Today’s Commercial Investing Show features author, Matthew Hart, who gives his leading and well-evidenced opinion on today’s gold rush and talks about the influence of advanced technologies in both gold prospecting and more recently, in diamond manufacturing.
Key Takeaways

02.36 – Looking at patterns suggests that we are now coming to the end of the greatest gold rush in history, with most searches being totally price-driven.
04.55 – In Nevada, new technologies for gold extraction are really taking off.
10.20 – ETFs may well be the biggest factor in price movements and alterations with gold.
12.35 – Our fascination with gold has a history that dates back further than our ability to write.
17.19 – Like everything we use, eventually these gold deposits and reserves will run out.
18.36 – As it stands, the manufacture of diamonds in laboratories doesn’t look set to ruin the gem diamond trade.
23.02 – For more information and to buy Gold: The Race for the World’s Most Seductive Metal, go to “www.MatthewHart.net”

Tweetables
“Gold is the measure of how we feel about how the world is going.”
“As long as the US has the reserve currency, it can be the bully of the world.”
“Imagine an explosion in space that created 50 Earth-sized planets of solid gold.”

Transcript

Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit “www.MatthewHart.net”
Welcome to the Commercial Investing Show where we analyze, explain and exploit the opportunities presented in today’s commercial property marketplace. If you’re interested in apartments, mobile home parks, sub-storage facilities and other income property, you’ve come to the right place. We’ll explore what’s hot and what’s not in markets nationwide in the relentless pursuit of return on investment. Here’s your host, Jason Hartman.

Jason Hartman:
Welcome to the Commercial Investing Show, this is your host, Jason Hartman, where we discuss the relentless pursuit of ROI. Yes, that’s right, Return on Investment and Return on Inflation. We have a changing future with monetary policy and fiscal policy the way it is and we need to prepare for it as investors by structuring our transactions differently, and we will talk about that on this episode and future episodes, of course. We will be back with a fantastic interview for you and the guest today in just less than 60 seconds. Stay tuned!

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Jason:
It’s my pleasure to welcome Matthew Hart to the show; he is the author of Gold: The Race for the World’s Most Seductive Metal, as well as some other books on diamonds and gold. Matthew, welcome, how are you?

Matthew:
Hello, I’m very well thanks, Jason. Thanks for having me.

Jason:
My pleasure. You’re located in New York today, right?

Matthew:
Yes I am.

Jason:
Fantastic, well, gold certainly is a seductive metal. It’s just so visually appealing, it’s so unique in its yellow color. You really chronicle the mining issues around the world and I want to talk to you about whether or not we’re in a gold rush. What’s the state of the world as far as gold goes, nowadays?

Matthew:
Well, you say ‘Are we in a gold rush?’ I believe that we’re ending what was the greatest gold rush in history, because there was gold exploration everywhere in the world, on every continent except Antarctica. When we think of a gold rush, we often think of the classic gold rush like in California. In California, they mined 850 tonnes of gold in 10 years. Today, we’re producing 850 tonnes of gold in 3 or 4 months, and at the time of the California gold rush, that was a stupefying amount of gold. Today, it’s just a drop in the bucket. Gold is a $20 trillion a year business. I call it a gold rush because it was, unlike California with the classic gold rush that people in the business call an ‘area play’ – in other words, someone finds gold in a given area, and then everybody else rushes there and digs for gold. Here’s it was price driven. The price converted all kinds of marginally prospective land in various parts of the world into suddenly top land, because where gold was worth $800 an ounce in 2008, at the time Lehmann Brothers collapsed, then gold price shoots up and in less than 3 years it’s worth $1900 an ounce, so that makes all kinds of gold targets all over the world. All of a sudden, ground that was not worth exploring before is suddenly very worth exploring, and that’s what created this phenomenal gold rush where they were drilling everywhere. They were going back to old mines that had been closed and re-opened.

Jason:
And the technology is much better nowadays. When you made the comparison to the amount of gold being mined today within 3 or 4 months versus 10 years during the California gold rush, I couldn’t help but think about the oil and natural gas situation. Fracking has made so much more of those commodities accessible to us, and I think ultimately, will drive down the price. We might, for the first time, really become a major exporter of those products. What’s going on with technology in terms of gold mining?

Matthew:
Some of the biggest advances in technology for gold mining have to do with recovery. In the last years of the 20th Century, they developed, to a very large extent, the heap leaching. This works with very low grade ore and it’s possible because it doesn’t have to be treated in a plant. They just heap it up and leach out the gold with a cyanide solution, and they then capture the cyanide and put it in ponds.

I know it sounds very horrifying, but it degrades quite quickly in the sunlight. I know in Nevada, where they do a huge amount of heap leaching – in fact, you could say that Nevada and the success of the Carlin Trend is due to heap leaching, which made a lot of the marginal ore very profitable. The environmental people in the state there – the land and water people – have told me that it’s just not a problem. They don’t have an issue with cyanide. They have other issues, mostly to do with de-watering, because if the mines go deeper, of course they have to pump them out and a lot of that water doesn’t get fed back into the aquifers it’s pumped from – it just evaporates. There’s a lot of water loss from the process, and I think that’s the environmental issue. Heap leaching has made marginal low-grade ore profitable.

Jason:
Is there anything else on the horizon? I don’t know if you’d ask someone in the oil industry before the advent of a new technology if they knew that, because of course we’re always somewhat surprised about the next technology, but is there anything that’s foreseeable, Matthew?

Matthew:
Well, I guess some exploration techniques are better, but I think maybe it’s looking at different locations for finding gold. For example, under the sea. There are now companies that have developed submersible prospecting systems, and in fact, the Chinese are building a bunch of these small submarines. Again, the Chinese have licensed a very big area in the Indian Ocean that they’re going to explore.

There’s a Canadian company called Nautilus, located in Toronto, and they had targeted somewhere near Papua New Guinea, and they’re under these volcanic vents under the sea. It was very rich in gold and minerals there. In fact, I think they had a mining plan on which they built a leaching agreement with the local government, which was the latest I read. Anyway, there’s gold under there. The fact that the Chinese are interested means that if it can be got out, it will be got out. They are now the world’s biggest gold consumers, as well as the world’s biggest gold producing country.

Jason:
Do you have any concern? I know you made the disclaimer before we started, Matthew, that you’re not a gold bug per se, but obviously you’re very interested in the topic, having written two books about it. Do you think any of these new exploration or mining technologies will put some downward pressure on the price of gold?

Matthew:
No I don’t. I don’t think that’s what would put pressure on the price of gold because we’re always consuming the supply. We’re always eating up their reserves, so mines are always becoming potentially less rich. But every day they mine, so you have to find new reserves all the time. I think the gold price is driven by human affairs. Yes, I know, there are technical analyses of the gold price and there are very qualified people who measure the supply of gold coming into the market with the market’s demands and all that, but I think if we brush that aside and get down to the core driver of gold value, you reach the fundamental point.

Why should it be worth anything at all? It’s the feeling that it’s an ultimately indestructible asset because man has always regarded gold as valuable and I don’t see that changing. What started the bull run in the first place, the big bull run in the price, was a general failure of confidence in other asset values such as mortgages, equities and even currencies. By the time Lehmann Brothers collapsed in 2008 and put the afterburners on their gold prices, gold prices had already been rising for around 5 years.

I could see that happening again if we get into a situation like just recently and what happened when it plunged. All of a sudden, investors were very nervous about the emerging economy of developing countries which seems to be rather uncertain right now. So what happened? The equities all settled down but gold went up, so I think gold is the measure of where we are in our feelings about how the world is going.

Jason:
It’s the fear investment and it’s also the lack of faith in currency investment, so no question about that; I agree with you. What do you think has been the effect of ETFs? There are many people out there saying, and I don’t know if you have any of these slightly conspiratorial thoughts about it, but that the ETF is kind of a Ponzi scheme because the physical gold isn’t really there.

Matthew:
I’m not a conspiracy theorist about it, but I don’t think you have to be to look at the ETFs out of the corner of your eye. The ETFs bring a lot of volatility to the market simply because they allow so much gold to be traded so quickly. For one thing, they allow people to buy in quickly and to sell very quickly. If the gold price starts to go down, it’s easy to sell. By the way the reported ETF selling brings down the price, and then at the end of the day, the ETFs have to rebalance their share position by buying and selling so it matched up with the volume they have.

They sell billions and dump it into the market in one go because that’s what they have to do. That tends to intensify the swing. It doesn’t cause it, but it intensifies price movements. I believe anyone in the gold market would agree that price movements are intensified by ETFs. It’s not whether they have the gold or not, but does the spider have the gold? They say it’s all in allocated accounts, meaning that their gold is held separate from any other gold, and you can go online, of course, and navigate through their website and see what purports to be a picture of their gold, and then you can also look and see the Bar numbers of it all. If you believe in conspiracy then you think that’s all rubbish. Have I actually looked at it? Has anyone actually gone in there and drilled the bars to make sure? No. So I understand that people have misgivings.

Jason:
Probably rightfully so. Whenever Wall Street gets involved, it creates so much smoke and mirrors in any equation that everything becomes murky and engineered, and it seems like the simple basic laws of economics become very masked by these ‘financial innovations’, as they call them. Talk to us a little bit if you would, Matthew, about what you think makes gold so fascinating and so fickle? You alluded to that before.

Matthew:
It’s fascinating. It’s only quite recently that we had any idea of the antiquity of our fascination with gold. In 1972, a backhoe operator in the town of Varna on the Black Sea coast of Bulgaria unearthed a Neolithic tomb by accident. Now, he was just a backhoe operator and was actually digging foundations for a little apartment building, when he accidentally unearthed this. They sent for the archaeologist, they opened it up, and inside was this treasure of beautiful little gold objects. Any of your listeners can go online and type in Varna Necropolis or Varna Gold and you’ll get all kinds of images of what they found.

I have a catalog from the museum they built there – the Varna Museum, and it’s got these beautiful little objects. They dated them and found them to be 6000 years old; Neolithic men and women were treasuring and making these beautiful little ornaments. That’s at the dawn of our civilization. That’s before writing. It’s before Egypt even gets going. It’s the very dawn of our tradition of civilization. People cherished it.
So you can go back to this question, why do we value it? Many writers have struggled with this, including great economists and thinkers. The best anyone can come up with is that it seems to be hard-wired into the human brain. Jastram, the Berkeley economist who wrote The Golden Constant, a book that studied the relative power of gold over the centuries. He said he thought it was erased memory, so somewhere back there, is this impression that gold made on our very distant ancestors, in probably a brutish world where they just picked up this little lump of something that never corroded or rusted, was malleable – they could shape it into anything they wanted. That hasn’t gone away.

Jason:
I wonder if bit-coin will stand the test of time like that.

Matthew:
Somehow, I feel like it won’t. I don’t have anything against bit-coin; it is what it is. It just doesn’t have this huge cultural range that gold does.

Jason:
These companies that are talking about sending probes to asteroids to mine them – this seems like the most far-fetched, incredibly expensive idea ever, but apparently, maybe it’s not. A spacecraft that would go and mine metals from heavenly bodies and bring them back to earth; that just blows my mind. I’m sure you’ve read about this. There’s one company that’s raising money. I don’t know if they’re near an IPO stage or not, or if they’ve already done it. It’s amazing to me. I can’t believe that would actually pencil out.

Matthew:
I have no idea. I’ve never seen that sort of mass on it. I guess things tend to seem less absurd the further we get on in time. Certainly, if they do manage to figure out some way that they can retrieve this very heavy – although I guess it wouldn’t be very heavy in space, it would weigh nothing – but get it back to earth without it all blowing up or something, there’s a lot of gold out there. That we do know. One of my interviewers told me about something NASA posted up online – they had been observing this distant stellar event in which stars collided, or there was some kind of explosive event far far off in the galaxy. These super heavy metals were created, including gold, and they could measure this – how exactly I’m not sure, but they have ways of measuring matter in distant space. The scientists said that it would be the equivalent of 50 Earth-sized planets of solid gold. What would that do to the gold price?

Jason:
Wow, that is amazing. Investors and speculators alike really have to consider this, don’t they? This may not actually be that far off. There may just be a massive abundance of this. The thing that makes it valuable is its rarity, but maybe gold isn’t the thing for the next 20 years. It might be the thing for the next 5 years..

Matthew:
I think the space mining is probably a fair way out, but looking at other sources like undersea mining isn’t as far out. On the other hand, other big deposits will run out. Look at South Africa – water is drying gold deposits. 40% of the gold produced in the history of the world comes from that single deposit, and they’re certainly running down. These big gargantuan deposits will come to an end. I don’t know what the predictions are for the life of the Carlin Trend – how long can they go? Eventually they’ll have mined the last ounce of gold.

Jason:
I don’t know if the last ounce of gold or the pearl of oil will ever be mined because it’ll cost $2 trillion for the last piece!

Matthew:
Well there you are. It also becomes a total function of price, doesn’t it? Whether we run out of gold or not depends on the price of gold. If gold turns out to be $10,000 an ounce, there’s a lot of ground there that suddenly becomes a gold-mine.

Jason:
That’s for sure. One more issue along the supply lines that I’d like to ask you about is you wrote a book about diamonds. What is the title of that book?

Matthew:

It’s called Diamonds: The History of a Cold-Blooded Love Affair.
Jason:

You profiled a new diamond discovery in Antarctica. Isn’t that correct?

Matthew:
In the Arctic. In the Canadian Arctic.

Jason:
Okay, the Arctic, wrong polar cap. Everybody has long criticized De Beers for monopolizing the diamond market and so forth, but one thing that I found interesting as I was reading an article a few years ago about how they’re making diamonds in the laboratory now, and they’re real. They’re not fake; this is an actual diamond, it’s just made in a laboratory. Any thoughts about that?

Matthew:
Well, it’s a very big business, and in fact, De Beers is involved in it, and they certainly don’t control the diamond business anymore. They use to, but haven’t for quite a while. The biggest maker of industrial diamonds is General Electric. They have a big press in, I think, Woodington, Ohio. They’re generally used for industrial uses where they’re used for drill-bits and things like that. They’re actually making gemstone diamonds. There have always been stories about this, and generally about the Russians and how they’re making high quality gem diamonds and manufacturing them, but I was asked to comment on that by an interviewer recently in England, and I just said ‘Well, I guess if they could actually do it and you couldn’t tell the difference – so far you can tell the difference between them – then it would destroy the value of real gem diamonds’. Their value is based totally on rarity. They haven’t reached that so far, it would be very expensive to do and they would be destroying the market you were developing this technology for, unless they can figure out a way to do it cheaply. Other than that, it’s not complicated. You need a seed of carbon, and then it’s just pressure and heat, and that makes a diamond. You’ve compressed into a very short period what nature takes much longer to do.

Jason:
In your book – and we’re talking about the gold book now, Gold: The Race for the World’s Most Seductive Metal – you have a chapter on the Camp David Coups. What is that about?

Matthew:
That’s basically about the end of the gold standard. In 1971 when the Nixon government came to power and ended the gold standard – though it wasn’t really a gold standard at the time, it was the remnant.

Jason:
It was a pseudo gold standard.

Matthew:
It was the last version of the gold standard. At the end of World War Two, the United States had 75% of all the monetary gold in the world. That’s a rough figure but it’s generally accepted. So that would be able 20,000 tonnes. The other countries, after the war, couldn’t be on the gold standard because they didn’t have enough gold – the US had all the gold. Other countries tied their currencies to the US dollar, and the US dollar was convertible to gold.

Jason:
Isn’t that interesting, though? And then we backed out of the deal so we could inflate our way out of our spending problems.

Matthew:
You backed out of the deal because it wasn’t working. What happened was the economies of other countries improved after the war, so Americans started buying Japanese cars, German cars, foreign electronics and all things like that, but they weren’t buying the same kind of amount of American products, so what happened was American dollars flowed out of the country to buy these other goods. US dollars pile up in these foreign countries, but they don’t need the foreign dollars to buy US products so they just take them to the treasury and cash them in for gold. By the time Nixon came to power, this outflow of gold had turned into a gush. From 20,000 tonnes of gold, the US went down to 8,000 tonnes of gold, and Nixon put a stop to that, as we know, by simply cancelling the whole deal and saying ‘From now on, paper is paper’, that’s all you get.

Jason:
Paper is paper, but we will still be the bully of the world and retain the world reserve currency status, so we can control the value of that paper and the amount that we want to create out of thin air. That had to be the best deal the US ever got in history – we’ll see if we can hang onto it! It’s bothering people all over the world, and quite substantially.

Matthew:
Completely the best deal.

Jason:
Good, well give out your website if you would.

Matthew:
Yes, it’s “www.MatthewHart.net” and that’s got buttons for buying my book and you can read a little about what I’ve done and my background. It’s got reviews and articles that I’ve written, so it’s fairly comprehensive.

Jason:
Fantastic, well Matthew Hart, thank you so much for joining us today.

Matthew:
Thanks for having me, I really enjoyed it.

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Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit “www.MatthewHart.net” or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

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