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Gold Has Some Scary Issues
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(October 31, 2005) The old saying is that there are two things that you never want to see being made: sausage and legislation. A series of articles this past week in the New York Times may have you adding the mining of gold to that list, and just at a time when you may need gold the most.
This was a great week to read the New York Times, and not for the latest on Harriet, Scooter, and Wilma, but, for better and worse, our favorite yellow metal, gold. If you're interested in reading the full stories, sign up at nytimes.com.

The Times on Monday/Tuesday October 24/25 ran a two-part cover story “Beyond Gold’s Glitter: Torn Lands and Pointed Questions”, a series which raised questions about gold mining, and the environmental devastation that modern cyanide heap-leaching techniques leave behind.

“There has always been an element of madness in gold’s allure,” the article by Jane Perlez and Kirk Johnson begins, “For thousands of years, something in the eternally lustrous metal has driven people to the outer edges of desire – to have it, and hoard it, to kill or conquer for it, to possess it like a lover.”

The article goes on to recount modern gold mining techniques in the world, a process whereby mountains are leveled and pits hundreds of feet deep and often more than a mile wide are dug, water by the millions of gallons are consumed, and streams and lakes tainted with cyanide and sulphuric acid are left when the economically viable gold has been extracted and the multinational mining firm moves on.

“A month-long examination by the New York Times, including tours of gold mines in the American West, Latin America, Africa, and Europe, provided a rare look inside an insular industry with a troubled environmental legacy and an uncertain future. Some hard-rock metal mines, including gold, have become the near-equivalent of nuclear waste dumps that must be tended in perpetuity. In the United States alone, the cost of cleaning them up could reach $54 billion, the Environmental Protection Agency estimated last year.”

Of course, it’s easy to attack the viability of modern gold mining and its effects on the environment, because the production of gold has little economic or strategic value. This is vastly different from the debate over drilling for oil in the Arctic National Wildlife Refuge, which pits the interests of reducing our dependence on foreign oil versus protecting vast expanses of untouched, albeit frozen, wilderness. Whichever side of the debate you take, at least it can be conceded that there are two legitimate sides of measurable worth.

In contrast, there seems to be little social merit in opening a gold mine. The Times article, as an example, explores the prospect of a mine proposed by Glamis Gold and financed by the World Bank that would displace 2600 people, employ 160, and likely render a formerly green area of western Guatemala into a vast wasteland. Yet, this is the reality of gold mining today – the exploitation of low-grade ore, ore that may yield less than an ounce of gold in thirty tons, by a process which essentially involves blasting and crushing the ore, piling it up into great mountains, and pouring cyanide down through it to dissolve out the trace amounts of gold contained. The process is ugly, noisy, and leaves in its wake a moonscape of crushed rock tainted with poison.

Historically, mining has been an unsavory practice. Slave labor was employed by the Greeks, Romans, and English to painstakingly remove gold from its geologic hiding places. The Spanish conquest of South and Central America involved the baptism and enslavement of tens of thousands of native peoples in silver and gold mines, the extreme hardships of which included prolonged exposure to mercury in that pre-cyanide era, sending entire populations to prematurely ‘meet their Maker,’ a Spanish deity that such peoples had, pre-conquest, never made the acquaintance.

Stories of prospecting for gold in the 19th century in California, Australia, and Alaska have long been romanticized. Tales of lone prospectors making their fortune are the stuff that the West was built on. But in fact, these mass pilgrimages to potential gold mining sites were fraught with hardship, suffering, and the deaths of thousands from exposure, starvation, and the oftentimes violent realities of competition for wealth in lawless lands.

Plainly stated, extractive industries are ugly processes. Drilling for oil, the undertaking of which no one wants in their own backyard, at least enjoys the justifying rationale of promoting ‘energy independence.’ The process of clear-cutting forests leaves an ugly wasteland which may takes generations to grow back, but it does provide lumber to build houses for our growing population. Coal mining often means lopping off the tops of mountains and filling valleys with rubble in remote West Virginia, but power plants demand coal to keep electricity flowing to our homes and factories.

Modern gold mining, however, lacks any of these reasons for its existence. Gold’s use in jewelry is ornamental, and its function as a store of value is utilized today by very few people in the West. The getting of gold with modern mining methods comes at a great cost to any piece of our planet unlucky enough to be made of rock containing as little as a rice-grain size piece of gold per ton. Thus the sub-headline to Monday’s article reads: “The Cost of Gold: 30 Tons per Ounce.”

Gold’s status in western society today is uncertain. Terrorists in the Middle East infamously use gold to trade for arms and explosives. The greatest demand for gold today is from India and China, countries which seem distant from us, both geographically and culturally. Our fiat dollar, so tied to our own economy’s strength and viability, seems constantly to be measured against gold – which makes the status of gold appear to be antithetical to that of the dollar, and by association, our economy.

This inert, malleable metal, treasured of the ages, always comes fraught with meaning. Unfortunately, in American culture, gold is most popularly associated with, in no particular order: pirates, Nazis, misers, terrorists, survivalists, and foreigners. To that list we can now add multinational mining corporations with scandalous environmental records.

But despite gold's cultural baggage, any attempt at its demonization is really a shame, because this may be one of the most propitious times in American history in which to own physical gold.

James Grant, of the Interest Rate Observer, wrote a piece this week entitled “Future Shock at The Fed,” (NYT, October 26th) in which he argued that “Helicopter” Ben Bernanke - selected by President Bush to succeed Alan Greenspan as head of the Fed - while eminently qualified to attempt the impossible task of regulating both the supply and price of our faith-based currency, may at some point down the road fall victim to the “special susceptibility of the straight-A student.”

Mr. Grant does not believe that the latest rising inflation numbers can be wholly pinned on events in Iraq and Louisiana. Further, he states that “Mr. Bernanke, as sure of himself as he is of the future, won’t soon be changing the way that the Fed operates. Rather, it will be the world’s dollar holders that change the way they operate.”

…”Since each of the world’ major currencies is a scrap of paper of no intrinsic value, some of these disaffected dollar investors may buy gold,” Grant concludes, ”Mr. Bernanke doesn’t talk much about that barbarous relic. What would he make of a flight from a rationally managed currency into an inert precious metal? I will guess that it would astonish him.”

 

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