Gold

Posted by Darin W. Wagner - West Timmins Mining Inc.

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Since its first discovery many millennia ago, gold – rare, lustrous and beautiful – has symbolized wealth, power and quality. Fashioned into jewelry, it has adorned royalty and society’s upper crust. Stamped into coins, it has been used around the world as currency. It serves as a buffer against unstable geopolitical times. It is finding increasing applications in the electronic, dental and medical realms. And its ability to preserve its worth over time has made gold a valued investment, whether in the form of bullion, coins, futures or shares in gold-mining companies.
It is no coincidence that in competitions such as the Olympic Games, first-place winners are given gold medals. Simply put, gold is synonymous with the best.

This takes you on a brief journey through the history of this coveted precious metal, its many uses and its appeal as an investment. You’ll also learn some little-known facts about this fascinating yellow metal.

GOLD BASICS

Gold’s many unique qualities make its allure easy to explain. First, it’s rare. It is also the most malleable (that is, able to be hammered into very thin sheets) and ductile (able to be drawn into a fine wire) of all metals. It is so malleable that a goldsmith can hammer one ounce (28 grams) of gold into a thin translucent wafer covering more than 100 square feet (9.29 square metres) only five millionths of an inch thick. A lump of pure gold the size of a matchbox can be flattened into a sheet the size of a tennis court. A single ounce can be stretched into a wire 50 miles (80.5 kilometres) long.
For thousands of years, this metal’s colour and lustre, along with its resistance to oxidation or tarnishing, has made it valuable for ornamentation of all kinds.

It has been designed into the world’s most coveted and exquisite jewelry – fit for royalty. Long before Cleopatra commissioned her lavish gold jewelry, people the world over adorned themselves with the shimmering metal and continue to embrace gold’s cachet and aesthetic qualities to this day.

Gold’s uses extend far beyond ornate jewelry or fashion adornments. It has an abundance of scientific uses.

Gold is a catalyst – that is, something that accelerates a chemical reaction without itself being involved. It has played this role in myriad chemical reactions. To see some of these, click HERE.

Gold plays an important role in the electronics industry. Cell phones are likely to contain gold, as are the circuit-boards of computers. Gold is held in high esteem by electronics makers because it is indestructible, highly resistant to corrosion, easy to work with, and an effective electrical conductor.

Gold has many health uses too, from dental-restoration applications to use in wires for pacemakers and gold-plated stents used to treat heart disease. Doctors like gold-plated stents because they are highly visible in an X-Ray.

Because gold is highly resistant to bacterial colonization, it is the material of choice for implants that are at risk of infection, such as those for the inner ear. Gold is considered a very valuable metal in microsurgery of the ear.

PRICING

The usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.

The dollar price of gold has gained more than 50per cent since it reached a 20-year low in August 1999. The US dollar’s strength from about 1980 to 2000 explains why the gold price didn’t perform well during those years. Furthermore, in that period, central bankers successfully fought inflation, diminishing the metal’s role as a hedge against rising prices. Gold price performance in a range of currencies and over a variety of periods can be found on the prices page in research and statistics. For more on gold pricing, go HERE.

Gold – Supply

Global gold production peaked in 1999 at just over 2,600 tonnes, having risen steadily from a 1980 base of about 1300 tonnes. In 2002, global gold production was running at just under 2,600 tonnes per annum, It is considered that lack of exploration expenditure in the 1990s, coupled with the inherent delays between discovery and production, mean the gold supply will remain inelastic and is likely to reduce slowly over the coming few years.

The geographical breakdown of major global producers (in tonnes) is as follows :

Gold – Demand

Gold’s demand runs at about 3800 tonnes per year – notably faster than it is being mined (2,600 tonnes).

Gold demand is much harder to evaluate than production, because while production is concentrated in a relatively small number of mines, demand is distributed throughout the world. This makes it difficult to build a statistically accurate picture. Some of the difficulties have to do with the fact many gold buyers are deliberately secretive.

It is safe to say the major demand comes from jewelry manufacture [2,727 tonnes in 2002 [source]]. The other main demand comes from retail investment – i.e. from gold’s use as a private reserve asset [340 tonnes in 2002]. The amount used in industry, e.g. in electronics and dental surgery, amounts to a further 340 tonnes.

The following table summarizes six years of global gold demand [tonnes] by usage:

The geographical breakdown of demand illustrates its jewelry-based nature. Because of its importance in Indian marriage ceremonies, India leads the table. The USA is second because of the broad affordability of gold jewelry for a large section of the world’s richest society.

Geographical breakdown of the world’s gold consumers:

HISTORY OF GOLD

Archaeological digs suggest its use began in the Middle East, the cradle of civilization. The oldest pieces of gold Egyptian jewelry were found in the tombs of Sumerian queens in the third millennium BC. Modern archaeologists discovered the tomb of King Tutankhamen undisturbed, boasting the largest collection of gold and jewelry in the world.

It is believed the first use of gold as money in approximately 560 B.C. was in the Kingdom of Lydia (western Turkey).

In the Middle Ages, alchemists tried to use their magic to try to fashion gold from other metals, inspired by the belief that gold held the secret to immortality.

Indian goldsmiths in the Americas had mastered most of the techniques of their European contemporaries before the Spanish arrived. The conquerors melted down most of the gold they took from the indigenous peoples of this region and most of the remaining examples have come from modern excavations of grave sites.

In 1792, the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation’s currency – with gold valued at $19.30 per troy ounce. This remained unchanged until 1834, when the price of gold was raised to the $20.67 level that held for the next 100 years. Then in 1934, President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce to boost commodity prices (especially farm products) and create more employment for the millions suffering the devastation of the Great Depression.

The rise of a gold standard, meant to stabilize the global economy, required countries to limit their issued currency to the amount of gold they held in reserve. Great Britain was the first to adopt the gold standard in 1821, followed, in the 1870s, by the rest of Europe. The system remained in effect until the end of World War 1. After that, the U.S. was the only country to honour the gold standard. After the war, other countries were allowed to keep reserves of major currencies instead of gold. The Depression marked the end of the U.S. export of gold in the 1930s. By mid 20th century, the U.S. dollar had replaced gold in international trade.

During the U.S. frontier days, news of gold discoveries spurred on thousands of new settlers, many risking their lives to find the yellow metal. Gold rushes occurred in many of the Western States, the most famous in California at Sutter’s Mill in 1848. There were also gold rushes in Australia in 1851, South Africa in 1884 and in Canada in 1897. A worldwide feeding frenzy for gold propelled its price to an all-time high of $850 per ounce on January 21, 1980.

For more in the history of gold, visit:

http://www.nwtmintbullion.com/gold_history.php
http://www.responsiblegold.org/
http://www.gold.org/value/reserve_asset/history/T_chron.html

WHY INVEST IN GOLD?

Portfolios that contain gold are generally better able to cope with market uncertainties than those without it.

Adding gold to a portfolio introduces an entirely different class of asset. Gold is unusual because it is both a commodity and a monetary asset. It adds diversity to a portfolio because its performance tends to move independently of other investments and key economic indicators.

Recent independent studies have shown that traditional portfolio diversifiers, such as bonds and alternative assets, often fail during times of market instability. Even a small allocation of gold has been proven to significantly improve the consistency of portfolio performance during both stable and unstable financial periods.

Gold improves the stability and predictability of returns. It is not correlated with other assets because the gold price is not driven by the same factors that drive the performance of other assets. For information and statistics on the price of gold, link to: www.gold.org/value/stats/statistics/prices/index.html

Gold’s appeal as an investment lies in how easily it can be traded. Access to the gold market comes through a variety of means, including:

Investment in physical gold, usually as gold coins or small bars, or, for larger quantities, by purchases at banks or gold dealers

  • Gold futures and options
  • Gold mining equities, often packaged in gold-oriented mutual funds
  • Exchange-Traded Funds (ETFs) and similar products, offering potential investors cost-efficient, easy access to gold through stock exchanges
  • Gold Certificates – owned instead of storing the actual physical gold

Gold is also commonly considered a safe haven in times of political, economic or social instability, as well as a hedge against inflation. It can provide a sort of insurance against volatility in the value of traditional asset classes such as stocks, bonds and real estate. In fact, statistical analysis shows that over the past 30 years, the correlation between gold and the Dow Jones Industrial Average actually declined during the worst 30 months of the equity index – an indication that investors in gold had the protection they sought when they needed it the most.It can provide a sort of insurance against volatility in the value of traditional asset classes such as stocks, bonds and real estate.

Some recent examples of the refuge afforded by gold include:

  • In 1997/98 the Government of South Korea asked its citizens to allow it to buy their gold holdings in exchange for local currency debt instruments. The Government raised over five million ounces of gold in this way which it sold for hard currency. As a result it was able to service its external debt.
  • Fearful of the implications of the forecast electronic and communications disaster surrounding Y2K, there was a flight to gold in 1999.
  • The first quarter of 2002 saw a flight to gold by Japanese investors as they awaited the withdrawal of government guarantees on bank deposits.