The GraveYard Shift

[JD400]

B.** Fools For Gold** (Book Of the Week)

Fools for gold
Matthew Hart examines how the yellow metal makes men mental

by Greg Klein



Obviously inspired by the “10-year bull run that set off the world gold rush,” this book might appear to be a period piece, a dated artefact of its time, even though it was published earlier this month. Gold now hangs near a three-year low, players like Peter Munk have been put out to pasture and gold bugs talk as if they’ve been cheated out of their birth right. The strongest reassurance heard from gold explorers, miners and investors is the exhausted refrain, “I think we’re near bottom.”
Matthew Hart examines how the yellow metal makes men mental

But Matthew Hart’s Gold: The Race for the World’s Most Seductive Metal puts a much broader perspective on this unique commodity and its ability to drive individuals as well as social forces. Exactly why people allow gold to accomplish that isn’t answered. But Hart gives plenty of examples showing how gold performs its peculiar magic.

It often comes down to emotions. “Fear drove the price,” Hart writes. “Banks tottered and currencies shrank, and in the three years after the collapse of Lehman Brothers the gold price gained $1,000. Spurred by the rising price, explorers ransack the planet in the greatest gold rush ever.”

But hardly the first. It was “a revolutionary act in Lydia in Asia Minor in 635 BC—the invention of gold money” that transformed this ancient luxury into a necessity. By the 14th century, however, countries “were famished for gold.” That changed two centuries later with the almost indescribably bloody sack of the Inca empire.

There, the splendour of gold and silver was ubiquitous. Hart speculates on the emperor Atahualpa’s thoughts as he and his army approach a small band of intruders.

The Spaniards, he perceived, had an appetite for gold. He could not have fully understood it, because the Incas had no money. They valued gold for the way it could be worked. It had its place in the adornment of nobles and in sacred rites, but even in those functions gold was not the top material. Jade and some kinds of feathers outranked it. Yet gold was what the white soldiers wanted. The Inca decided he would offer them all they could possibly want, believing that would make them go away.

The Inca rode on a silver litter carried by 80 nobles in blue robes. His throne was solid gold. Platoons of men wearing gold and silver ornaments marched after him. Atahualpa wore a crown and an emerald collar, his hair intertwined with gold. His litter was thick with parrot feathers and flashed with gold and silver decoration.
—Matthew Hart

They didn’t. Using cannon and swords, the Spanish cut through the natives, slaughtering anywhere from 3,000 to 6,000 that day. After seizing control of the entire empire they “had nine forges melting about 600 pounds of gold a day into ingots. They stamped the newly smelted gold with the Spanish royal mark and added it to the growing hoard. If gold had retained any of its sacred status, the Spaniards extinguished it at Cajamarca. The artistic output of a thousand years vanished into the furnaces. It must be one of the most potent images in history—the transformation of a culture into cash.”

The first great gold rush of the modern age came in 1848. Within four years other discoveries were helping produce “40 times the volume at the end of Spain’s century of plunder and 200 times the volume from before it.”

Gold might attract larcenous conquerors and ambitious adventurers, but it draws the desperate too. In present-day South Africa, gold theft is such big business that police and government are said to be complicit. Yet the illegal miners lead dangerously wretched lives, often occupying vacant tunnels in working mines.

Because South Africa’s leading mines have elaborate security, invaders can’t move in and out easily. Once they penetrate a mine, they may stay down for months. Deprived of sunlight, their skin turns grey. The wives and prostitutes who live with them turn grey. In South Africa they call them ghost miners. They inhabit an underground metropolis that in some goldfields can extend for 40 miles, a suffocating labyrinth in which the only glitter is the dream of gold.

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.

http://resourceclips.com/2013/12/23/fools-for-gold/2/