballarat, and a short time later at Bendigo Creek.

Very soon the fabulously wealthy alluvial goldfields at Ballarat and Bendigo turned Victoria into a magnet for immigrant adventurers, who came in their hundreds of thousands – literally. The Australian gold rush would transform the British colonies, eventually into a nation. In 1851 the population of Victoria stood at around 80,000, and a decade later it had risen to over 500,000. In 1852 alone, 370,000 immigrants arrived in Australia and the economy of the nation boomed. The total population of Australia increased threefold from 430,000 in 1851 to 1.7 million in 1871.

Deposits were also uncovered in other states: Western Australia and Queensland in the early 1850s, the Northern Territory in 1865, and Tasmania in 1877, though the rich Kalgoorlie and Coolgardie fields in the west were not uncovered until the 1890s. But Victoria was the epicentre of the Australian gold rush.

Holtermann's Nugget

In October 1872 Holtermann’s Nugget was found. At that time it was the world’s largest specimen of reef gold. It weighed 286 kg and measured 150cm by 66cm. The Hand of Faith (27.2 kg), the Welcome Stranger (73.4 kg) and the Welcome (69.9 kg) are other famous Australian nuggets. Between 1851 and 1861 Australia produced one third of the world’s gold

Despite the romantic attraction the reality was a harsh life with filthy and dangerous conditions made all the worse by the administration.  The system of licences caused great trouble at all the goldfields. Miners had to pay the fee of 30 shillings each month, which was exorbitant, whether or not they had found gold. They had to renew the licence each month. They had to carry their licence at all times to avoid prosecution. The frequent licence hunts caused great resentment within the mining communities, especially as the police employed to enforce the licencing system were notoriously corrupt and behaved with excessive brutality. As resentment and tension grew, under the leadership of Peter Lalor, an Irish immigrant, a group of several hundred miners erected a stockade of logs at Eureka near Ballarat. They withdrew into the stockade and unfurled the Southern Cross flag to proclaim an oath to fight to defend their rights and liberties. This was meant to be symbolic rather than revolutionary and most miners left after a day but some 400 troops stormed those that remained and 22 miners were killed and the leaders arrested and taken for trail. However, the courts refused to convict them and a following Royal Commission remedied the miner’s grievances and allowed them political representation  and Peter Lalor was elected to the Victoria parliament.

With Police concentrating on licence hunts they had little time to fight other crime and  travelers,  particularly those heading towards Melbourne from the gold fields were liable to be ambushed by groups of outlaws called bushrangers.

The diggers had come from many nations but by far the largest national contingent other than British and Irish were the 40,000 Chinese who had made their way to the Australian goldfields. They were mostly under contract to businessmen and worked the goldfield until the debt for their passage was paid off. As the deposits dwindled there were moves to restrict the Chinese diggers as they worked untiringly and were able to sustain the viability of their claims longer than their Western counterparts. They would rework ground abandoned by Europeans, and continue to work a claim until the whole of the gold bearing earth had been cleaned. There were campaigns to oust the Chinese from the goldfields and the motivation was based on racism and fear of competition for the  dwindling amounts. Victorian Parliament imposed a tax of £10 a head on all Chinese entering the colony and a poll tax of £1 per annum levied on every Chinese person on the goldfields. Restrictions were eventually placed on Asians in general, to prevent an influx from other nearby nations: Indonesia, Malaysia, and the Philippines. And of course the native Aborigine was rarely permitted to own gold.

At the turn of the century the Australian gold fields were the most productive in the world and today the hold second place ironically to China who have raced to the head of the gold producers in the last decade. The richness of the gold fields brought large numbers genuine traders who supplied the tools, timber and transportation plus the usual hotchpotch of drinking dens, hotels and prostitutes.  New towns and cities sprung up and merchants of all types flourished and hundreds of companies were floated and a new wealthy bourgeoisie was created. They eventually wanted to distance themselves from the riffraff so more respectable areas were built, trams were required for transport in the towns and railway networks were needed to join them. By 1853 under pressure from the new wealthy inhabitants the British ceased the process of transporting convicts to Australia. Many large public works programmes were undertaken as prosperity increased. This dramatic improvement in wealth and facilities led to the formation Federation of the Commonwealth of Australia after the referendum of 1900.  A new Nation was born

Maurice Hall

Carlin Trend pit

The USA was the fourth  largest world producer of gold  in 2009 with the most prosperous mining region located in the state of Nevada. Millions of years ago, hot springs laden with flecks of gold boiled up through deep fractures in the earth’s crust. But the golden residue did not accumulate in rich veins, instead, it disseminated throughout the sedimentary rock laid down by an ancient ocean

The vast bulk of this production is from large mines where the deposits consist of microscopic particles principally hosted in this sedimentary (or sometimes volcanic) rock. Many of these deposits lie along a few well known geologic trends, and the two best known are the Carlin Trend, and the Eureka trend. Its tiny size also explains why the old timers never found these deposits as their principal means of exploration was the gold pan.

Carlin Trend’s largest mine is the Goldstrike Property. The two o clock siren indicates that it is time to leave the pits so that the daily explosions can begin in the mine.  Before the dust has time to settle, routine work resumes in the pits, 24 hours a day, 7 days a week.  The best way to achieve high productivity is to use the most advanced technology, and the bigger it is the better.  These six storey high shovels can load a truck with four shovel loads.  Each truck carries 190 tons of ore equalling about 107 kilos of gold but what differentiates Goldstrike from a conventional open pit is a computerised management system run from a tower located on the edge of the pits.

What we are trying to do here is to optimise the efficiency of all the equipment we have to run the mines.  All operations are computerised; each transportation or loading vehicle is fitted with a computer which communicates with the system in the tower.

Cranes and giant trucks extract gold from Goldstrike mine. Around 100 kilos of gold per truck

This screen shows us which shovels are available and unloading areas to which we can send the trucks, we can see which trucks are leaving the shovels and those which are leaving the unloading areas to return to the shovels.

To extract gold from such low-grade deposits, miners must crush tons and tons of rock, which is piled into mammoth heaps and irrigated with cyanide. The cyanide percolates through the heap, extracting the gold. In the early days of the invisible-gold rush, a ton of ore might contain a few tenths of an ounce of gold. Today that minuscule amount would be considered high grade. Nevada mines are now digging up a ton of rock to get back as little as 0.025 oz. of gold which would have been considered waste rock back in 1961.”

After this process, the purified ore is melted and cast into ingots with a purity exceeding 92%.  Carlin Trend has become the industrial mining centre of America and has enabled the country to become the second biggest producer of gold in the world.

Timothy S Green, author of The World of Gold: “The boom in gold mining in the USA has created thousands and thousands of jobs.  Somehow it has enabled Nevada to be reborn as a State.  There is a whole life surrounding this industry which didn’t exist when I started being interested in gold in the mid 60’s.  In North America, you will find Homestake mine plus one or two small producers.  In Canada this industry lived off state subsidies and in the North of the Country we really struggled to keep mining towns standing.  Today, this industry has been totally transformed, it is alive and dynamic.

At the age of 40, Abe Lee didn’t need to be told twice.  In 1859, he left his farm in Arkansas after hearing a rumour from miners working along the river and according to whom there was gold in Colorado.  In spring 1860, Lee finally found what he was looking for in the ravine of a mountain “It was full of gold and there were loads of different colours rolling in his pan. It was at that precise moment that he made the connection: I have all of California in this pan.  This was the name that was eventually given to the gulch, the Californian gulch.”

It took off like in 49′.  In the first year, the Californian ravine produced more than 2 million dollars worth of gold.  “This first rush was purely a rush towards gold sands.  A method which would today be known as a geochemical method was suitable enough to find gold.  It consisted of finding small quantities of gold using gravity by gently swirling the pan.”

The discovery at Leadville rounded up gold hunters from all over the world.  “Lots of people came from Eastern countries.  In spring 1860, 10000 people arrived trying to set themselves up directly in the Californian ravine.  The 8km ravine was rapidly split up into little individual concessions, most of which were no longer than 30m.”“Slovenians occupied the west of town, Hispanics were at Stringtown, the Swedes were on Chicken Hill and the Irish were on Sixth Street.”

Leadville 1860

Leadville is a small community of just over a square mile, perched some 3300m up in the Rocky Mountains of Colorado.  Following Abe Lee’s discovery, the thousands of miners that flocked to this remote camp soon realized that the area was also rich in other types of deposits.  Over the next thirty years, more than a million mine pits were dug from which gold, silver, zinc and the metal which gave the town its name in 1878, lead, were extracted. “It was a primitive and disorganised community.  I remember reading an article published in 1893 which said that Leadville was the most famous mining community the world has ever known. ““Leadville was famous for its games rooms and brothels and for every church or school there were 10 to 20 bars and brothels.”

One of the miners that set out to pursue his dreams in Leadville was none other than Thomas Walsh, an Irish immigrant who arrived in 1879 to look for gold.  For fifteen years, Walsh dug and when he wasn’t digging he took care of a bar in Leadville.  Before that he worked in one of the many metal refineries that breathed life into the region’s mining industry. In 1895 Thomas Walsh literally fell upon a gold mine.  “It was quite an extraordinary bit of luck that only happens once in your life because the place just above where this rich mass of gold deposits was located had previously been excavated fifteen times by miners who were convinced that they were going to find silver.  They committed the error of not sampling the minerals that were in range of their picks.  When he himself took samples and tried them he found that the ore had a very high concentration of gold”.

In 1879, silver was discovered in Leadville.  Hundreds of mines literally sprang up overnight.  However, during the 1880’s, silver progressively dropped in value as countries around the world moved on to a new standard, the gold standard.  The death of this once precious metal ended in total failure.  Lots of silver concessions were automatically abandoned.  In the months that followed, Walsh discretely purchased 50 deserted concessions scattered amongst the hills surrounding Leadville.  He carried out consolidation work and inspired by a small rocky mountain known as Raven, he decided to call his minefield Camp Bird Mine. He was however one of the exceptions.  If some found fortune in Leadville, most didn’t find anything or very little gold.  “Life in these mining communities was very, very difficult.  Everyone thought that with the next shovel full they would hit the jackpot, but sadly it happened very rarely.”

Contestoga wagon

“Most of them returned home on board Conestoga wagons which were typical of the time.  More often than not they painted little mottos by way of a coat of arms on the wagon’s canvas: “money or nothing”.  And when they returned home to the east they often said that they had been plucked by God”.

As the nineteenth century drew to a close, the chances of making a fortune through gold were dwindling.  The last opportunity for prospectors was in Alaska.  When gold was discovered in Klondike River in 1896, thousands of miners sailed there.  The ticket to travel there on a steamer, which had previously cost 50 dollars, rose to 1000 dollars.  But the boat was only part of the journey.  Prospectors  then had to follow a long route strewn with obstacles across one of the most hostile terrains in the world.

Canadian Mounties also worked to prevent people embarking on the adventure without at least a years worth of food.  A Major of the Mounties wrote at the time: “It’s hard to imagine such a scene of ruin and desolation, thousands of horses lay dead littered across the road, sometimes whole groups.  They were lying  their harnesses, their saddles, their loads which had fallen with them from the top of the rocks.”

But prospectors continued on their way unabated.  Because so much gold had been found in so many different areas they remained convinced that it was only a matter of time before the next big discovery.

“People used to wonder where the next rush would be.  California quickly reached saturation point but there were many other stories in the 1850’s and 60’s.  It was suddenly announced that there was gold in Seattle or elsewhere, absolutely everyone would rush  to these places and more often than not there was nothing to be found.”

The men who made the great gold rushes of the nineteenth century were strong, strapping solitary individuals with huge dreams.  They panned for gold that changed history in  flakes, grains and sometimes whole nuggets.  Every time an announcement was made that gold had been discovered from California to Australia via Alaska, the world rushed to filter rivers, but rivers are not the only hiding place for gold.  People soon realised that gold was also hiden in the surrounding hills.  Unfortunately, it takes more than just a shovel and pan to get to it.

Maurice hall

Gold mining operations soon went through an industrial revolution.  The gold rush in Australia resulted in the largest nugget ever being found, a 70kg block of gold.  At the end of Winter and beginning of Spring in 1876, whilst General George.A.Custer was preparing for his infamous meeting with Little Big Horn, brothers Fred and Moses Manuel began looking for gold in the Black Hills of South Dakota.

Born in Quebec, the Manuel brothers spent most of their lives surveying the West of the USA in the unlikely search for gold.  Like many before them, they had heard rumours that General Custer’s geologists had found gold in the Black Hills.  On the 9th April 1876, the two brothers discovered what they were looking for in a known area called Bobtail ravine.  Moses relates their discovery in his diary: “finally the snow began to melt on the hill, water drained from the filter through the pipe.  There, I saw quartz! I took hold of a pick to try and break off a block but it was very compact.  I still managed to break off a piece and returned to camp to crush it and wash it.  It was full of gold”

Homestake gold mine in 1877

In just a few months, Fred and Moses Manuel extracted five thousand dollars worth of gold, a small fortune at the time.  One year later, the two brothers sold their mine for 45000 dollars.  The deposit became one of the first properties owned by the Homestake Mining Company.  The creation of the Homestake mine signalled a revolution in gold mining operations.  In the centuries that followed, the solitary gold hunter equipped with just one pan and one shovel gradually gave way to larger companies using new technologies.  One of the most efficient methods but also the most destructive for the environment consisted of hydraulic mining operations.  It consists of sending water through an enormous hose nozzle and projecting it with extreme force against a rock to break off large pieces.  By literally sweeping away the quartz, gold appears.”

The water canons destroy millions of cubic metres of earth and rock on hillsides, using pressures which could mutilate or kill a man from 30 metres.  In less than a day, a clean sweep can be made of a riverbed which would take an army of prospectors armed with shovels and pans a month to sift through.  Old mining sites dating from the first gold rush came back to life.

Another aid came in 1889 for mining companies in the form of cyanide, a deadly poison for humans but a great help for industry.  “We realised that cyanide had the power to dissolve rock around gold.  It became very economic for industry to use large scale techniques and therefore recover small deposits of gold.” Gold cyanidation  is a metelurgical technique for extracting gold from low-grade ore by converting the gold to water soluble aurocyanide metallic complex ions. It is the most commonly used process for gold extraction. Due to the highly poisonous nature of cyanide, the process is highly controversial and its usage is now banned in a number of countries and territories.

These technological advances turned the mania at Homestake into the richest mine in US history.  For over a century it has continued to produce gold in regular quantities.  It represents 10% of all gold extracted from mines in America.  Fred and Moses Manuel discovered one of the largest reserves of gold scattered across Western America.  Many years later, geologists discovered a gold field of more than 1600 metres deep and 1600 metres long in the mountains of Nevada, but the gold remains invisible to the naked eye

Today the mining company Barrick uses innovative techniques to recover microscopic grains of gold just a few thousandths of a millimetre in size.  To see them, they need to be enlarged about 2000 times.

After the discovery of deposits in the Carlin region as well as the implementation of modern technologies, the US has become the second largest gold producer in the world.

The discovery of the largest gold reserves are located in one of the most profitable and outstanding geological environments on Earth.  Thieves know that the gold is capable of revealing their fingerprints using a new type of chemical analysis which is most notably capable of precisely indicating where the metal comes from.

No country has changed so dramatically as China over the last decade as it has grown to challenge the USA as the World’s number one economy.  As we entered the last decade the US dollar was strong and recognised world wide as the “reserve currency”. In China, many people  refer to the dollar as mei jin, or “American gold.” so if a Chinese person tells you that he owes you 100 American gold, don’t expect a big fortune, because he’s planning to pay you $100.  Competiveness in many diverse products meant that countries in the western world were struggling for margin and seeking new ways of cutting production costs.  We were to see production moved from Western to Eastern Europe from America to Mexico, to take advantage of lower overheads but it eventually dawned that the cost savings to enable survival could only be made in the Far East. We started to see product coming in from Taiwan and then mainland China where there was an unlimited and cheap work force.

China started the 21^st Century with $166 billion in foreign reserves, today it  has the worlds largest foreign reserves at $2400 billion and is almost 31% of the worlds total reserves and nearly double the total held by G7 members.  During this period the US dollar has been devalued by 30% and the majority of China’s reserves are in dollar assets so it is not in their interest to see a collapse of the dollar. During this period China’s gold reserves rose from 404 tonnes to 1054 tonnes.

Chinese are quite concerned that the large U.S. government deficits will eventually lead to inflation, which will erode the purchasing power of the dollar denominated financial assets.  If they keep printing money to buy bonds it will also  lead to inflation, and after a year or two the dollar will take a hard fall. Most of their foreign reserves are in US bonds and are very difficult to change. The Yuan’s exchange rates are fixed by the Chinese authorities, this lack of convertibility keeps the Yuan low against the Dollar and avoids speculation on the currency.  Labour costs remain very low and prices remain competitive.  Making the Yuan fully convertible would be very harmful to the Chinese economy as anything to undermine the Dollar’s value would destroy all their investments and the value of the Dollars they hold. In a way, the US economy and Chinese economy are inextricably linked.  The main problem Chinese authorities have is a stock of up to  2000 billion “risky” Dollars and the dilemma they have is how to get out of this situation.  The currencies and proportions of foreign currencies held in reserve are a secret but in can be assumed that after the dollar will come the Euro and Yen.

The Chinese need to diversify and according to Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy driving force. “Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets”. The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.  So this is the second dilemma, China does not want to raise the price of gold, as happened when India bought 200 tonnes from the IMF late last year, but still needs to acquire gold. We are already in a situation where the total world mining production is around 2500 tonnes and it is estimated that demand far exceeds this, hence you cannot turn these days without seeing an advert to buy “old gold” in an attempt to make up the deficit.

If China had bought the IMF gold on offer, the signal this would have sent to the markets could have led to a huge gold price surge and a consequent devaluation of the dollar and, given China’s enormous dollar holdings, this doesn’t make economic sense.  Far rather buy the gold under the table from its own producers and hide it from the world at large until such a time it may be economically expedient to announce it.

A salesclerk shows a gold bar with the sign of the Tiger in a Beijing department store

Since 2003, Beijing has been buying most of the gold excavated and refined locally. It was a perfect strategy. No one in the international market became the wiser and the bill was paid in yuans. Today, China has more than 1,050 tonnes in its official vaults, up 75% in six years. Its gold reserves are now the fifth-largest among national central banks after the US, Germany, France and Italy. This insurance helped mandarins in Beijing sleep easier at night.

The Chinese people who have the highest savings rates in the world, have followed their governments lead and have been buying gold as an insurance policy and Beijing has begun actively encouraging people to invest up to 5% of their income in gold and silver. The result is that in 2009 it looks certain that China overtook India as the world’s largest gold consumer. Given China’s explosive growth, which has to be bringing ever more and more of its enormous population into the urban middle classes with ever increasing purchasing power, this ongoing rise in purchases by the Chinese public is likely to continue to expand.  There are no figures for 2009 but according to the China Gold Association it consumed 395.6 tonnes in 2008 and an estimate is that the demand would reach 420 tonnes in 2009.

In the long term China craves economic and financial power and would take the place of America if it could but it needs to free itself from the vast amount dollar asset it holds and arguably convert a substantial amount of these to gold. It wants to exchange those dollars for gold at the most favorable prices, so in the short term it does not want a high gold price nor does it want a weakened dollar as it needs to get best exchange rate for the dollars it holds. Most of the world’s gold is in private hands and not easily accessible so China’s option in the short term is to chip away quietly like an investor buying up small numbers of shares in a company before a takeover.  China for the third year running has been the world’s largest producer of gold, rising by over 11% to reach almost 314 tonnes in 2009, most of which has been sold for internal use. Also, China has pushed for an alternative reserve currency to the dollar as did Russia before them and the neutral successor is gold.

China  is playing  a political game and wants a near term low gold price to acquire its precious metal and a strong dollar to convert to other assets at the best price; but in the long term there can be no doubt that China actions will lead to a sustained increase in the price of gold.

Maurice Hall

The painstaking work of small time prospectors

In the mountains of the Dominican Republic, Maria-Previda and her family excavate the gravel from a gold deposit, it is the most simple and traditional way of gold prospecting.  We wash the gravel and earth in a pan using a circular motion to remove fine sand and earth.  Gold deposits are heavier and therefore sink to the bottom.

But this ancestral method is painstaking and the results are uncertain. Here we collect gold deposits from the banks of the river.  In Brazil, nearly fifty tons of gold are collected each year by small time prospectors, we call them garimpeiros.

Timothy S Green, author of “The World of Gold” : “At least one million people alone try to survive by prospecting gold in a traditional way.  This remains a prosperous activity, around one hundred tons of gold or three million ounces, worth close to 140 million pounds are found each year in the world by small time prospectors.”

Today’s work has only brought Maria-Previda and her family around seven hundredths of an ounce of gold worth less than £20.  But in 1848 a gold deposit like this one found in Californian rivers, provoked an outbreak of gold fever, it was the largest migration in history and created the wealth for a Nation.

Why not read our some of our other highly interesting articles:

The Californian Gold Rush

Alchemy damages the Amazon Basin

Before they even enter a gold mine, travellers are surprised by the logistical ability of the countries in the Amazon region to transport everything that is needed for the miners, from food through to petrol. Extracting about two hundred and fifty tonnes (and probably more) gold per year as chips, fine grains or nuggets, transporting the precious metal and its ingredients, fuel and mercury all represents a highly profitable business whether using dugout canoes, quads or small stunt planes. Attempts to protect the Amazon require the involvement of the region’s countries to implement campaigns, to ban  illegal mining and the use of mercury, but are faced with the complete hypocrisy of these countries’ representatives irrespective of whether it is Brazil, France, Surinam or Venezuela.

Why criticise the business when these same country representatives are using every available means to extend it, by a laissez-faire attitude, by turning a blind eye or even by their active involvement. Not only is the situation in the Amazon rain forest not improving but it is worsening to the point where you have to wonder if even the countries are profiting from its destruction. Part of the problem stems from how the gold is pulled from the ore. Across Brazil, thousands of garimpieros, itinerant gold miners, remove ore by washing a rock face with a high-pressure stream of water. The ore is then broken down in a hammer crusher, and the gold-bearing ore is sluiced with mercury in a process known as amalgamation. The amalgam is filtered manually and then retorted to release the mercury from the gold. The mercury vapor that results is distilled and reused, although a small fraction remains bound to the gold, to be released by the gold dealers during processing. The Brazilian Gold Rush began in 1980 when gold was discovered in Serra Palada in Palá state. Most of the incoming population (at least 250,000) worked for a low wage in very crowded, highly competitive gold mines with very lax environmental practices. Up to 9000 tons of mercury, used in the mining process, has been washed into the region’s rivers, along with huge quantities of sediment. The miners have also polluted the rivers with oil, litter and human sewage. All around the vicinity of the mines, vegetation, animals and settlements have been destroyed.

The profits to be made from providing transport are often as great as those to be made from mining. The town of Maripasoula in French Guyana controls an area the size of Belgium and gains a large part of its revenues from the gold. However, in Brazil, the transporters do not care as they send their goods to the other side of the river Oyapock, on the Guyana side, and wait for their commissions. The same occurs with Surinam, where the gold money ends up in bank vaults or on casino tables. Why bother saying that the gold helps the local population when everyone from Caracas to Cayenne, from Rio to Paramaribo, knows perfectly well that it provides no local benefit and is removed to foreign countries?  The gold leaves whilst the mercury penetrates into the Amazon basin. The alchemy is damaging for the forest and is affecting the human population particularly those who eat mercury contaminated fish.

Includes exerts from the book J’Aurai de l’Or by Olivier Weber. See video clip  curse for gold

British gold is rare indeed. Unlike the vast mining industries in Nevada, China and South Africa, gold reserves in the UK are modest. Most mines have been alluvial where the precious metal has been sifted from rivers and silt rather than dug from rock. Gold has been mined in the UK since around 600 BC when the first mine was opened in Wales. One of the reasons the Romans invaded Britain was that they believed it to be rich in precious metals. More Roman gold artefacts have been found in Britain than anywhere else in Europe.

Wales

Gold has been mined in Dolaucothi Wales since prehistoric times. The pre-Christian Celtic chiefs wore fine gold torcs and armbands and became wealthy as a result of metal trading. The Romans later controlled some of the mines, developing large-scale mining operations. During the Roman occupation, British metalwork was widely circulated. Reaching their peak during the great expansion of the Celtic Church in the 8th century AD, Celtic goldsmiths produced work of unrivalled craftsmanship. Later, the Welsh princes became wealthy and powerful rulers due to rich supplies of metal ores.

The Acts of Union passed in 1536 and 1542 made mining rights the property of the English Crown and royalties of 4% are still payable to the Crown on any gold mined in Wales. Welsh gold, which is mined by hand, is found in an area stretching from Barmouth, past Dolgellau and up towards Snowdonia. Welsh gold-bearing rock lies in seams, like coal, and has been known to yield up to thirty ounces per tonne.  Gwynfynydd Gold Mine in Dolgellau opened in the 1860s and was one of the richest gold mines in Britain with a recorded output since 1884 of more than 2,000 ounces of fine gold. Gold was first worked on a serious scale at. In 1862 a small scale British gold rush was triggered by the Clogau mine, which excavated more than 165,031 tons of ore and was a key producer of gold on a serious scale

Welsh gold due to its rarity is very expensive and has a distinctive rose colour.  The Clogau and Gwynfynydd mines are the only mines to have recently produced significant quantities of gold, and it is from these two mines that gold for the Royal wedding rings, traditionally made of Welsh gold, has been obtained. In is rumoured that the queen obtain a kilogram of welsh gold many years ago to ensure sufficient remained for more royal rings

Scotland

Scottish Highlands are famous for many things: ancient mountains, sparkling lochs, whisky and wildlife. But now a new and highly lucrative attraction has been found in the Highlands - gold.

An Australian-funded mining company has made several large finds of gold, potentially worth hundreds of millions of pounds, around the small village of Tyndrum.

The company, Scotgold, already owns a small mine near Tyndrum known as Cononish. First drilled 20 years ago, Cononish has never been commercially worked, until now where it is estimated that 4.5 tonnes of gold lie buried worth £100m..

The local community trust and tourism officials are discussing plans for a gold mine visitors centre in the village, gold panning “experiences” and jewellery boutiques selling rings, brooches and necklaces of “Tyndrum gold” to passing tourists at premium prices.

Chris Sangster, the director and CEO of Scotgold, said Cononish is expected to start producing 200kg of gold a year at the mine site when full-scale mining begins in 2011 – enough to produce 30,000 wedding rings a year – and another 500kg each year by sending rocks for processing elsewhere. Cononish will also produce roughly 17 tonnes of silver.

But Sangster said Cononish may only be the start of a major gold mining operation in the area. The company has a licence to explore a 2,200 sq km area of the southern Highlands for gold and it now believes there could be up to five times as much gold in the Tyndrum area.

The one-kilometre long shaft at Cononish has remained dormant until now because of the technical difficulty and cost of extracting the particles of gold from the quartz rock, which traps it. For every 10g of gold – roughly the weight of one wedding ring – about a tonne of rock will need to be crushed.

Most Tyndrum gold will be sold on the open market. The mine’s commercial value has been transformed by the sharp surge in its price during the recession.

Northern Ireland

The UK’s largest gold mine is in County Tyrone Northern Ireland, where 14 tonnes have been discovered in shallow deposits beneath a peat bog at Cavanacaw, in the same Dalradian rock strata that runs across the northern UK to the mine at Cononish in the Scottish Highlands.

In January 2007, after modern prospecting techniques discovered recoverable gold at Cavanacaw near Omagh in Co Tyrone, the first modern gold mine came into production. “This is Ireland’s first for two millennia”, announced Galantas, the Canadian company who owns and operates it.

It announced that Galantas expected to produce 30,000 ounces of gold a year – which alone would net close to 15 million pounds. Deposits were claimed to hold 14 tonnes of Irish gold. While most was to be sold as gold concentrate, a small part of what the company billed as “rare Irish gold” was to be used to make a range of branded 18-carat jewellery – Galantas Irish gold jewellery.

In addition to the Omagh gold mine, there are at least three other projects that are being explored.

Maurice Hall

John Augustus Sutter C. 1835

In 1848, for the first time in history, an accidental discovery in California gave everyone and anyone the chance to get rich thanks to gold. It all started in 1839 with John Sutter, an ambitious immigrant from the village of Kandern in Germany.

Sutter settled in California and decided to create an agricultural empire on the fertile hills around the Sacramento valley. It was here that he built a fort in order to protect his rapidly growing assets. Nearly ten years later, he owned 1,200 head of cattle and employed over 100 people.

He also had plans to build a flour mill in order to supply the needs of the people who came to settle in the west. Sutter needed wood to do this.

James Marshall arrived at Sutter’s Fort in 1845, at the age of thirty-four, and was immediately hired as a handyman by Captain Sutter. Anxious to get back to farming, Marshall bought a ranch on Butte Creek but continued to work for Sutter.
Marshall fought in the Mexican War, serving in Captain John Frémont’s California Volunteers for one year. When he returned to Sutter’s Fort in 1847, he was dismayed to find that all his livestock had either strayed off or been stolen. He had no choice but to go back to work for Sutter.  Sutter contracted him to build a saw mill and Marshall found a suitable location in the Nevada foothills some 40 miles from Sutter’s fort near an Indian village called Cullumah (Coloma)

The workers had to dig a big trench to bring water to the saw mill and the deepest part of the trench, called a race, was at the level of the land’s sub-strata. It was here on the morning of January 24^th 1948 that James Marshall was making his routine inspection when he made a discovery that would change the course of Californian and American history.

The flowing water had carried away sand and dirt and lighter minerals, but a heavier metal was left behind to accumulate in the deepening ditch. Marshall hesitated twice before taking the trouble to bend down and pick it up. “I sat down and started some serious thinking, my heart was beating strongly, I was certain it was gold. The piece had the shape of a small pea”.

Marshall ran some crude test to determine the authenticity before returning to show Sutter who would later write: “Mr. Marshall started by showing me this metal. In reality, some small fragments and pieces, some of which could be worth a few dollars He told me that he had told the workers at the saw mill that it was possible that it was gold.”

Sutter decided to keep the find secret until one of his workers went to town to have a drink without any money on him. Once there, the worker searched his pockets and brought out a gold nugget that he had found in a stream; he slapped it down on the counter. ”Here’s some money, it’s gold” he said. The transaction took place in the general store owned by a Mormon called Sam Brannan who knew a bit about supply and demand at the frontier.

Sam Brannan saw an opportunity and  went to San Francisco and bought everything that he could get his hands on to supplies the miners would need over the following months. Then Brannan did everything to ensure that crowds of miners were attracted. He wandered around the streets of San Francisco announcing the new discovery: “Gold in an American river! Gold in an American river! ”

When the news reached the state of Oregon, two thirds of working men packed their bags and headed for California. They claimed to be gold prospectors. Finding the metal became a new trade. A Spanish official at Monterey commented: “farmers have left their ploughs, lawyers their cases, doctors their tablets, priests their flocks and everyone is now digging for gold”.

The news spread even faster by sea, the Chinese knew before the New Yorkers. “The news took so much time to reach the east of the country that these people were known as the 49ers, from 1849, instead of the 48ers.”

Forty Niners

In 1852, the population of California had more than doubled as 250,000 people arrived. Virtually the whole world had participated in the gold rush. You can read in the registers that people came from the Indian sub-continent and from every country in Europe but also from Australia, South America and, of course, the United States.

There were three possible routes to the gold bearing lands for the approximately 80,000 Americans who left the east coast. By train the journey could take up to six months. By ship, going around South America, it could also take six months. Or there was the combined ship and land route, crossing the panama isthmus; the shortest route and also the most expensive.

These three solutions all produced great suffering; there was hunger and terrible diseases plus many other dangers. We should not forget the bad country and the fear, worries not only for the family left behind but also about what you would find to live on in California.

When the ships moored in San Francisco, the sailors, tempted by the chance of earning twenty years of salary in just two months as prospectors, joined the passengers and accompanied them in this rush to the gold fields. The SS California arrived in April 1849 with a crew of 36. After only a few days, the only people left on board were the captain and a mechanic. Another ship’s captain went so far as to hang two deserters from the yardarm until inches from death as a warning, but to no avail. The gold fever had made everyone mad.

It was the chance of a lifetime for many people who had known nothing but poverty and had suddenly heard of this extraordinary news.

Before the find at Sutter’s saw mill, any gold that had been found immediately became the property of kings or conquerors. The Californian gold rush introduced a new facet or, to put it simply, allowed common people to search for gold and keep whatever they found for themselves.

All of a sudden, there were independent miners who managed on their own in the cold and rain, who broke their backs as they extracted and searched the gold-bearing gravel. It’s completely unique in the world’s history.

The 49ers worked a rocky region that was rich in gold which was referred to as the mother-lode. Over the course of millions of years, the gold had been carried by streams until it reached the river; this is why we talk about gold-bearing sand or gravel.

However, even though California was inundated with gold, money was scarce, the nearest place to obtain money was Philadelphia on the other side of the country. The Californians therefore has to improvise and used the foreign coins that were already present.

The Spanish silver dollar, called a piece of eight, was the most common; they could to be cut into eight smaller pieces with each of them worth 12.5 cents. e.g. six bits would buy you a haircut and a shave.

However, David Broderick, recently arrived from New York, started buying the gold dust which he melted into gold coin that  allowed the Californians to develop a reserve of money that became indispensable. It was only later that it was discovered that the so-called 5 and 10 dollar gold coins were possibly not made entirely of gold, thus Broderick to make a good profit from his business.

Broderick was not the only trader to make his fortune without ever touching a rock. At the height of the rush, Sam Brannan, who supplied all the miners, became the country’s richest man. Sam Brannan is known as the first millionaire: a million dollars in gold dust without ever having swung a pick.

However, only a handful of the 49ers got rich from the adventure. In 1849, California produced 10 million dollars of gold, when split between an average of 40,000 miners, this is about 250 dollars each. But people kept on coming by hundreds and thousands, attracted by the extravagant stories told about the rush.

Production reached 77 tonnes in 1851. Most of it left for the east of the country – an annual cargo which had a value that was greater that the whole of the federal budget. Production reached 93 tonnes in 1853 but the easy gold that could be panned in the rivers and streams had now virtually run out, the bell had tolled for the end of the Californian gold rush. The adventure only lasted for four short years but was fundamental for the future development of the American west.

It had had a scale, it was far greater than any other event of its type in history of America, not only in terms of the quantity of gold extracted but also for what it did for America. Those miners who realised that chasing gold was a pipe dream went back to doing what they did best and established productive  farms in California’s fertile land.

As with all the history of the American west, development has a cost. The massive immigration upset an economic and social system that had been stable for many years. The different routes to the gold had devastating effects on the native Indian populations, it was the beginning of the end of their way of life.

Over a five year period, the Californian Indian population fell from 150,000 to less than 30,000 people. Most died of hunger or disease, others were killed by miners.

Those who started the rush had similar fates: James Marshall, the man who found the first nugget in the river, spent the rest of his life a drunkard as he searched in vain for another seam

John Sutter’s prosperous agricultural empire disappeared. His workers went out into the gold fields and abandoned the land to squatters. Sutter refers to his broken dreams in his memoires: “This sudden gold find destroyed all my best plans, if only I had succeeded a few years before gold was found I would have been the richest person on the Pacific coast. But instead of being rich, I am ruined.”

Some 49ers were unable to get over their gold fever. In the next half century, there were several other gold rushes around the world. Each of them triggered a migration of prospectors stimulated by the simple rumour of the next great find.

In the gold fever, a ruined 49er found gold under the ground. The main gold seam that supplied the great Californian gold rush, the mother-lode as it is called, is in reality a vein of quartz containing gold that extends over 160 km across the mountains of northern California.

Edward Hargreaves

In 1850, Edward Hargreaves, aged 34, returned home to Australia after having spent two years there searching for gold in California. Even though he was now penniless, Hargreaves realised that the geology of the Californian region where he had been was similar to that in New South Wales in Australia. He forecast to one of his fellow travellers that he would find gold within a week. “There is as much gold in the country I am returning to as there is in California. And her gracious majesty the queen, blessed by God, will name me as one of its gold high-commissioners.”

Hargreaves was not far from the truth. In 1851, barely six weeks after his return, accompanied by a guide who’s service he had rented, discovered gold in his pan. In six months, some 50,000 prospectors, most of them ex-Californian dreamers, had descended on Australia.

A few months later, the news of the find reached England along with the first cargo of Australian gold.
Thomas Harvernot, the steamship’s captain, wrote: “Our colony is totally paralysed. Every man or boy capable of holding a shovel has already left or is leaving to dig. The price of almost every foodstuff has increased by as much as two hundred percent.”

Australia, which had been detested as a penal colony for  British convicts, suddenly became the promised land for anyone who had a dream and a shovel. 372,000 immigrants settled there in1852. They were simply ordinary people who said to themselves “it’s a gold rush, let’s get up, let’s go there and see if we can get rich.”

But as was the case in California, the Australian gold rush did not last long. Over four years, all the gold hidden on the surface and in the water courses was cornered. Edward Hargreaves boast became a reality. Queen Victoria named him High-Commissioner of the Lands. Apart from a payment of 10,000 pounds sterling, she also gave him a job for life. Even though he never found any more gold, Hargreaves continued to be venerated as the man who had the gift of changing everything he touched into gold.

The Californian and Australian gold rushes made common people into part-time prospectors. I suppose that it had almost become a semi-profession by the second half of the 19^th century. You were a prospector, your ear was always cocked to hear the latest gossip and discussions that circulate in bars.

With California and Australia now out of play, the ultimate advice was “go to the Rockies”. Watch this space…

Maurice Hall