Nidhi Nath Srinivas, ET Bureau Apr 21, 2013, 06.53AM IST
Think you know all about Gold? Think again. Here are 10 facts that will give you a better understanding of the gilded stash in your locker. And, in case you didn’t cash in on the tumble in prices earlier this week, fret not: the gold story isn’t over.
1) We still don’t own enough gold
If all the gold ever mined was made into bricks it would end up in a block 20 metres cubed or around 60 ft wide, high and deep. This means if all the gold in the world was gathered in one space it would fill just one large house. At the price of $1,500/troy ounce, reached on April 12, 2013, one tonne of gold is worth approximately $48 million. The total value of all gold ever mined would exceed $8 trillion at that price. Though it sounds like a lot, there is actually little to go around. India owns 18,000 tonnes of above-ground gold. Distributed equally, each Indian would barely get half an ounce of gold, a figure significantly below consumption in Western markets.
2) Gold reserves will last another 12 years, but…
The volume of gold available for mining is a product of both geology and economics. Measuring the volume of gold ore available for mining will depend on what quality of gold ore grade is classed at a specific time as a viable ‘reserve’ ore that can be economically mined at the current or expected gold price. The US Geological Society estimates global gold reserves at around 51,000 tonnes. On this basis, if mine supply were the only source to satisfy current levels of demand, these reserves would last 12 years or so. Known reserves have remained fairly constant over recent years since production from new sources has replaced reserves that have been exploited.
3) We are close to gold’s minimum support price
The global average production cost of gold is about $1,200 an ounce. It was quite stable in the 1990s but has risen by almost 70% over the past five years. So, this month’s drop to $1,360 an ounce brings gold closer to the global average production cost. It couldn’t have been worse timed for gold companies such as Barrick Gold Corp and Newmont Mining Corp, the world’s two largest producers. Despite 12 consecutive years of rising gold prices, shareholders have lost faith in the gold-mining industry, which has seen soaring production costs and made money-losing acquisitions. If prices stay low, the smaller players that carry out exploration and development will get squeezed out, eventually affecting gold supply.
4) Now gold too is made in China
Just 20 years ago, that country wasn’t even on the gold map. Yet China set out to build up its gold mining capacity and succeeded to the extent that it’s now the world’s biggest gold producer. China produced 400 tonnes in 2012 , and expects to touch 450 tonnes by 2015. None of the metal ever leaves the country. According to the World Gold Council, China is the world’s sixth-largest holder of monetary gold. The collapse in bullion prices will encourage China’s top gold producers, Zijin Mining and state owned Shandong Gold Group, to prowl around for cash strapped small- and mid-sized miners overseas.
5) Americans are going back to gold as money
More than a dozen states in the US, led by Utah, Arizona, Kansas, Texas and South Carolina, are preparing to adopt gold and silver coins as money, like the dollar. Lawmakers in these states distrust the Federal Reserve and fear that the greenback may become worthless. The US Constitution bars states from coining money and also forbids them from making anything except gold and silver coins. Advocates say that opens the door for the states to allow bullion as legal tender. How will it work, given gold’s fluctuating prices? The process is being finalised. Gold is mined both in Arizona and Utah, while Nevada is the largest US producer.
6) There is gold in your smartphone
After silver, gold is the best conductor of electricity. It also doesn’t corrode or tarnish whenever it comes in contact with water. This makes gold the perfect, albeit expensive choice, for the consumer electronics industry. There are 10 troy ounces (1 troy ounce =31.1034768 gms) of gold per tonne of smart phones. Some 10,000 phones weigh one tonne. With gold selling for about $1,500 per ounce, that would yield $15,000. Two hundred laptops would yield five troy ounces of gold. Recyclers typically burn circuit boards and use cyanide on the ash to separate the gold. British luxury designer Stuart Hughes has created a luxury iPhone 5 for $15.3 million, which is coated in solid gold and features both black and white diamonds.
7) Here lies the gold, just as Die Hard showed us
New York Fed’s vaults hold about 23% of the world’s official gold reserves. The secretive vault situated 80 feet below ground level round the block from Wall Street stores gold belonging to several foreign governments. Vaults belonging to the Bank of England at Threadneedle Street in London contain the second-largest stash of gold reserves. The Reserve Bank of India owns 557.75 tonnes of gold. Of this, 265 tonnes is lying in the vaults of the Bank of England and the Bank for International Settlements. Countries across the world have been concerned about their gold deposits stored abroad. Hugo Chavez brought back Venezuela’s gold reserves from the Bank of England last year.
8) Make sure your gold is not tainted
There exists a shadowy chain of smuggled gold that stretches from the conflict zones of the Democratic Republic of the Congo to the markets of Dubai and jewellery shops in Mumbai and Delhi. More than $600 million worth of gold is estimated to leave Congo every year, and armed groups are funding their operations through control of a significant percentage of that amount. The WGC (World Gold Council) and other industry bodies are now enforcing standards for greater traceability in supply chains. Under the Dodd-Frank financial regulation act, US-listed companies that source gold, tungsten, tantalum and tin from Congo or its neighbours must assure the US stock exchange regulator that their business is not helping fund conflict.
9) Silver still packs a punch
The price of silver has risen over 100% during the past four years, and it has risen more than 500% over the past 10. Silver has been in a long-term bull market that has only recently paused to consolidate its tremendous gains after peaking at $49/ounce level in April 2011. The silver market is seeing a new wave of buying emerge once again as prices soften. Regardless of price, metallic silver has strategic importance in industrial and medicinal applications for which it cannot be readily replaced.
10) Yes, gold story is still alive
Physical demand has picked up momentum. India was the first to respond, followed by Dubai, Japan, Europe and China. The US Mint has sold 147, 000 ounces of gold coins in April so far. This is already nearly as much as in the whole of January, when coin sales peaked since the summer of 2010. Since the price slide, nearly 100,000 ounces of gold coins have been sold within just three days — the last time such a high volume was sold was in 2008 following the collapse of US investment bank Lehman Brothers. Central banks bought 534.6 tonnes in 2012, the highest level since 1964. Private investor demand for gold bars and coins in 2012 was 20% above its 5-year average.
August 15, 1971: Gold standard abandoned
Struggling to pay for the cost of Vietnam war, President Richard Nixon abandons the so-called “gold standard”. The dollar had been fixed at a rate of $35 to an ounce. That peg is dropped and gold starts to rise.
A look at the rise in gold prices since 1979:
Jan 31, 1979 – Rs 595/10gm
Soviet invasion of Afghanistan in January 1980 – International political tension soars after the Soviet invasion of Afghanistan. Gold hits a record of $850 an ounce on January 21.
Confidence returns in 1981-82: Gold prices begin to fall as investors regain some confidence in the US economy and the dollar. Inflation also begins to slow.
Jun 30, 1982 – Rs 954/10gm
July 31, 1985 – Rs 1,221/10gm
July 1986 – South Africa: Western nations impose sanctions on South Africa in protest over its apartheid laws. Gold prices jump 23% between July and October as traders fear that South Africa might cut gold exports in retaliation.
1987 – Inflation returns: Gold price hits $500 per ounce for the first time in five years as inflation accelerates again in the US.
Jan 31, 1989 – Rs 1,722/10gm
July 30, 1993 – Rs 3,955/10gm
Banks start selling gold in July 1996-99 – Gold prices fall on news that the International Monetary Fund had been considering selling 5 million ounces to help pay for debt relief in the developing world.
Jun 30, 1997 – Rs 3,921/10gm
In July 1999 gold hits a 20-year low of $252.8 an ounce.
Central banks start to follow the IMF’s lead. The Swiss National Bank announces a plan to sell 1,400 tonnes of gold, Australia also sells a large part of its reserves.
Oct 29, 1999 – Rs 4,340/10gm
The British government sells more than half of its gold â€” almost 400 tonnes â€” between 1999 and 2002 raising $3.5 bn.
Feb 28, 2003 – Rs 5,509/10gm
May 31, 2005 – Rs 5,896/10gm
August 2005 – Hurricane Katrina: Hurricane Katrina boosts oil prices and raises fears that a period of quicker inflation was returning. By December 2005 gold is at $536.50 an ounce, the highest level in 24 years. The weak dollar also helps boost gold throughout 2006.
May 31, 2006 – Rs 9,844/10gm
Jul 29, 2007 – Rs 8,595/10gm
Credit crisis in August 2007 – Investors buy gold as a safe haven amid the growing financial crisis. The falling dollar and rising global inflation also boost the metal.
2008: The world’s central banks sell gold.
Mar 31, 2008 – Rs 12,559/10gm
Oct 31, 2008 – Rs 12,597/10gm
Dec 31, 2010 – Rs 20,184/10gm
Jul 29, 2011 – Rs 22,457/10gm
Nov 30, 2011 – Rs 28,378/10gm
2012: Central banks become aggressive buyers, purchasing a record 534 tonnes to replace the paper currency in their national reserves.
Sep 28, 2012 – Rs 30,566/10gm
2013: Short selling triggers gold market crash
Apr 20, 2013 – Rs 26,475/10gm