Gold Rush, The Rise of Gold Investing
When the World Gold Council formed the SPDR Gold Trust in 2004, it gave investors access to gold without the cost and hassle of taking physical delivery. The popularity of such funds has helped drive unprecedented gains for the precious metal, and some people, including analysts at Goldman Sachs Group Inc., say gold can go higher. The record prices are driving social change around the world. Gold's rise since September 2007 resembles moves reached before the three big crashes of the last decade: the Nasdaq tech-stock bubble of 2000, the U.S. housing market bubble of 2005-2006, and the crude oil-price spike of 2008, according to Bloomberg data.
Note: Country holdings as of Dec. 15, 2010. Source: International Monetary Fund
Globally the 10 biggest such funds now hold a combined 2,113 metric tons of gold, more than the official reserves accumulated over centuries by every country in the world save four: the U.S., Germany, Italy and France.
SPDR Gold Trust now holds 1,298 metric tons of gold valued at about $57 billion, more than the Swiss central bank. Investors include the University of Notre Dame, the Texas teachers' pension fund and a who's who of hedge fund titans such as John Paulson's Paulson & Co., and George Soros's Soros Fund Management.
Read more about the rise of gold as an investment
From Mine to Market
Here's how gold from the Nigerian state Zamfara reaches the worldwide market.
- Ore is collected from mines near Sunke.
- The ore is bagged and brought by motorcycle to villages like Dareta or Sunke, where villagers grind the ore and then wash the mix over a ridged board. Villagers who do the processing themselves then use mercury to extract the gold.
- The result is then sold to gold traders in Gusau, the capital of Zamfara, where remaining dirt and impurities are separated.
- The gold is driven to the Benin border and turned over to dealers from the port city of Cotonou.
- The dealers then sell this gold to wholesalers from Europe and the Middle East, who in turn introduce that gold to the worldwide market.
Read more about how artisanally mined gold from Nigeria reaches the world market
Source: Bloomberg Reporting
The Toxins of Mining
Toxic materials are used in both industrial and small-scale mining to extract gold from ore and rock.
Gold mines typically do not contain lead, but ore from lead-filled mines in northern Nigeria created a lead-poisoning crisis in villages there, where at least 284 children died. According to the CDC, exposure to lead can cause learning disabilities, behavioral problems, and mental retardation at low levels. Increased exposure can cause seizures and comas, if not death.
Sodium cyanide is used in industrial mining to leech gold out of mined rocks. The CDC says short-term effects of cyanide exposure can include rapid breathing, restlessness, dizziness, weakness, headache, rapid heart rate, nausea and vomiting. Long-term exposure can result in convulsions, low blood pressure, slow heart rate, loss of consciousness, lung injury, and respiratory failure leading to death.
In small-scale mining, mercury is used to separate gold from crushed rock. Short-term exposure to high levels of mercury vapors may cause respiratory failure, nausea, vomiting, diarrhea, increases in blood pressure or heart rate, skin rashes, eye irritation, and kidney damage.
Small-Scale Mining, Large-Scale Pollution
When small scale miners in northern Nigeria ground ore from local gold mines filled with lead, they spewed lead dust across the ground where their children played and poultry grazed.
A typical 50kg bag of ore from Zamfara, Nigeria, yields 0 to 3 grams of gold. That amounts to a gold coin no larger than half of a U.S. dime.
The lead content of rock from some mines in Nigeria is so large that for every dime-sized amount of gold collected, a softball sized amount of lead must also removed.
Earth tested in one village in Nigeria had lead levels of 50,000 parts per million or ppm. The EPA limit for areas around playgrounds is 400 ppm.
Source: Bloomberg Calculations
Read more about the effect lead from gold mining is having on villages in Nigeria
Mining in Tanzania
The hunger for gold spurred worldwide mine production to a seven-year high in the first half of 2010, according to GFMS Ltd., a London-based researcher. Companies are pushing to extract higher-cost, low-grade ore that would otherwise not make economic sense, GFMS said in a September report.
Barrick Gold Corp's 16 square mile North Mara Mine's three open pits' combined size
is larger than Central Park.
The mine had 2.9 million ounces of proven and probable reserves at the start of 2010. That's enough gold to make a solid block the size of Daimler AG's Smart car.
Source: Bloomberg Calculations
Read more about the effort companies are putting into gold mining in Tanzania
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