Saturday 22nd October 2016

Resource Clips

Fools for gold

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Gold has other methods of seduction too. John Sealy Livermore began exploring what’s now the Carlin Trend in 1949, fascinated by the prospect of a new kind of deposit that might contain tiny, invisible grains of gold widely disseminated in soft limestone. More than 30 years later he told the New Yorker:

I ask myself why I’m prospecting. It’s not to be rich. It’s nice to have the money, but, honestly, that’s not why I do this. I don’t know. It’s something about—about the finding. If I could just find that gold, then everything would be okay. It’s this endless puzzle, and sometimes—I don’t know—it seems more important than it really is.

To a geologist, the features of a landscape are like jumbled parts of speech, to be construed into the sentences of geologic time. It is all just heaped-up rocks and sand until it is fitted into a comprehensive theory, the story of what put it there.—Matthew Hart

As for Peter Munk, “the greatest gold miner of the modern age,” a succession of failures turned him to his calling. “We needed to find a business before it became popular, a business that was so unfashionable no one wanted to get into it,” he told Hart. The answer hit him like a revelation—“‘Gold, sir,’ Munk declared. ‘Gold!’”

A new scheme for rating gold mine stocks (in which the upside of possible price rises was incorporated into the structure of valuing the stocks) became the industry standard. In less than 10 years the stock market value of North American gold miners increased 150 times, from $200 million to almost $30 billion, as millions of ounces of gold poured out of north-central Nevada.

Of course future gold prices depend on any number of factors, from historic events to pure emotion. Hart recounts the adoption of the gold standard, asking whether it “bent gold to our will or bent us to gold’s… a subject that even now, with the gold standard dead in a ditch for more than 40 years, still excites rancour.” He describes events surrounding the 1933 U.S. ban on privately owned gold, the 1944 Bretton Woods conference that tied international currencies to the U.S. dollar and the “Nixon shock” that suddenly demolished the gold standard. Price fixing and market manipulation notwithstanding, gold reached its phenomenal run, driving up mining stocks, exploration activity and mine acquisitions.

Even before the banking crisis two factors sent gold soaring, according to Hart. “One was the appearance of a class of new gold investments that made it easier to buy bullion. The other factor was the rapid opening of a market. It was a market that wanted and bought everything—BMWs, French wine, iPods, hamburgers, diamonds, an aircraft carrier, and inevitably, gold. It was the dream market. It was China.”

The gold standard was throttled to death on live TV on a Sunday night in Washington. Its crime: hamstringing the government into whose care it had been placed, that of the United States. In some ways the situation that led to the system’s demise was a replay of the 1890s—a lousy American balance of payments and the sucking sound of large amounts of bullion leaving the Treasury.—Matthew Hart

China not only wanted the world’s gold, but its own too. Vast reserves went unexploited due to a lack of technical ability beyond the teeming hordes of artisanal miners toiling in thousands of small but dangerous mines. China enticed Western expertise with the promise of opportunity. But as Westerners developed Chinese resources only to lose title, a ploy became apparent. “China demonstrated an extractive genius far ahead of its abilities in the field: a knack for mining Westerners.”

Although no longer attached to money, gold retains its unique status. Every three years more gold is mined than “our ancestors mined in 6,000 years,” Hart states. “We trade it like men possessed. Every quarter an amount of gold equal to twice the amount ever mined flies back and forth in London in a storm of trades. And that’s just the metal. Trading alongside it is an even thicker blizzard of derivatives. Yet even though the gold trade has accelerated to the hyper-speed of modern commerce, its folkways are as secretive as ever, less like a business than a court intrigue.”

Asking why gold is worth anything at all, Hart offers a few suggestions without arriving at an answer. He even quotes from The Golden Constant, a book by economist Roy Jastram. Possibly straining to explain the unexplainable, Jastram expresses a “nagging feeling that something deeper than conscious thought, not an instinct but perhaps a race-memory” explains gold’s allure.

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