Like many investors, I like to know a little bit about the things I choose to invest in. One of the things I choose to invest in is gold.
I invest in gold because gold is a great investment. It always seems to increase in value, even in bad times. It’s liquid. It outpaces inflation. It is a safe investment. It’s even fun to own. There is so much history to owning gold.
Today, I started to wonder about where gold comes from and how it makes its way out of the ground to become coins, jewelry, collectibles and bullion. So I did a little research.
So here is a brief history of the origins of gold, with a quick dip into gold mining.
The Origins of Gold
Some scientists believe that gold came to Earth during the “big bang” that formed our solar system. Others believe that a star exploded and the supernova hurled gold at the Earth while it was still in a molten state.
As a heavy metal, gold sank into the Earth’s magma. It stayed there as the world cooled. This theory explains why gold is all found under the Earth’s crust. Gold is never found on the surface. Gold must always be mined.
Getting Gold Out of the Ground
People have been mining gold thousands of years. Some of the oldest known examples of gold artifacts were found in Bulgaria at the Varna Necropolis. They date from around 4200 to 4700 BC.
The oldest artifact in the Americas was found in Peru. It is a necklace made of nine gold beads. Scientists believe it dates back to 2100 BC.
Gold is found nearly everywhere on Earth. It is even in seawater, although in low concentrations. Indeed, the amount of gold in most places is too small to make mining it worthwhile. The location of the gold determines the best way to mine it.
Mining companies employ geologists to help them decide where to locate their mines. The geologists study rock formations and surface minerals to make recommendations about where to place the mine.
The companies drill in the suspect areas to take samples. They use diamond drill bits that can move easily through rock. The resulting samples may be several hundred feet long and consist of many layers.
By examining the layers in the sample, the company decides if there is enough gold to make mining the area worthwhile. They learn the depth and quality of the gold ore from the sample. They can also use the samples to decide if there are other ores worth mining in the area.
Mining companies use two terms to classify their findings. They call areas where they believe there is gold that they cannot mine cost effectively “probable reserves.”
When they know gold exists and can be mined effectively in an area, they term the area a “proven reserve.”
In addition, gold is often mined as a byproduct of mining for other metals, most notably copper.
Companies use underground mining when the gold is located deep under the Earth. The first step in underground mining is to dig a very deep main shaft.
The miners then add tunnels leading to the ore. While many of us imagine miners working underground with picks and shovels, modern mining techniques call for the use of explosives.
The resulting rocks are brought to the surface by train or truck rather than hand carried as they were in earlier times.
When gold is closer to the surface, mining companies simply dig a large hole to remove the gold ore. The holes are very large. In fact, the company may even build roads inside the pit to help move materials in and out of the mine.
Mining is expensive no matter which method is used. Fuel alone may eat up 25 percent of the mine’s budget. A ton of rock may yield only 1/10 of an ounce of usable gold after extraction.
Panning for Gold
Many people imagine gold miners as solitary frontiersmen sitting by a stream. This lonely miner repeatedly dips a sieve into a stream and swirls the contents until the water runs out. The miner then picks through the remaining rock. If the miner is having a good day, there may be a gold nugget in the sieve.
This method is called panning. It is largely a manual process. It is not suitable for commercial gold mining.
Panning for gold was one of the most common mining methods in the U.S. gold rushes of the 19th century. By the way, you’ll want to read our upcoming article ”After the Gold Rush” for more info on the gold rush of 1849.
Sluicing requires a large box placed in a stream. The water is forced into the channels in the box, and any gold falls to the bottom because of its weight. Sluicing is only used for small-scale mining. It is expensive and inefficient.
The first step in extracting gold from rock is to grind the rock down to a fine powder. Next, the powder is mixed with cyanide in large tanks. This dissolves the gold and separates it from the rock.
Once the gold has been separated, the process requires pumping the cyanide and sludge out of the tanks. To ensure that all the gold is extracted, the process may call for agitation using air bubbles.
Finally, zinc and water are added to the tanks. This causes the gold to precipitate out. This process recovers around 95 percent of the gold.
Heap leaching is a less efficient method of extracting gold. It takes longer and does not recover as much of the gold as other process described.
Why You Care About Gold Mining
If you are considering investing in gold, you have many options. You can buy gold coins or bullion and hold the gold. You can buy ETFs and hold paper certificates. You may buy gold futures. You can also invest in gold mining companies.
Gold mining is an expensive process. Mining companies have little control over the price that they can sell their gold for. As a result, they focus on controlling costs. The gold mining companies with the lowest costs will to be more profitable than their competitors.
More profit for them means they are a better investment for you.
If you are interested in more direct ownership of gold, you may want to buy coins or bullion. Physically possessing gold may be helpful in an emergency because it is easy to turn gold into cash.
Having gold pieces on hand is a pleasure because they are lovely to look at. It’s nice to know how these beautiful objects came out of the ground and into your possession when you own gold objects.
Whichever form of gold investment you choose, knowing where your gold comes from helps you to appreciate the value of this yellow metal. The important thing is that wherever it comes from and however it was mined, gold is a great investment in both good times and bad times.