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Burying Gold in the Backyard

Posted by | December 27, 2008

You can be forgiven if the price of gold escaped your notice in 2008. What with the national election, the critical illness of U.S. car companies, the housing market crisis, and new fighting in Afghanistan, you had a number of stories to follow this past year. But because the price of gold is a useful business and financial thermometer, you may want to review it here at the close of this momentous year.

When gold is high, it means most folks are worried about the economy (and it also means, bye-the-bye, that us geologists have jobs). When the price of gold is low, business fears are fairly mild (and geologists have time to clean the attic).

The basic comfort about gold is that people believe it will always have some value. And, unlike houses, the thought is that you’ll always be able to sell your gold if you really want to.

A couple years ago I picked up a gold bar and held it in my hot little hands.  I was visiting a large, open-pit gold mine in Nevada where a friend works. The mine, called Round Mountain, is big enough that it pours its own gold bars right on site. The gold isn’t pure – it has some silver mixed in it ­– because that’s the way it comes out of the ground. But even such rough-and-ready bars are golden in color and quite impressively heavy.

It’s pretty exhilarating to be in the presence of hundreds and hundreds of pounds of gold. But despite gold’s attractions, you can’t eat it. Gold bars don’t reproduce, they don’t grow crops, and they don’t build durable goods. “Good as gold” is just that – as good as gold, but no better.

The geologic good news about gold is that it’s spread around the world quite a bit more evenly than petroleum is. So one small part of the world doesn’t dominate production as the Middle East does with oil. Gold is produced in some mines exclusively for its own sake, and it’s produced as a byproduct of other metal mining in mega-operations producing copper and the like.

In a few places around the world, there’s so much gold in ore you can see the stuff with your naked eye – quite a treat. But a lot of gold ore is “invisible” in the sense that the gold particles are so small you can see them only with a strong hand lens or a microscope. That’s the kind of gold we mine in the U.S., because our highest-grade ore is long since gone.

As it happens, gold keeps well, so you could have a stash in your garage that would last unchanged throughout your life. (Just for the record, don’t try the same maneuver with gasoline, even though it’s cheap these days. Gas degrades into a varnish-like substance, more is the pity.)

If case you find deep comfort in the image of a personal stash of gold, here’s a quick review of recent prices.

Five years ago, as the U.S. was invading Iraq under considerable uncertainty about the global war on terror, gold was trading for $400 per troy ounce. Today the price is about twice that, and earlier in 2008, gold hit $1000.

There’s nothing like naked economic fear to help boost the price of gold.

But fear is exactly what complicates the decision to invest in gold. Speculators – and their fears – are a heavy factor in the price. And human psychology is notoriously difficult to predict. Only if you are good at betting against the crowd – buying gold when nobody is worried about life and it’s cheap, and then selling it when people are in full panic about global Armageddon – are you likely to make a passel on gold.

Psychology, however, comes into play in a second way. If you really are likely to sleep better because of a few gold coins you have buried behind the garage, then those bits of metal could be “worth their weight in gold.”

Just leave me directions to your treasure map.