Gold Panning And The American Gold Rush

Gold Panning And The American Gold Rush

In 1849, several thousands of people migrated to California to find out the gold deposits for making more and more money. Several methods were used by people to achieve gold but the widely used method was panning. People used to make attempts in search of gold for even months.

This was a highly desirable metal and people were not ready to end their struggle without achieving their goal. Their urge to find more and more gold increased with finding gold flake once. They eventually become more enthusiastic in their efforts and tend to strive much harder in lust of having more gold. If they achieved some flakes of gold in their first attempt, they used to struggle for more.

Besides ordinary people, some Government departments also advanced there search for gold by establishing various laboratories, equipped with much advanced techniques than panning. The government institutions also realized the value of this place having large amounts of gold deposits.

Most of these forty-niners at California could be seen wearing long shoes and pans in their hands. Sometimes, these pans used to come up with some gold flakes, while most of the times their efforts were proved to be fruitless. When they used to get exhausted after several attempts, they used to vow to come again the next day to try their luck once again. It is also true that some of these miners had found so much gold that the government felt the need of establishing an official mint there.

gold panning

In the past, only metal pans were used for gold extraction from the waterbeds, while at present time, the use of plastic pans is more common. However, the methods to place these pans in water for getting gold flakes were different from the ones being used today.

Plastic pans that are used for panning these days are quite lighter in weight and they often have shallower angles that reduce the chances of gold tossing out from the pan. Similarly, slats and bars that are used today were not used in the past. Now, with the help of these tools, it has become quite easier for people to separate gold from other particulars with lots of ease.

However, these earlier gold seekers were using some very good techniques in this connection and most of their gold panning techniques are still in use even after so many years. They used to place their pans at those places where water was noticeably slower and usually they picked large rocks or sandbars for this purpose. Use of tweezers and pipette was not so common in those days, and these people usually used to separate the gold flakes from sand with their hands.

Most of the emigrants arrived California from faraway places in order to get their dreams come true. So, they made utmost efforts for achieving their goal and their determination led them to the way of success.

To Your success

Investment vehicles (Part Two)

Accounts

Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated (non-fungible) or unallocated (fungible) basis. Another major difference is the strength of the account holder's claim on the gold, in the event that the account administrator faces gold-denominated liabilities (due to a short or naked short position in gold for example), asset forfeiture, or bankruptcy.

Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve (non-allocated, fungible) basis. Swiss banks offer similar service on an allocated (non-fungible) basis. Pool accounts, such as those offered by Kitco, facilitate highly liquid but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. BullionVault and Anglo Far-East allow clients to create a bailment on allocated (non-fungible) gold, which becomes the legal property of the buyer.


Derivatives, CFDs and spread betting

Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. In the U.S., gold futures are primarily traded on the New York Commodities Exchange (COMEX) and Euronext.liffe. In India, gold futures are traded on the National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).[44]

As of 2009, holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.

Firms such as Cantor Index, CMC Markets, IG Index and City Index, all from the UK, provide contract for difference (CFD) or spread bets on the price of gold.


 Mining companies

These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases.

Unlike gold bullion, which is regarded as a safe haven asset, unhedged gold shares or funds are regarded as high risk and extremely volatile. This volatility is due to the inherent leverage in the mining sector. For example, if you own a share in a gold mine where the costs of production are $300 per ounce and the price of gold is $600, the mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce will push that margin up to $360, which actually represents a 20% increase in the mine's profitability, and potentially a 20% increase in the share price. Conversely, a 10% fall in the gold price to $540 will decrease that margin to $240, which actually represents a 20% fall in the mine's profitability, and potentially a 20% decrease in the share price. The amplification of gold mining profits during periods of rising prices can cause a gold rush in mining exploration.

To reduce this volatility, some gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investor with less exposure to short term gold price fluctuations, but reduces potential returns when the gold price is rising.

Till i come your way again remain blessed

Investment vehicles

Bars

1 troy ounce (31 g) gold bar with certificate

The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Argentina, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars are available in various sizes. For example in Europe, Good Delivery bars are approximately 400 troy ounces (12 kg).1 kilogram (32 ozt) are also popular, although many other weights exist, such as the 10oz, 1oz, 10 g, 100 g, 1 Kg, and 1 Tael, and 1 Tola.

Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay.

Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland .


Coins

Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins which are priced mainly by supply and demand).

The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, French Coq d’Or (Golden Rooster), Mexican Gold 50 Peso, British Sovereign, and American Gold Eagle.

Coins may be purchased from a variety of dealers both large and small. Fake gold coins are not uncommon, and are usually made of gold-plated lead. Like gold bars, large Swiss and Liechtenstein banks buy and sell bullion coins.
Exchange-traded instruments

Gold exchange-traded funds (or GETFs) may include ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol "GOLD"), was launched in March 2003 on the Australian Stock Exchange, and originally represented exactly 0.1 troy ounces (3.1 g) of gold.


Gold ETFs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars. However exchange-traded gold instruments, even those which hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself. For example the most popular gold ETF (GLD) has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure.

Typically a small commission is charged for trading in gold ETFs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.

Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs. The main differences are that ETFs do not sell directly to investors and they issue their shares in what are called "Creation Units" (large blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the Creation Units are split up and re-sold on a secondary market.

ETF shares can be sold in basically two ways. The investors can sell the individual shares to other investors, or they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be and may not call themselves mutual funds.


Certificates

Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) by taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).

Banks may issue gold certificates for gold which is allocated (non-fungible) or unallocated (fungible or pooled). Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit.[42] Allocated gold certificates should be correlated with specific numbered bars, although it is difficult to determine whether a bank is improperly allocating a single bar to more than one party.

The first paper bank notes were gold certificates. They were first issued in the 17th century when they were used by goldsmiths in England and The Netherlands for customers who kept deposits of gold bullion into their safe-keeping. Two centuries later, the gold certificates began being issued in the United States when the US Treasury issued such certificates that could be exchanged for gold. The United States Government first authorized the use of the gold certificates in 1863. In the early 1930s the US Government restricted the private gold ownership in the United States and therefore, the gold certificates stopped circulating as money. Nowadays, gold certificates are still issued by gold pool programs in Australia and the United States, as well as by banks in Germany and Switzerland.

Factors influencing the gold price

Today, like most commodities, the price of gold is driven by supply and demand as well as speculation. However unlike most other commodities, hoarding (saving) and disposal plays a larger role in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and mass-produced jewelry, with little value over its fine weight — and is thus potentially able to come back onto the gold market for the right price. At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes (156,000 LT; 174,000 ST.This can be represented by a cube with an edge length of 20.2 metres (66 ft).
At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves.Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production. According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 2,000 tonnes goes into jewellery or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds. This translates to an annual demand for gold to be 1,000 tonnes in excess over mine production which has come from central bank sales and other disposal.

Central banks and the International Monetary Fund play an important role in the gold price. The ten year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period.In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.

Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.

The price of gold is also affected by various well-documented mechanisms of artificial price suppression, arising from fractional-reserve banking and naked short selling in gold, and particularly involving the London Bullion Market Association, the United States Federal Reserve System, and the banks HSBC and JPMorgan Chase.Gold market observers have noted for many years that the price of gold tends to fall artificially at the start of New York trading.

Bank failures
    When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and issue an executive order outlawing the ownership of gold by US citizens. There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order was signed by the President, not the Secretary of the Treasury as required.
Low or negative real interest rates
    If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.
War, invasion, looting, crisis
    In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.

for you to be successful as an investor in the bullion market you must understand this aspect of the market and it's relation to price movement.

Gold as an investment

Of all the precious metals, gold is the most popular as an investment.[1] Investors generally buy gold as a hedge or safe haven against any economic, political, social, or fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is also subject to speculation as other commodities are, especially through the use of futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to fiat currencies during the financial crisis of 2007–2010, suggest that gold has features of being money.

Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries. Many European countries implemented gold standards in the later part of the 19th century until these were dismantled in the financial crises involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.


Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth the gold price versus various assets and key statistics:

In March 2008, the gold price exceeded US$1,000,[9] achieving a nominal high of US$1,004.38. In real terms, actual value was still well below the US$599 peak in 1981 (equivalent to $1417 in U.S. 2008 dollar value). After the March 2008 spike, gold prices declined to a low of US$712.30 per ounce in November. Pricing soon resumed on upward momentum by temporarily breaking the US$1000 barrier again in late February 2009 but regressed moderately later in the quarter.

Later in 2009, the March 2008 intra-day spot price record of US$1,033.90 was broken several times in October, as the price of gold entered parabolic stages of successively new highs when a spike reversal to $1226 initiated a retrace of the price to the mid-October levels.

On October 14, 2010, Gold closed at a new nominal high of $1373.25 in NYMEX.[10] On October 14, 2010 gold prices touched an all time high with an intra-day spot price reaching $1,387.30.

In my next post we will look at factors that are influencing the price of Gold. 

Stay Bless