Requesting some basic info about the industry for a paper

[CHILL1988]

Greetings!

I am posting here to see if I can get some help from you all. I am in college and writing a paper about the gold refining and precious metals industry. However, my library definitely lacks the information I am looking for. I am trying to understand the basics, fundamentals of gold refining, bullion trading and the gold refining community in general. I'v done plenty of research trying to understand the terminology and basic processes of everything done, but I still don't' feel like i have a grasp on it.

The only information I know is what I have read on the internet (limited) and reading the conversations here on this forum, which is incredibly helpful. But I'm a girl, who knows nothing of this stuff. I need to understand it so I can explain it to other people in ways that is easy for the average person to comprehend. So far, the only thing my audience can relate to is the Gold Rush show in discovery.

With that said, I know everyone is busy and has plenty of posts to tend to, but if anyone has some good links or tips or docs/files that could be helpful to me, I would really appreciate it.

From everything I have read and understand, I have a ton of respect for this industry and the people in it. I hope I am not offending anyone by asking for so much help.

Again, thanks. :lol:

 

[Palladium]

No mam your not bothering us with questions one bit, that's what we are here for.
Welcome to the forum.

 

[CHILL1988]

Thank you!
I am definitely understanding more from reading this forum but I just don't want to assume anything.

I will keep checking back to see if anyone has some posts for me. Otherwise I am reading through the book by Hoke.

thanks again.

 

[element47.5]

One thing that comes to mind that IMO is a very widespread misconception (and thus night be something you should investigate for your purposes) is that the bullion transactions (the pure buying and selling of precious metals)...that intuitively sit at the top of the entire food chain of this nexus of activity is an astonishingly low-profit, low margin business.

There are aspects to the bullion business that I think would surprise most people. For example, I would reckon that a typical dealer margin on a US Gold Eagle would be maybe 2%. I recall, when I worked briefly for Mike Maloney we struggled to get 2% out of transactions. How many businesses do you think can survive on a 2% margin? How much profit do you think there is when a bullion seller..let's say APMEX...or tulving, or gainseville coins or CMI or CNI or any of a hundred others....sells $10,000 worth of gold or silver? And...while said dealer is holding this material in their inventory, what risks do they bear in terms of market price? A dealer might make $20 or $40 or $50 on the resale of a 1 oz US Gold Eagle, for example. On a $10K deal, a bullion seller might make $200. Maybe less. $10 worth of gold is at this moment about 6 Eagles. Well, on Friday, the price of gold (commonly abbreviated POG) dropped $40. How much did the dealer make on the Eagles he bought on Thursday?

It is extremely rare for anybody buying or selling gold or PMs to not be aware of the spot price. In addition...nobody really "needs" to buy gold or silver. There is a clear exception to this, being large industrial users who need to know and lock in a fixed price for the gold they need to make 2 million connectors. Likewise, there is the mine operator who needs to know that he can meet payroll and his quarterly tax payments and so needs to be constantly locking his selling prices; and not always at opportune moments, either*. There is no such spot price on broccoli, for example. If you go to Safeway to buy broccoli, you are somewhat sensitive to price but for the most part, you pay and are in many ways forced to pay what the store asks for broccoli. There is no worldwide standard price for broccoli you can look up on your smartphone.

So I don't know if this line of inquiry relates to what your paper is about but I thought I'd throw it out there for your consideration.

*You should perhaps investigate the Phelps Dodge (PD) company, giant copper producer that until just a few years ago had been around for ~~100 years. Fascinating story. In an era of low copper prices, they sold forward (agreed to sell their output) at then-market prices, which were low. They sold KILOTONS of copper forward, agreeing to sell copper at (using a crude example and total guess) $2.50 for the next three years. Why? Because they thought the price would decline farther; they needed the money then to pay off debts or to meet current expenses, whatever. Fast forward maybe a year or two or three. Suddenly, Copper is selling in the high $3 range. PD makes ZERO on this market price rise, because they had agreed to sell "all" their copper at $2.50. In addition, their finances start to look very bad, because what they are getting for their copper is not keeping up with rising fuel costs. They almost went kablooey, but in any event, their finances became very precarious. What happened? Freeport McMoran (FCX, another copper miner) swooped in and got the company almost for nothing, because Freeport took over the future obligations to supply the cheap copper PD had promised...out of their own mines. Sure, FCX lost money on the copper they had to supply, but those losses effectively became the purchase price for PD. Very interesting story...at least for us metalheads. I realize copper is not the glamor metal that gold is, but this line of inquiry will start to clue you in to the idea that these markets, including the worldwide spot prices of these metals, are primarily dominated by the futures markets.

 

[CHILL1988]

No! This is absolutely 100 percent helpful and wonderful information. I will investigate that information even further tonight.

Metalheads? That is awesome. Are there lots of different nicknames in the gold refining/precious metals industry? This is another part I am trying to learn about. The culture and attitudes of those of you in this industry. What brings you all here in the first place?

 

[element47.5]

What brings you all here in the first place?

It's not just one thing, but the basic idea behind gold and silver is that they represent a certain tangible store of value that is not present in Federal Reserve notes, FRNs, which are debt instruments whose PRIMARY representation or indication of value is that the US Gov't will only accept tax payment in FRNs. This is the specific thing that forces you (if a citizen of the US) to play the "FRN" game and devote a great part of your earnings capability to get them. And this has been a true truth over thousands of monetary and currency systems going back perhaps 3000 years. Gold and silver do not owe their valuations to something else. They are what they are. The full study of this notion is a large one, but it all changed when in 1971 Nixon removed the convertibility of US currency into gold. Before 1933, you could go into a bank and change $20 of paper dollars into a $20 gold piece or 20 silver dollars. And nobody cared. It changed further in 1964 when the US began making coins no longer comprised of 90% silver. These actions permitted the government to be able to print as much money as they wanted, deteriorating the value of each and every other dollar that was already out there. We hear a lot these days about "printing money" but a more subtle and equally insidious aspect of what we call "fiat" money is that each and every dollar in existence that is not a silver dollar or a gold dollar is in reality a debt, in fact, it is merely a receipt for a debt. This is a story that has been repeated hundreds and hundreds of times in human history, going all the way back to the Romans. Notable examples in history include the hyperinflation of Weimar Germany between the World Wars; the recent ultra devaluation of currency in Zimbabwe, the hyperinflation in Hungary after WW2, and perhaps the most fantastic one of all, the hyperinflation that occurred in Yugoslavia in 1992. Not so long ago, huh? In that hyperinflation, a fellow doused himself with gasoline and set himself on fire because he could no longer afford to feed his family. The nation's telephone system was immediately flooded with people calling and asking the police who responded if there was any gasoline left.

You are a relative youngster, you are quite probably unaware of the devastating effect of short and long term inflation on a person's ability to feed, clothe, and shelter himself. You should read up on it. Mike Maloney's book "Guide to Investing in Gold & Silver" http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=mike+maloney+money is a good start. When I was growing up, I could buy a gallon of gasoline for 27 cents. That would be three dimes. Those dimes, today, if minted in 1964 or before, are worth $2.25 each in silver. Thus three of them are worth $6.75. So, the person who held their money in dimes can still buy gasoline and even get some money back. The person who held their money in FRNs needs WELL MORE THAN TEN TIMES as many FRNs to buy that gallon of gas. Something to ponder.

Another very interesting historical study is the amount of wealth that was "dug out of the ground" in the CA gold rush in 1849 and silver that was extracted from the Comstock Lode in Colorado in the 1800's. Arguably, these metal "finds" and the fortunes that were created by those who could own them without getting killed are the basis for much of the nation's wealth, today.

So that's why people like gold and silver. As to refining it, it is a fascinating and difficult challenge in which extremely dangerous, even deadly chemicals and precisely laid out processes are used. It requires insight, patience, lots of safety equipment and discipline to carry out. The stuff is rare. It is hard to get. It does not care if you are successful refining it, it couldn't care less. It represents man-hours of work and it cannot be synthesized by any known process. Somebody has to dig it out of the ground, crush it, melt it, pour it into ingots or stamp it into coins, and truck it to a place where it can be sold. And every atom of it in existence had to be made that way. All those processes require fuel and labor and giant holes dug into the ground. These metals are recognized all over the world as what they are and it has been that way for thousands of years. It ain't a Justin Bieber itune download. They are real and tangible.

By the way, Mike has a load of interviews on YouTube and his website goldandsilver.com where he lays out the case for why one should own PMs (precious metals) and lots of monetary history stuff.

 

[nickvc]

All the gold ever mined is still in circulation somewhere unless it was buried or lost. If you, your friends or lecturer wear any gold, use a laptop or mobile phone it could well have gold within it that came from ancient Egypt, the Roman empire or the early Greek city states. It has always been treasured and coveted by mankind and still is, we see examples of good fever here on the forum time and time again.
The fact is that in comparison to other precious metals it's not that rare and is needed in fewer applications whereas the others are rare and irreplaceable, there's more gold above ground than silver for example and silver is used in many many more industries and in many applications but it's low value means that much silver is not reclaimable due to the costs of recovery and much of the worlds silver comes as a by product of copper refining not silver mining but gold is mined extensively worldwide.