Gold EconomicsJake Bishop & Nick Tolley

Properties of gold• Gold is bright yellow and has a high luster• It is the most malleable and ductile of all the metals• Unaffected by heat, air, moisture, and most solvents• Gold nuggets are the purest forms of gold found in the

environment• Excellent conductor of electricity• Weighed in Troy weight values

History• Gold discovered around 3000 BC, and has always been a sign of

wealth and power for its beauty, resilience, rareness, and malleability

• The first pure gold coin is minted in Lydia, Asia Minor in 506 BC• The first US gold rush occurred in 1803 in North Carolina,

followed by California in 1848• Gold is commonly alloyed with baser metals

Mining Process

1/2/3. Mining/Crushing/Transport

• Open pit and underground• Samples taken from site and separated• Harder areas use blasting before excavation

• Trucks haul the ore to crushers• Conveyer belts transport ore to the grinding mill

4/5. Grinding/Leaching

• Grinding mill (Ball mill)• Final product must be 80% <70 microns

• Leaching dissolves the gold and silver• Mixture of lime, water, and cyanide solution

• Dissolved gold and silver processed in absorption tanks• Carbon granules absorb the gold and silver

6/7. Elution/Production• Loaded carbon granules fed into elution columns• Result is a gold and silver bearing sludge

• Mixture is put into furnace then poured into molds for production

Cost of Mining and Extraction• Costs vary from mine to mine• Mining is very energy intensive• Labor costs increasing http

://www.businessinsider.com/the-cost-of-mining-gold-2013-6

The Gold Standard• Gold Standard: A currency system basing values on a worth

equal to an amount in precious metals, namely gold and silver• http://www.youtube.com/watch?v=RvL_Dm2d99A&list=PL3A38

BB9618341EEA • Bimetallic Standard (1792-1834)

• 371 grain silver coin defined the dollar• Gold coins authorized in denominations of $10 (eagle) and $2.50 (quarter-

eagle)• Silver to Gold mint ratio was 15 to 1• Because silver was cheaper, silver coins were primarily for domestic use and

gold coins for purchases abroad

• Congress tried to restore gold coins use domestically• By 1850, silver coins had practically disappeared

• No gold coins representing fractions of a dollar, so in 1853, they authorized silver coins for less than $1

The Gold Standard

• Fiat Paper Money issued in 1862• True Gold Standard (1879-1933)

• In 1879, US omitted the silver dollar

• The End of the Gold Standard: 1933• A wave of bank runs resulted in massive bank failures• For Fed to generate enough cash to meet public’s demand, it needed to produce

a LOT more• Creating paper money would create doubts about the US’s ability to remain

on gold• Greater doubts led to more exporting of gold, reducing gold reserves, making

it harder to maintain the dollar at its gold value

Other Uses• Investment• Jewelry• Catalysts• Reflective Ability• Electronics• Medicine• Dentistry

Production and Consumption• http://www.goldfacts.org/en/economic_impact/interactive_m

ap/

Price• Gold prices were fairly steady preceding the 1970s ($19-$22/oz.)• Bretton Woods System• In 1971, our inflation and trade deficit, among other things, started to undermine

the value of the dollar• US abandons this system and adopts a “floating” exchange rate

• Starts to rise in mid 70s because it could be publicly traded with little government intervention

• People tend to invest in gold regardless of price, as it is a “safe haven” on the financial market

• Today, 1 oz. = $1,241

Gold demand• Both private and government demands• During the Gold Standard Era, government demand was purely

monetary gold• Private

• Investment • Non-investment

Gold Supply• Essentially comes from mining• Twice as much gold was mined during the gold rush years (19th century) than

previous history• Huge boom in production in the 20th century• Fluctuating supply shows that deposits are diminishing and becoming more

economically unfeasible to extract

1. USA2. Germany3. Italy4. France5. China6. Switzerland7. Russia8. Japan9. Netherlands10. India

8,973 tons3,390 tons2,452 tons2,435 tons1,054 tons1,040 tons1,015 tons765 tons613 tons558 tons

Elasticity• Supply is extremely inelastic

• Mining is biggest supplier• Very time consuming

• Demand is extremely elastic• Jewelry is the biggest demand and is very price sensitive

Quarter – Year | Quantity demanded (in thousand tons) | Price ($US bn) | Price Elasticity |

Q1 – 08 | 13.4 | 450 | - |Q2 – 08 | 15 | 521 | 0.76 |Q3 – 08 | 18.8 | 672 | 0.87 |Q4 – 08 | 14 | 548 | 1.38 |Q1 – 09 | 9.6 | 329 | 0.79 |Q2 – 09 | 12.8 | 431 | 1.08 |Q3 – 09 | 15.1 | 490 | 1.31 |Q4 – 09 | 18.1 | 511 | 4.64 |Q1 – 10 | 18.6 | 521 | 1.41 |Q2 – 10 | 16.3 | 422 | 0.65 |Q3 – 10 | 21.3 | 541 | 1.09 |Q4 – 10 | 25.3 | 575 | 2.99 |

Substitutes• Platinum- ($1,350 per oz.)• Palladium- ($710 per oz.)• Silver- ($19.20 per oz.)• Rhodium- ($925 per oz.)

References• "10 Countries Anxiously Watching Their Massive Gold Hoards Fall In Value." Business

Insider. N.p., n.d. Web. 04 Dec. 2013.• "Current Gold Price Chart - Price of Gold - Spot Gold Price Per Ounce." Current Gold

Price Chart - Price of Gold - Spot Gold Price Per Ounce. N.p., n.d. Web. 04 Dec. 2013.• "Gold." - Element Information, Properties and Uses. N.p., n.d. Web. 03 Dec. 2013.• "Historical Gold Charts and Data - London Fix." Historical Gold Charts and Data -

London Fix. N.p., n.d. Web. 04 Dec. 2013.• "Price Elasticity of Gold" StudyMode.com. 02 2013. 2013. 02 2013 http

://www.studymode.com/essays/Price-Elasticity-Of-Gold-1446316.html.• Reeves, Jeff. "Five Alternatives to Gold." Market Watch. N.p., 08 10 2010. Web. 11-

14-2013. http://www.marketwatch.com/story/five-alternatives-to-gold-2010-10-08 • "The Mining Proccess." Waihi Gold. N.p.. Web. 14 Nov 2013. http

://www.waihigold.co.nz/mining/the-mining-process/ • "Total Reserves (includes Gold, Current US$)." Data. N.p., n.d. Web. 04 Dec. 2013.• Van Eeden, Paul. "Understanding Gold." Understanding Gold by Paul Van Eeden.

N.p., n.d. Web. 03 Dec. 2013.• Wai, Wong, Leong Eugene, and Arun Mujumudar. "Gold Extraction and Recovery

Proccesses." M3TC. (2009): n. page. Web. 3 Dec. 2013. http://www.eng.nus.edu.sg/m3tc/M3TC_Technical_Reports/Gold Extraction and Recovery Processes.pdf

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