Gold Investments Market Update

Gold is down slightly in early trading in London this morning. Gold was up $13.80 to $923.10 per ounce in trading in New York Friday and silver was up 38 cents to $18.09 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $921.00, £465.95 €584.65 (from $914.70, £460.27 and €582.17 yesterday.

Gold has fallen in London most probably on profit taking but looks well supported due to dollar weakness, oil back near $110 a barrel and inflationary concerns. This is leading to strong physical demand internationally at these levels (as seen in recent flows particularly into the ETFs - the silver ETF alone has increased by a significant 5 million ounces alone in recent days).

Today’s release of the minutes of the last FOMC meeting may set the tone for the day. There is speculation that FOMC fears regarding significant inflationary pressures could result in interest rates not being cut as aggressively at the end of the month. U.S. pending home sales are again expected to be weak and this should support gold.

Todays Gold News..

Gold Rises After Bernanke's Remarks []
Wednesday, April 02, 2008 3:14:10 PM - Gold prices gained on Wednesday after Fed chief Ben Bernanke said that he believed the economy may see further weakness, boosting gold's hedge value. June gold finished the session at $900.20, up $12.40 on the session. With the rally, the metal took back a portion of its sharp losses from the three previous sessions.
Bullion prices dropped sharply on Tuesday, a day that saw most commodities head lower. June gold closed at $887.80, down $33.70 on the session. Prices hit as low as $876.30 in the mid-morning, reaching a two-month low.
The precious metal lost $64.80 over the last three sessions. Gold prices plunged on Monday and closed at $921.50, down $15 for the session. Monday's trading took place as US Treasury Secretary Hank Paulson announced a White House plan to police Wall Street financial firms in the wake of the recent credit crisis. The metal added to sharp losses from Friday, when it pared some of its gains from earlier in the week. Gold finished down $17.50 on the session.
The U.S. dollar gave back some of its recent gains against the other majors on Wednesday in New York. The dollar had hit an 8-day high of 1.5536 versus the euro and also rallied against the yen and Swiss franc. Gold usually moves opposite the dollar because of the precious metal's hedge value.
Federal Reserve Chairman Ben Bernanke discussed the “difficult period” the U.S. economy is trudging through in testimony on Capitol Hill. In prepared remarks, Bernanke addressed the recent financial turmoil and actions that the Federal Reserve is taking to address these issues. For the first time, Bernanke admitted that GDP may “contract” slightly in the first half of 2008, citing a weaker near-term economic outlook. He added that while growth is expected to tick up in the second half of 2008 and into 2009, the forecast is not certain.
In economic news on Wednesday morning, Automatic Data Processing (ADP) released its report on private sector employment in the month of March, showing that the private sector unexpectedly added jobs compared to the previous month. The report showed that non-farm private employment increased by 8,000 jobs in March following a revised decrease of 18,000 jobs in the previous month. Economists had expected a decrease of about 30,000 jobs compared to the decrease of 23,000 jobs originally reported for February.
On Tuesday morning, the ISM said that its purchasing managers index edged up to 48.6 in March from 48.3 in February, although a reading below 50 indicates a contraction in the sector. Economists had been expecting the index to slip to a reading of 47.5.Crude oil closed modestly lower on Tuesday after plunging below $100 earlier in the day.
Light sweet crude for May delivery finished at $100.98, down 60 cents on the day. Oil fell to as low as $99.55 in electronic trading and hovered around the century mark in the morning before turning higher to reclaim much of its decline. All eyes now are on Wednesday's inventory report from the Department of Energy.
Crude rallied last Wednesday following the release of the report that showed stockpiles unexpectedly remained the same. The report from the Energy Information Administration showed that crude oil inventories were unchanged at 311.8 million barrels. Analysts had been expecting crude oil inventories to increase by about 1.7 million barrels.

source:RTTNews.com

Gold Investments Market Update

Gold

Gold was down $2.30 to $918.30 per ounce in trading in New York yesterday while silver was up 12 cents to $17.07 per ounce. Gold has rallied in Asian trading and again in trading in London this morning. The London AM Gold Fix at 1030 GMT this morning was at $930.65, £467.24 and €598.57 (from $913.50, £461.60 and €591.15 last Thursday).

Gold has rallied on bargain hunting as gold’s short term overbought status has been corrected and some investors and speculators feel that the sell off is overdone and the metals may have become oversold in the short term. While there may be further consolidation at these levels, gold will likely resume its upward march sooner than expected and we will likely see gold back near (nominal) record highs above $1,030 before the end of April.

Despite the usual misguided and uninformed commentary there is no change in the long term fundamentals driving the gold market. Some of the superficial commentary is by those who came late and are recent converts to the precious metals markets. Many did not forecast or predict gold above $1,000 (nor did they predict oil over $100 or the dollar at $1.60 to the euro) and now they incorrectly assert that the ‘bubble’ is burst. This is a dangerous and deluded assertion especially as we are in the midst and likely the early stages of the worst financial crisis since the Wall Street Crash of 1929 and the Great Depression.

source:by Mark O'Byrne/ rttnews.com

"Annus Horribilis" - Gold In 1997

1997 was the third worst year for $US Gold since the price became subject to market forces in 1971. The worst year was 1981, when Gold was coming off an $US 850 blow off high the previous year and battling 20% plus interest rates. The second worst year was 1975, the year when Americans regained their "right" to own Gold for the first time since 1934.

1997 has to be broken up into two halves. In the first half of 1997, stock markets everywhere - including Asia - were booming and Gold was sliding very slowly in terms of most currencies.
The second half of 1997 was when the Asia "flu" hit the world's markets. What started as a currency crisis in Thailand in July had, by the end of the year, expanded into a global financial crisis of unprecedented proportions.

The dividing line between these two six-month periods can be neatly drawn by the hand over of Hong Kong back to China on July 1, 1997. Hong Kong was the last Asian "nation" to be governed by a foreign power. Within weeks of this hand over, the 30-year era of the Asian "Tiger Economies" was over.
Here are the signal events of 1997 - especially the second half of 1997:

• March 25 - US Fed raises rates by 0.25% to 5.5%. This is the only rise for 1997
• Mid June - Denver G-7 meeting. US boasts its economic "management" to the annoyance of Asian and European guests.
• Late June - Japan's Hashimoto threatens to sell US bonds and buy Gold
• July 2 - Aussie Reserve banks announces (already completed) sale of 167 Tonnes of Gold.
• Early July - Thai Currency crisis hits stock market and spreads quickly throughout S.E. Asia.
• Aug. 6 - Dow hits what proves to be the high for the year - 8259 points.
• October - Asian crisis hits Hong Kong, Korea and Japan. Plummeting currencies and markets. In the U.S., the Dow falls 1000 points in less than a week before recovering.
• Nov. - Dec. - IMF moves in to offer bail-outs. Gold sell of steepens. U.S. Dollar, universally regarded as THE safe haven, surges. Gold falls almost $US 60 to its lowest level since 1979.
• End of year - Korea within days of bankruptcy. Japanese market in free fall. Asian currencies crashing. Gold anchored firmly below $US 300.

In 1981, Gold's worst year, the world was locked in recession. In 1975, Gold's second worst year, the world was locked at what was described as "stagflation" - rising (price) inflation and rising unemployment. This was an economic phenomenon held to be "impossible".
In 1997, Asia went into an economic and financial death spiral which can only be compared to what happened to the world in the Great Depression of the 1930s. But this was not a worldwide phenomenon. In Europe, markets boomed all year. In the U.S. markets boomed, the economy boomed, unemployment hit 30 year lows, and the Dollar became the most sought after investment in the world.
On November 26, 1997, the spot future Gold price closed below $US 300 (at $US 296) for the first time since March 15, 1985. Gold ended 1997 at $US 289.90. The $US 300 "floor" which had supported Gold ever since it first rose above that level in July 1979 had now become a "ceiling"

The Purpose of the "Trading Range"

There were actually several purposes served:

To encourage the attitude that Gold had lost its former use as a "hedge" against price inflation and political and economic crises. This was done very successfully. The last time that Gold reacted to political events was the lead up to the Gulf War way back in late 1990.
To encourage the attitude that (price) inflation was "dead".

To foster the attitude that all the financial crises of late 1994 to early 1996 were under control. After all, the Gold price was not reacting to them.

To give added credence to the much-ballyhooed (especially in the 1996 election campaign), claim that U.S. debt was under control and that the U.S. was smoothly working its way towards a balanced budget.

The most important purpose by far.To re-reinforce the notion - still held by millions of people throughout the world - that there was still a "link" between Gold and the U.S. Dollar.

The Trading Range 1994-96

With the exception of a short-lived sojourn above the $US 400 level in February 1996, the $US Gold price was "trapped in amber" for two years, from the beginning of 1994 to the beginning of 1996. For all but about a month of those two years it was caught in an extraordinarily tight $US 20 trading range between $US375 - 395. By late 1995, the volatility on the Gold market had reached its lowest level since the late 1960s, when the Gold price was officially capped at $US 35 an ounce.

Consider what had happened during this three-year trading range:
A debt crisis in Mexico. A debt crisis in the State of California. A global bond market bloodbath - in 1994. A trade war between the U.S. and Japan averted at the last second. A huge boom on the U.S. stock market - in 1995-96. The U.S. Dollar plummeting to record lows against the Yen and multi-year lows against the D-Mark. Debt collapse and actual deflation in Japan. The near total dependence by the U.S. Treasury on foreign buyers to buy newly-issued U.S. government debt. Foreign Central Bank holdings of U.S. Treasury debt expanded rapidly throughout the period. A "balanced budget" debate in the U.S. which led to two government shut downs in October 1995 and January 1996.

A $US 600 Billion increase (to $US 5.5 TRILLION) in the U.S. debt ceiling. Even more interesting, this Gold "trading range" against the U.S. Dollar has not been reflected in the Gold price of other major currencies. The high and low spot Gold prices against the world's three major currencies over the three year period 1994-96 were as follows ..

Gold "Leasing" - The Central Banks' Contribution

Our intrepid bullion dealer goes out and "borrows" the Gold. Where does he borrow it from? That's easy. From the formidable 36,000 Tonne hoard still owned by the world's Central Banks.
To get the Gold - or more accurately, to get a marketable claim to the Gold - our bullion dealer pays what is known as the Gold lease rate (an extremely low rate of interest). He then sells the Gold - or the claims to Gold, and invests the money. This is the way the difference between the spot and forward prices for Gold is determined. The forward price is the money interest rate which our bullion dealer receives for his investment minus the lease rate which he paid to borrow the Gold.

The point is that this entire fandango (that's "fandango" - not "contango") can be performed by lending physical Gold, or it can be performed by lending a paper claim to Gold. The miners' Gold is still in the ground. The Central Bank sometimes lends Gold, or it lends a claim to Gold. These are what our bullion dealer sells. And since most demand for Gold is not a demand for the physical metal but a demand for paper (forward, future, etc) claims to the metal, this mechanism can meet the demand without an undue strain upon the available supply of the physical metal, and the upward pressure on the price of Gold that would cause

Forward Selling - By Gold Producers

For most of the past decade, Gold mining companies gradually changed the way they market their Gold. To an ever-increasing extent, they have "forward sold". The mechanism is quite simple. A Gold mining company with proven reserves in the ground wants to sell a portion of these reserves forward. The company representative goes to a bullion dealer who agrees to pay him, for example, $500 per ounce for Gold to be delivered two years from now. The Gold company has locked in a profit, and on top of that, has the money now for Gold which is still in the ground.

The Gold bullion dealer is exposed, however. He is exposed to a possible loss if the Gold price falls in the future. So, to hedge this position, the bullion dealer sells Gold - for immediate delivery. "Wait a minute" (you cry), where is the bullion dealer to get the Gold to provide for immediate delivery? The answer brings us directly to the second part of the mechanism for maintaining the $US 400 Gold "glass ceiling".

If You Can't Replace It - Dilute It

The price of Gold cannot be held down by selling the physical metal. The decade between 1970 and 1980 proved that conclusively. Hundreds of years of history have proven conclusively that nothing can be sold as a "substitute" for Gold. In the years since the 1987 crash - when the $US 400 "glass ceiling" on Gold has been put and kept in place, Central Banks have continued to sell Gold, but only in emergencies. The real mechanism for holding down the price has been different.

Paper Gold?

For as long as Gold has been prized, there have been men who have tried to create it. For hundreds, if not thousands of years, the Alchemists strove to transmute base metals into Gold, without success. But even after its introduction to the West and the invention of the printing press by Gutenberg at the end of the Thirteenth century, no-one had the idea of trying to turn paper into Gold. In past centuries, those who would control money contented themselves with substituting paper for Gold, with limited success.

It took some true "visionaries", and the end result of a long process of economic wishful thinking, to seriously propose "paper gold". The notion goes back about 30 years, to the period just before the dawn of the "floating currencies" era. When the U.S. closed the the "Gold Window" in August 1971, the Dollar promptly dived against all its major trading partners. By February 1973, it had become impossible to pretend that any fixed ratio still existed between currencies, and the era of "floating currencies" began.

The IMF actually invented what became referred to as "Paper Gold" in 1971 - months before the U.S. severed the tie between the Dollar and Gold. The IMF knew this step was coming, and so it invented the "SDR" (Special Drawing Right). It was touted as a Reserve "Currency" that would replace both the U.S. Dollar and Gold in the basements of the world's Central Banks.
While these SDRs still exist, they have not done much over the past three decades or so except gather dust. Their prime purpose, to provide a substitute for Gold, was not fulfilled. The SDR was the last major attempt to provide a "substitute" for Gold. For at least the past two decades, the approach has been that no substitute for Gold is necessary. And to "prove it", Gold has been progressively debunked as either a money or even a viable investment option. The price has been forced down, then held down, then forced even lower.

The Paper Blizzard - "Derivatives"

Forward and futures markets were not, of course, an invention of the 1980s. What was an invention of the 1980s was the massive increase in paper trading instruments. These instruments, which became known as "derivatives", were first developed in the currency and debt markets. They then spread into the equity markets and into the Gold market.
The advantage of "derivatives" in the paper markets was twofold. First, they provided more and more leverage for more and more aggressive trading. Second, and far more important, they provided a method to hugely expand the amount of money in circulation without expanding the "money supply"! The traditional measures of money in circulation (M1, M2, M3, M...) expanded much more slowly. What did expand was the blizzard of "derivative paper" using paper money as its underlying "asset". This was one of the main reasons why "inflation" (defined as rising prices) slowed down.

The advantages of a Gold derivative market were similar. Governments learned in the 1960s and 1970s that it was impossible to meet an increased demand for Gold with physical Gold. They needed a paper substitute. Gold "derivatives" provided that substitute. With more tradeable alternatives to physical Gold, it became far easier to control the Gold price. But on top of the derivatives themselves, other specific mechanisms were developed to help control the price of Gold.

One of these methods was forward selling by Gold mining companies. This practice began with Gold's retreat from the $500 level in the wake of the 1987 crash. By the mid 1990s, Gold companies everywhere, but notably in Australia, were routinely forward selling years worth of their projected Gold production.

As the performance of Gold in the fifteen years between the market crash of 1987 and the start of the current $US Gold bull market in 2002 illustrates, these mechanisms worked very well indeed.

From Overt To Covert

by: The Privateer Market Letter

As we have documented in this series, in the 1960s and 1970s, governments fought Gold in the open. They announced what they were going to do before they did it. Of course, they failed miserably. But people in government, just like the rest of us, are quite capable of learning from their mistakes, The first thing they learned was that the best way to "fight" Gold was to go underground. They did so, with great success.

The plan adopted was to fight Gold on their own ground. In order to do this, they greatly expanded the ways in which Gold could be traded. More important, they introduced and developed an indirect market for Gold, they invented a Gold "derivatives" market.

The HIDDEN Gold Wars

by: The Privateer Market Letter

In the early 1980s, when world stock markets boomed in tandem everywhere in the world, Gold reached the $500 level twice. The first time was in early 1983, just as the global boom was getting started. The second time was at the end of 1987, two months after the infamous crash of October 1987. From $499 in December 1987, Gold fell throughout 1988 and dipped below the $400 level in January 1989. Gold has only ever regained the $400 for four very short periods since then.
Gold traded as high as $422 in December 1989 - January 1990. It reached as high as $415 in the lead up to the Gulf war in August 1990. It reached $408 in August 1993. And finally, Gold reached a high close of $414 in February 1996.

But Gold's history in the years since the 1987 crash is that at all the actual crisis points, the Gold price has not risen, it has fallen. The best single example of this phenomenon remains Gold's performance on January 17, 1991, the day that the "air phase" of the Gulf war began. On that single day, Gold fell $30 from its previous close. In fact, it fell $40 from its intra-day high. Gold had been rising in the months leading up to the war. As soon as the war started, Gold plummeted.

The Gold price has failed to respond to the fact that Gold demand has exceeded newly-mined Gold supply in every year since 1988. It has, consistently done the opposite of what all of its previous history shows that it "should" do. Why has this happened?

The End Of the "Fixed" Dollar

Gold War I - The "London Gold Pool" - 1961 to 1968
By the beginning of the 1960s, the $US 35 = 1 oz. Gold ratio was becoming more and more difficult to sustain. Gold demand was rising and U.S. Gold reserves were falling, both as a result of the ever increasing trade deficits which the U.S. continued to run with the rest of the world. Shortly after President Kennedy was Inaugurated in January 1961, and to combat this situation, newly-appointed Undersecretary of the Treasury Robert Roosa suggested that the U.S. and Europe should pool their Gold resources to prevent the private market price for Gold from exceeding the mandated rate of $US 35 per ounce. Acting on this suggestion, the Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the "London Gold Pool" in early 1961.

The Pool came unstuck when the French, under Charles de Gaulle, reneged and began to send the Dollars earned by exporting to the U.S. back and demanding Gold rather than Treasury debt paper in return. Under the terms of the Bretton Woods Agreement signed in 1944, France was legally entitled to do this. The drain on U.S. Gold became acute, and the London Gold Pool folded in April 1968. But the demand for U.S. Gold did not abate.

By the end of the 1960s, the U.S. faced the stark choice of eliminating their trade deficits or revaluing the Dollar downwards against Gold to reflect the actual situation. President Nixon decided to do neither. Instead, he repudiated the international obligation of the U.S. to redeem its Dollar in Gold just as President Roosevelt had repudiated the domestic obligation in 1933. On August 15, 1971, Mr Nixon closed the "Gold Window". The last link between Gold and the Dollar was gone. The result was inevitable. In February 1973, the world's currencies "floated". By the end of 1974, Gold had soared from $35 to $195 an ounce.

Gold War II - The IMF/U.S. Treasury Gold Auctions - 1975 to 1979
On January 1, 1975, after 42 years, it again became "legal" for individual Americans to own Gold. Anticipating the demand, the U.S. Treasury in particular and many other Central Banks sold large quantities of Gold, taking large paper profits in the process. This had two results. It depressed the price of Gold, which fell to $US 103 in eighteen months. More important by far, it "burned" large numbers of small individual investors.

But this "pre-emptive strike" against the Gold price did not solve the imbalances inherent in the floating currency regime. As the Gold price began to recover from its August 1976 low, the (US-controlled) IMF along with the Treasury itself, began a series of Gold auctions in an attempt to hold down the price through official means. But the problem of yet another free fall in the international value of the Dollar got in the way. Between January and October of 1978, the Dollar lost fully 25% of its value against a basket of the currencies of its major trading partners. By early 1979, due to this precipitous fall, the demand for Gold was overwhelming the amount that the IMF/Treasury dared supply, and the Gold auctions came to an end.

Gold regained its ($195) December 1974 level by July 1978.
It then pressed on to new highs, hitting $250 in February 1979 and $300 in July. Also in July, Paul Volcker was appointed as Fed Chairman by a desperate Jimmy Carter. Gold continued to surge, hitting $400 in October. While this was happening, Mr Volcker was attending a conference in Belgrade. There the assessment was made that the global financial system was on the verge of collapse. When Mr Volcker returned to the U.S. from Belgrade, he took a momentous step. He announced that the Fed was swiching its policy from controlling interest rates to controlling the money supply.

This new Fed policy took some time to have effect. In the meantime, Gold soared from $381 on Nov. 1, 1979 to $850 on Jan. 21, 1980. The public, who had been burned in 1975, were late on the scene. The great burst of public Gold buying came in the four weeks between Christmas 1979 and the Jan 21, 1980 high. As in 1975, they were "burned" again.

The Paper Era Begins
In early 1980, Mr Volcker's new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates - and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted, but at a cost. The U.S. Prime rate hit 20% in April 1980 and stayed there (with a brief dive in mid-1980) until the end of 1981. There was a rush out of Gold and back to Dollars.

Once interest rates began to come down, in early/mid 1982, the choice of where to put the Dollars faced investors once more. The initial solution was just as it had been in the 1970s. The Dow took off - rising from 776 to almost 1100 between mid August 1982 and late January 1983. Gold started earlier and took off even harder - rising from $296 in late June 1982 to $510 at the end of January 1983.

That's where the similarity to the 1970s ended. Gold fell $105 in the last four trading days of February 1983. As it fell, the Dow broke above the 1100 point level for the first time. The long bull market in stocks, and the long stagnation of Gold, had begun.

Many facets went into this change in investment attitude, but one concrete change in the U.S. financial system was the most telling. Way back in March 1971, four months before Nixon closed the Gold window, the "permanent" U.S. debt ceiling had been frozen at $US 400 Billion. By late 1982, U.S. funded debt had tripled to about $US 1.25 TRILLION. But the "permanent" debt ceiling still stood at $US 400 Billion. All the debt ceiling rises since 1971 had been officially designated as "temporary(!?)". In late 1982, realising that this charade could not be continued, The U.S. Treasury eliminated the "difference" between the "temporary" and the "permanent" debt ceiling.

The way was cleared for the subsequent explosion in U.S. debt. With the U.S. being the world's "reserve currency", the way was in fact cleared for a debt explosion right around the world. It was also cleared for five of the biggest bull markets in history.

by: The Privateer Market Letter

The Early Gold Wars

The Congress shall have power ...to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures." 1787 - The Constitution of the United States - Section 8

That is precisely what the Congress did. In 1792, the Dollar was fixed by law at 24.75 grains or 0.05156 troy oz. of Gold. In 1837, the coinage was reworked and the Dollar was defined at 25.8 grains of Gold "nine-tenths fine". That gives 20.67 Dollars to one troy oz. of Gold. That was the Dollar's "fixed value" (see the quote above) for 96 years from 1837 to 1933.

War Declared - 1933-34
(The reference for this material is: Economics And The Public Welfare - A Financial and Economic History of the United States, 1914-1946 by Benjamin M. Anderson)

March 4, 1933
Not quite 20 years after the establishment of the Fed, President Franklin D. Roosevelt was inaugurated for his first term in office.

March 6, 1933
Using a wartime statute passed in 1917, Mr Roosevelt issued a proclamation closing every bank in the U.S. for four days. The banks were closed from March 6 to March 9.

March 9, 1933
Day One of "The Hundred Days". The President called a Special Session of the newly-elected Democratic Congress for the purpose of debating an act prepared in advance by the President's advisors. In a few hours, with minimal if any debate, Congress passed the act: "to provide relief in the existing national emergency in banking, and for other purposes".

April 5, 1933
President Roosevelt, acting under the sweeping authority passed to him by Congress on March 9, signed Presidential Executive Order 6102 which invoked his authority to make it unlawful to own or hold gold coins, gold bullion, or gold certificates. The export of Gold for purposes of payment was also outlawed, except under license from the Treasury.

June 5, 1933
A joint resolution signed by the President was introduced into Congress. This resolution abrogated the gold clause on all existing government and private contracts. Needless to say, the resolution passed.

October 1933
The Roosevelt Administration decided to implement a policy suggested by Professor George F. Warren of Cornell University. This policy advocated controlling "inflation" (firmly defined by this time as "rising prices") by raising and lowering the "gold content" of the Dollar. This policy was implemented, amongst many others, under the first big measure of the New Deal, the "National Recovery Act" (NRA). By January of 1934, the "adjustable Dollar policy" was an obvious and perceived failure, and it was dropped. The NRA itself was declared Unconstitutional on May 27, 1935.

January 30, 1934
The "Gold Reserve Act" became law. It had passed through Congress in five days, with minimal debate. Under this act, the Federal Government took away title to all "Gold Certificates" and gold held by the Federal Reserve Bank (the independent Fed?) and vested sole title with the U.S. Treasury. The Fed banks were to be provided with "Gold Certificates" in return for their Gold, but these certificates had no specific value in Gold assigned to them. When one witness testifying before the Senate Committee protested, he was taken aside by an Administration Senator and the situation explained to him:
"Doctor, you don't understand about these gold certificates. These are not certificates that you can get gold. These are certificates that gold has been taken away from you."

January 31, 1934
The day after the passage of the Act, President Roosevelt fixed the weight of the Dollar at 15.715 grains of Gold "nine-tenths fine". The Dollar was thereby devalued from $20.67 to one troy ounce of Gold to $35.00 to one troy ounce of Gold - or by 69.3 percent. The Treasury, which had become the possessors of all the nation's Gold on the previous day, saw the value of their Gold holdings increase by $US 2.81 Billion. The Treasury now "owned" the Gold, and no one else inside the U.S. was allowed to own any Gold except by the express permission of the Treasury.

The new ratio of $US 35 was adopted at Bretton Woods in July 1944. The U.S. Dollar was made the world's Reserve Currency and the IMF and World Bank established in 1947. The now international ratio of 35 U.S. Dollars to one troy ounce of Gold lasted until August 15, 1971.

Collision of Cultures

The California gold rush was not merely an American happening--it was a world event. Many mines, especially in the south, were worked by foreigners who came solely for the gold. Chinese, Chileans, Mexicans, Irish, Germans, French, and Turks all sought their fortune in California. Like their American-born counterparts, foreign miners had no intention of staying in California. Their goal was to get the gold and get home. But hauling gold out of the country was a difficult operation--bandits often preyed on foreigners. The Chinese had a unique solution.

As gold became less plentiful, resentment towards foreigners grew. Under pressure, the California legislature passed the Foreign Miners Tax in 1850, a $20 per month levy payable by every foreign miner--a tax which only fueled the growing fire of ethnic resentment.Many foreign miners refused to pay the tax and left the country. Others, like the Chinese, stayed in California, in mining--or in more traditional jobs in the metropolitan culture that was developing. Although there were ethnic skirmishes, most of these new residents thrived. If you had something to contribute, California would take you in. Almost instantly, the state had assembled the most diverse ethnic culture in the world.

Yet one ethnic group did not do well--the original residents of California's gold country: Native Americans. Uninterested in gold or in mining--they were almost immediately annihilated.
African Americans fared surprisingly well. Southerners who brought their slaves to help in the digging quickly found out that 49ers didn't take kindly to that idea--but it wasn't because of an opposition to slavery. The miners had quite a different reason for objecting.

In 1850, California was admitted to the Union as a free state--adding to eastern tensions that would lead to the Civil War. But few in California cared much about the slavery question. There was still but one thing on the minds of nearly everyone here--money. And money was becoming harder and harder to find.

Gold Country

Most of the world's gold is locked deep underground--embedded in hard rock. But California gold was different--easily accessible to anyone with a few simple tools and a willingness to work hard. Also unique was the political environment. California became a part of the United States just a few days after Marshall's discovery; and so the gold rush came before any meaningful government could be established. It was an unlikely intersection of anarchy and geology. Unlike anywhere else, the gold in California was easy to get and free for the taking.

It was free--and it was plentiful. Soon there was too much money in California and too little of everything else. The lessons of supply and demand were often painful. A forty-niner who earned a dollar a day back home, could make twenty-five dollars in a day of mining--but that was often just enough to buy dinner.

It wasn't just Sutter's gardens that were raided--by the end of 1849, his grand empire had collapsed completely. Sutter did not have the entrepreneurial spirit of the new Californians and he didn't have gold fever. He wanted an agricultural empire and refused to alter his vision. In the new California, Sutter was simply in the way. The 49ers literally trampled his crops and tore down his fort for the building materials. Dejected, disillusioned, he eventually left the state. The man who had the best opportunity to capitalize on the discovery of gold--never even tried. Instead, California was filling up with a very different kind of businessman--and it was filling up fast. Camps sprouted up and evolved into ramshackle boomtowns to serve the growing population--places with accurate names like: Hangtown, Gouge Eye, Rough and Ready, and Whiskeytown. Places to avoid--were it not for the gold. Places that were wild, open, free.
The class society of the east was gone and opportunity was everywhere. It was pure freedom, and a pure free market. People who had a skill were in demand regardless of who they were. Women, for example, who couldn't earn much money back home, found their domestic skills had considerable value here.

Part of the reason they could charge so much for their talents was the fact that women were rare in the early gold rush days.
Women weren't the only ones to realize the entrepreneurial opportunities of California. People from all walks of life quickly understood that there was just as much money to be made serving the miners as there was digging for gold. A steamboat operator could earn 40,000 dollars in a single month--a chicken farmer could sell each precious egg for fifty cents.

King of the wheeling, dealing entrepenuers was Sam Brannan. The man who pulled the trigger on the gold rush was expanding his sphere of influence--and earning unheard of profits. While miners talked of gold, Brannan shrewdly bought up carpet tacks-- every tack in California. By cornering the market, he could extort huge profits, a technique he executed flawlessly--over and over. But Brannan was only the first in a long line of entrepenuers who made their fortunes without digging for gold. In 1853--according to legend--this man stitched a pair of pants out of canvas; sturdy pants that later became popular with the miners--very popular. His name:Levi Strauss.But during the gold rush, Strauss was best known for his prosperous dry good business. It wasn't until 1872 that he added a critical innovation to canvas pants, the metal rivet--a breakthrough that would change the course of American fashion.
This New York butcher decided one day to walk to California. Eventually, he opened a meat market in Placerville--and later took his profits to Milwaukee, where he set up a meat processing plant. His name was Phillip Armour and the Armour meat packing company became one of the nation's largest.
Armour's neighbor in Placerville, was an enterprising wheelbarrow maker who dreamed of bigger things. After saving every dime for six years, he left California for his home in Indiana. There, he plowed his profits into the family wagon-making business. The man's name was John Studebaker--and the family enterprise would go on to build covered wagons for the Oregon-bound pioneers, and later--automobiles.
These two businessmen also looked west and saw opportunity. Sensing the unsettled atmosphere in California--they offered what many miners desperately wanted: stability. The offered secure, honest banking, transportation, even mail delivery. They were Henry Wells and William Fargo. Their company, Wells Fargo, became a giant in the banking industry.

The most famous celebrity of the gold rush era came to California as a complete unknown and took a job writing for the San Francisco Call. It wasn't long until his fanciful story about a frog jumping contest in nearby Calaveras County thrust him into the national spotlight.
His name: Samuel Clemens--Mark Twain. Clemens boss at the Call was also destined to become a best-selling author, Brett Harte. Unlike Clemens, Harte wrote almost exclusively about western characters--colorful stories about miners, bandits, and gamblers. His tale of an orphaned baby adopted by a group of rough miners would make him famous and rich.For every famous success, there were a thousand smaller stories of people who used their wits, not their shovels-- to find a fortune. Creative entrepenuers were everywhere--looking for a new angle--a new way to make money, more money.
In 1848 and early 49, everyone was making money--but the party didn't last forever. For most miners, it didn't last very long at all.

The Journey on Gold

The departing gold-seekers faced an immediate problem. California was a long way from home. There was no railroad to whisk them west; no river to float them to California. Instead, the journey would be a painful test of endurance.
There were two miserable choices. The sea route around the tip of South America often took more than six months. But the alternative wasn't much better--a 2,000 mile walk across the barren American outback. The sea route was favored by gold seekers from the eastern states. Seasickness was rampant; food was full of bugs, or worse-rancid. Water stored for months in a ship's hold was almost impossible to drink. And then there was the boredom--months and months at sea with nothing to do, except dream about gold. The wait was intolerable. To satisfy the growing thirst for speed, a quicker route was soon employed across Panama. It seemed like a logical shortcut. But traversing the rain forests of Central America in the 1840s was an adventure in itself. Malaria and cholera were common. Those who survived to see the Pacific faced another dilemma--they were stranded. Ships to ferry them up the coast to San Francisco were rare. And so the forty-niners waited for weeks--or months, in overcrowded, disease-infested coastal towns.
For Americans who lived in the central states, there was another way west--a well-worn path carved out several years earlier: the Oregon-California Trail. The overland road was much shorter than the sea route, but it wasn't faster. Most had no idea how severe the overland journey would be.
All they could think about was gold as they plodded westward alongside covered wagons at two miles per hour--for up to six months. The first weeks on the trail took the adventurers along the Platte River, past landmarks like Chimney Rock, Courthouse Rock, and Scotts Bluffs. Military outposts like Ft. Laramie were most important as post offices--places to send letters to eager families back home--heartfelt letters of optimism and hope.

The Famous (and infamous)

Many well-known historical personalities got their start in, made their mark on, or touched the history of California's Gold Country, some right here in Placerville. Take a look at some of the famous, and infamous:

• Phillip Danforth Armour (1833-1901) ~ Phillip Armour, of meat-packing fame, started his career in Placerville, supplying the miners with picks and shovels and meat from his butcher shop. He headed back to the east coast, invested in a packing company, and Armour & Company became one of the world's largest pork processors.
  
  "Hot dogs, Armour Hot Dogs. What kind of kids love Armour Hot Dogs? Big kids, little kids, kids who climb on rocks. Fat kids, skinny kids, even kids with chicken pox love hot dogs, Armour Hot Dogs. The dogs kids love to bite!"
• Black Bart ~ In 1877, the Wells Fargo stage was robbed by a lone highwayman wearing a long linen duster and a flour sack over his head. He had a strong firm voice and piercing blue eyes that could be seen through the holes in the sack. From 1875 to 1883, he performed at least 28 robberies. He never rode a horse during his highway robberies; he just walked out of nowhere in some secluded ravine, carrying an unloaded double-barreled shotgun for show. He never hurt anyone and was always polite while committing his crimes, never raising his voice, asking calmly, "Will you please throw down your treasure box, Sir?" One time, when a lady offered him her valuables, he told her that he didn't want her money, he wanted Wells Fargo's money. After retrieving the strong box from the driver, he would use a small hatchet to open it. He acquired a reputation as a poet, or "versifying", as he called it later, because of the poems left at two early robbery scenes, like this gem:

Here I lay me down to sleepTo wait the coming morrow.Perhaps success, perhaps defeat And everlasting sorrow.

I've labored hard and long for bread,For honor and for riches,But on my corns too long you've tred [We had to bleep out this line].

Let come what will, I'll try it on,My condition can't be worse.And if there's money in that box,'Tis munny in my purse.
~ Black Bart, Po-8

The beginning of the end for Bart was November 3, 1883: He waited for the Tuttletown stage, which carried $550 in gold coin and over 200 ounces of amalgam. A young boy who had hitched a ride to go hunting was the only passenger, and he left the stagecoach just before Bart showed up. The box was secured to the floor of the coach and the driver complained that his brake wouldn't work right. To buy time to release the strong box, Bart told the driver to unhitch the team and take them down the road. When Bart finally got the loot out of the box, the driver opened fire on him with the boy's rifle. On his hasty departure, Bart left a few things behind, including a handkerchief with the laundry mark F.X.O.7. Special Detective Harry N. Morse was hired to trace the hanky. He checked at one hundred laundries, and within a week, it had been traced to a San Francisco laundry ~ and then to Black Bart at 316 Bush Street, Apartment 40, San Francisco.

He was 50 years old and dapper in appearance. Seems he was born in Illinois as Charles E. Boles (or Bowles), although he used the name Charles E. Bolton and signed in to City Prison as T.Z. Spaulding. He was intelligent, well-educated, and a veteran of the Civil War who had tried his hand at gold mining without success. So he decided to turn to highwaymanship. As a clerk at several stage offices, he studied the shipments and schedules before he tried his hand at stealing gold, and was quite successful at it for a while.
Sheriff Ben Thorn went to San Francisco to bring Bart back to San Andreas, the county seat of his latest crime. His trial took place in the courthouse that still stands there. He served a little more than four years of a six-year sentence at San Quentin, north of his hometown. He vanished completely into the San Joaquin Valley after his release from prison, perhaps with a big sigh of relief (and maybe with a pension?) from Wells, Fargo, & Company.

• Lotta Crabtree ~ At six years of age, Lotta performed her first song and dance on an anvil at Fippin's Blacksmith Shop for the miners at Rough & Ready. Tutored by the famous Lola Montez, she toured the gold fields for years, delighting homesick miners wherever she performed. She eventually went on to San Francisco and New York, where she died quite wealthy and happy at age 77 in 1924.
  
• Jerry Crane ~ Dr. Crane has the dubious distinction of being the first to be hanged in Coloma, immediately before Mickey Free was hanged in the town's celebrated double hanging. Crane murdered one of his students named Susan because, as he claimed, he "loved" her (actually, she had unwisely rejected his marriage proposal), although a little investigating revealed that he had a wife and family back East. He was arrested at his home in Ringgold for the murder, and there was a lynching attempt. However, the Sheriff got him out of town and into the Coloma jail. On the day of the double execution, Coloma hired a brass band from Placerville and made quite a celebration of the event. On the gallows, Crane sang some verses he had composed to a popular tune of the day, and just before the trap fell, he said, "Here I ome, Susan!"
• Elanor Dumont ~ She captured the town's heart when she stepped off the coach in Nevada City in 1854. Because of her great personal charm, the town tolerated her opening a gambling parlor. She became "the Blackjack Queen of the Northern Mines" and made a fortune dealing cards to the miners. She got the nickname "Madame Moustache" because of a downy growth on her upper lip. At 38, she married a small-time promoter, who promptly spent all her money and deserted her. Her life went downhill from there, and she died an ignoble death on September 9, 1879 ~ suicide in disreputable Bodie.
• Mickey Free ~ Mickey Free was Hangee No. 2 in Coloma's celebrated double hanging. He was involved in a cutthroat gang that specialized in raiding and robbing Chinese camps and murdering lonely miners. He was responsible for the murder of a roadhouse keeper. Later, he wrote a confession, "Life of Mickey Free", which was published by the local Empire County Argus paper. At his execution in Coloma immediately following that of Jerry Crane, he cocked his hat over one eye, tossed peanuts into his mouth, and at one point danced a jig, perhaps to the beat of the brass band from Placerville that was playing. However, when his turn on the gallows came, he tried to sing, but broke down completely. Free's grave can still be found at the edge of the Coloma cemetery.
• Lyman Gilmore (1874-1951) ~ A thinker and inventor who lived in Colfax, Lyman Gilmore designed heavier-than-air machines before the Wright Brothers, who flew their airplane at Kitty Hawk, North Carolina, in 1903. Gilmore built a 10-foot sailplane and experimented with gliders pulled by horses. His first plane was a glider with an eighteen foot wingspan. In 1902, months before the Wright Brothers historic flight, it is said that Lyman flew a 32-foot glider with his newly-patented steam engine and flash boiler, but there were few witnesses to his flight. In 1907, he built the first air field in the United States, located at Highway 20 and Squirrel Creek Road near Grass Valley. Gilmore wasn't of the Gold Rush era per se, but his story from the Gold Country is interesting nonetheless.
• Horace Greeley (1811-1872) ~ Horace Greeley, editor of the New York Tribune, uttered his famous advice,"Go west, young man!" He took his own advice and campaigned for the presidency across the United States. During his cross-country trek, he was dumped three times by the stage coaches that carried him, once landing in a river. Then, when he reached Genoa on the east side of the Sierras, Mr. Greeley made the near-fatal mistake of telling his new driver, Hank "Quick Whip" Monk, that he was in a hurry to get to Placerville because of a speaking engagement. Hank thus "having his orders" took Horace on a trans-Sierra ride that would go down in history, thanks to Mark Twain and his book Roughing It. En route, when Mr. Greeley's head reportedly began hitting the top of the passenger compartment, he told Hank to slow down, which Hank swears he misinterpreted as a plea to go faster. They landed in Placerville (some say with Horace's head protruding through the coach's roof) in a timely manner. A welcoming committee had gone out to the east of town to bring the presidential candidate into town with dignity and honor. One story states that Hank wouldn't stop, saying, "I've got my orders!" and that his Concord coach roared right into town. Another story says Hank stopped at Sportsman's Hall and Horace got into the waiting coach. In any event, Mr. Greeley was safely delivered to Placerville, and after a brief recuperation from the turbulent flight, he spoke to the townspeople from the second-story balcony of the Cary House on Main Street.
• Francis Bret Harte (1836-1902) ~ At 18, Bret Harte went to San Francisco, then tried his hand at goldmining in the Mother Lode, and ended up back in San Francisco. Although he disliked the miner's life, he wrote stories that accurately portrayed it. Starting with M'liss in 1860, his tales about the frontier and the mines were best-sellers.
• Mark Hopkins (1814-1878) ~ This railroad magnate, one of the Big Four builders of the Central Pacific Railroad, got his start selling vegetables in Placerville.
• James Hume ~ Hume was Chief of Detectives for Wells, Fargo & Co., Placerville's Town Marshal, and the El Dorado County Sheriff.
• Collis Huntington ~ In 1850, Mr. Huntington operated a store in Placerville. He later went on to become one of the Big Four builders of the Central Pacific Railroad.
• Edwin Markham ~ The author and poet, Charles Edwin Markham, lived and taught school in Coloma before attaining world-wide fame with his immortal poem, "The Man with the Hoe." He was also a resident of Placerville and is buried in the City Cemetery on Rector Street.
• Mark Twain ~ Samuel Clemens came west in 1861, traveling with his brother Orion, who had been appointed governor of the Nevada Territory. Sam had worked as a riverboat pilot, printer, newspaperman, and even a Confederate soldier for a very short period of time. He tried his hand at mining in Nevada and California, but was happy to accept a job as a reporter on the Virginia City Enterprise, where he started using the name Mark Twain.
  He loved to travel, ending up in San Francisco, but his irrepressible sense of humor got him banned from the city when he annoyed the police chief. In 1864, he visited friends in Angels Camp, where he was told the story about a frog jumping contest that was lost when someone filled one of the famed croakers full of buckshot. The story became the basis for his book The Celebrated Jumping Frog of Calaveras County. Mark Twain became an immediate success when his story was published back East. He left California a year later but took with him impressions that influenced his writing for the rest of his life.
  
  
  

Modern Gold Mining

Three Basic Steps ~ Today, commercial gold mining involves the expertise of geologists and chemists in strategic maneuvers, some similar to those used during the Gold Rush era.

When gold has been located, either near the surface or deeper underground—some modern mines are three miles deep—three basic operations are undertaken.

First, the ore is extracted by conventional methods.
Next, the gold is separated by chemical and/or mechanical processes.
Then the gold is refined, or purified, and cast into bars.
Small nuggets or grains of gold may be found in riverbed sand. Since it is not physically attached to the grains of sand that surround it, the gold can be easily separated by gravity. This is possible because gold is over 19 times as heavy as water and about seven times as heavy as sand. Therefore, the sand is carried away by the flow of water, but the heavy gold falls to the bottom.
Gold can also be locked in seams of rock, often far underground. Today, man often has to dig deep to find narrow veins of quartz containing minute grains of gold, sometimes alloyed with a low percentage of silver or mixed with sulfides. It takes five tons of ore to produce just an ounce of gold. How is this done?

Extraction ~ The first stage in mining is to break the rock into transportable chunks with special pneumatic drills and dynamite. Since the quartz vein is sometimes only a foot or two thick, a tremendous amount of material surrounding the vein also has to be broken up to get the gold-bearing quartz out. This ore is then loaded into small cars running on narrow-gauge rails and is carried to the mill, where the gold is separated from the quartz and the sulfides. The ore is dumped into a large hopper able to hold more than 400 tons of rock.

The Crusher ~ From the opening at the bottom of this big concrete hopper, the ore drops into a crusher that reduces the size of the rock. Often two or more crushers work in succession, gradually reducing the size of the rock.
The Ball Mill ~ The crushed ore is now put into a ball mill, which is a huge cylinder or drum that rotates horizontally and is about one third full of steel balls weighing several tons. As the mill rotates, the ore is gradually pulverized under the tremendous pressure of the steel balls as they roll over the rock. After many hours, the ore is reduced to sand. The larger particles of gold have by now been released and can now be separated by such methods as jigging.
Jigging ~ A jig is a machine that uses a stream of water to separate gold and sulfides from most of the sand made by the ball mill. The gold, sulfide (because it is also heavy), and a little sand settle into the hutch of the jig and this mixture is called the "jig concentrate." It now must be subjected to the amalgamation process.
Amalgamation ~ This is accomplished with mercury, which absorbs gold, forming what is called an "amalgam." But the mercury does not form amalgams with quartz or sulfide, so the mercury extracts the gold and leaves the rest. Such amalgamation accounts for the extraction of over 60 percent of the total gold in the ore. What about the rest of the gold that is locked inside the sulfides?

Cyanidation ~ The precious sulfides must be ground very fine so the gold can be dissolved. A very dilute solution of the deadly poison cyanide has the amazing ability to dissolve gold. So the finely ground sulfides are stirred in huge vats for a day or two in a solution containing cyanide and a bit of lime. When the gold dissolves, the now barren sulfides are allowed to settle. The gold solution, known as "pregnant" solution, is siphoned off. To recover the gold in a solid state, zinc dust is added. This precipitates, or separates, the gold from the solution.
By means of amalgamation and cyanidation over 90 percent of the gold contained in the original ore is extracted. But at this stage the extracts do not even look like gold. The gold-mercury amalgam is in the form of silver-gray balls and the zinc-gold precipitate is a brownish-black sludge. So both of these substances have to be sent from the concentrating mill to the chemical plant for treatment.
Treating Amalgam ~ The first step in treating the amalgam is distillation. Mercury boils at 675 degrees Fahrenheit, whereas gold does not even melt until it reaches 1,945 degrees Fahrenheit. The amalgam is put into an iron retort fitted with an outlet pipe that is cooled by running water. The retort is heated to the point where the mercury boils off, leaving the gold behind. The mercury, however, is collected and reused.

Treating Precipitate ~ The gold-zinc precipitate has to be handled differently. It is treated with acid, which dissolves the zinc and thus frees the gold. Then the gold residue is washed and dried.
The Melt Down ~ At this point gold from both concentrates is ready for melting down, along with any gold that may have been retained on top of the jig "bed." The gold is put into large graphite crucibles, along with various chemicals to facilitate the melting and also the formation of slag. These crucibles are heated in an oil-fired open-hearth refractory furnace.
Casting ~ The liquefied gold is stirred and then poured quickly into cast-iron ingot molds.
Slagging ~ The impurities, being lighter than the precious metal, float to the surface as a scum that solidifies into a crust known as slag. After cooling a few minutes, the slag is hammered off and the ingots are scrubbed clean.
Finishing Touches ~ Having been analyzed for purity or fineness, the ingots are stamped with a number and packed for shipping.