Category Archives: Economic

The role of gold mining in climate change

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Gold production operations are high level energy users. Mining and refining gold processes have high greenhouse emissions per ton of ore compared to other metals. However, the mining processes for coal, steel and aluminium produce more product than gold so newly-mined gold actually produces less emission than most newly mined metals. According to the World Gold Council, gold has the least emission intensity of all mined metals. Gold is also more valuable than most mined metals. When we compare the volume of greenhouse gasses to the spent on gold, it is actually lower than most mined products.

 

There are a number of gold miners who are actively working towards lowering their carbon emissions and these are some of them:

 

#1. Borden mine

Borden mine which is owned by Goldcorp has plans to switch from diesel to electricity. Current equipment running on diesel will be replaced Battery Electric Vehicles. Changing to electricity will do more than reduce emissions by at least 7% but it will also improve mine safety and performance. Electricity is three times more efficient than their diesel counterparts. Over a decade, it represents a reduction of almost 70,000 tons of CO2 emission. The decrease in emissions reduces the need for more underground ventilation. Borden in particular, will need 50% less ventilation if the switch from diesel.

 

#2. Newmont mine

Newmont is another mine making important strides in curbing carbon emissions. The company is looking at increasing renewable energy through self-generation. It has partnered with the Council on Mining & Metals (ICMM) to realise its targets. Newmont’s Boddington’s operation has managed to reduce fuel consumption by 5.2%. Lowering emission by switching fuel is an important component in Newmont’s 2020 coal usage plan at all its plants. Necessity is a great incentive, for example, the company’s Tanami project found itself without critical diesel because it could not be trucked to site because of extreme weather and rain in 2017. As a result, the mine could not produce the expected 8,000 ounces per week and firing production to shut down in February. It became necessary for the mine to find other alternative fuel options that would also reduce the mine’s carbon admissions.

 

It became necessary an important factor in mitigating the risks that climate change brings. It became necessary for the mine to analyse fuel options whiles reducing carbon emissions. Cost is an important factor. The price of coal is estimated to be $25 at $50 per ton of the carbon dioxide.

 

Newmont has approved the construction of a 450 km pipeline which will deliver gas to the mine thus ensuring reliable power generation. The switch from diesel fuel to natural gas can reduce carbon emissions by 20%. In addition to reducing diesel usage, Newmont has set a target to reduce its Green House Gases (GHG) emission by 16.5% by the end of 2020.

 

#3. Barrick Mine

Barrick has a plan to reduce Greenhouse gas emissions by 30% in the next decade. The mine’s current electricity is generated by using renewable energy sources. The gold production company is currently evaluating all their mines and will in future include electric equipment powered by renewable energy sources.

 

Reducing energy demand might be good for the environment, but it also affects the business side of gold production. Take Barrick’s Hemlo Mine in Canada: The mine developed and installed a ventilation management programme to improve the system and the people within. Optimising underground ventilation systems helped drive energy consumption down. The mine also reduced its heating costs by using the geothermal processes that occur naturally. Energy consumption in terms of ventilation per tonne of ore fell. For this, the Canadian Department awarded the company “The Process and Technology Improvement Award” for 2016.

 

#4. Kinross

Kinross is constantly reviewing its energy supply matrix in order to identify opportunities to reduce both costs and emissions. Kinross’ Paracatu mining operation in Brazil has acquired two hydroelectric power plants with a capacity to generate 155 MW.

 

There are lots of things that mining companies can do to reduce fuel consumption and lower emissions. Some include optimising ventilation, optimising haulage, routes as well as retraining truck drivers, reconfiguring piping networks, optimizing the use of compressed air and even plant automation. The main point and driving force is to reduce carbon emissions so the gold industry does not become the largest contributor to Greenhouse gases. So far, everyone is conscious of the role the industry plays in the bigger picture, they just have to find real and sustainable technologies that can be applied successfully.

 

Sources:

  1. https://www.miningreview.com/news/introduction-links-between-gold-climate-change
  2. https://www.greenbiz.com/article/mining-emissions-reductions-strike-while-earth-cool

 

 

Lifting the Veil Covering Gold And Central Banks

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The latest edition of LBMA’S Alchemist has been out for some time and it unpacks a lot about what is going on in the gold industry. However, the main focus of this edition is the role of central banks in the gold industry. The first article discusses the Banque de France, its past role in the gold market and the future.

The Banquet de France has had a major role in the past when it comes to the gold market. In the 19th century France was at the centre of the gold market. Since its creation in 1800 the central bank of France has held the largest gold reserve in the world.

Even though today France is a member of the European union and has swapped its francs for the Euro, the Banquet de France holds more than 60% of its reserves in physical gold. That translates to about 2,436 tons of pure gold bullion. This places it behind the US, Germany and Italy. 2,436 tons of bullion are valued at $96 billion which is about 4% of France’s GDP. Clearly the French value gold so much so that they store it in an underground vault called the Souterraine. The value is situated 29 meters below the River Seine.

There is another insightful article in the Alchemist that goes into detail about some lesser known central bank gold operations and periods in the history of the gold market. One such period is the Brown Bottom. This happened when the UK auctioned half of its gold reserves. This caused the price of gold to drop quite significantly. This seemingly wholesale auctioning of gold exacerbated the fears that some big gold investors and holders of gold like the European Central Banks had. People also believed that the introduction of the euro would collapse the gold market and bring prices down. To ally those fears and to protect gold the Central Bank Gold Agreement was signed on the 26th September 1999 in Washington DC. It limited the official sale of gold and reduced the level of uncertainty in the gold market. This also sets the psychological stage for the gold bullion market that followed. Gold is a useful asset to central banks even if there is no dividend or high returns.

When it comes to gold, it is important to understand the recession, interest rates and inflation figures. According to economic analysts, the US GDP growth is likely to slow down to 2.6% in 2018 from its previous growth on 2.9%. It is unlikely that we will see a recession in the US in 2019, inflation is expected to stay pretty much close to the Fed’s target, but gold prices aren’t expected to rally as significantly. Gold butis expected to trade towards the $1,300 per ounce mark.

The reason for this bullish forecast for gold is that the US Fed need to hike its rates, but the US Central bank isn’t keen on tightening its monetary policy. Other supportive factors include trade wars and possible geopolitical risks. These might bring some short-term gains. However, these aren’t sure-fire reasons to trigger a rush for gold. Investors who are interested in gold should keep abreast of all the factors that influence the gold market.

Source:

  1. http://www.lbma.org.uk/assets/Alchemist/Alchemist_91/Alch91Goulard.pdf&ved=2ahUKEwjolfG1ranhAhWL4IUKHaq5De8QFjABegQIERAE&usg=AOvVaw2a4zG0jtn6ibm8XnI167F2
  2. https://www2.deloitte.com/insights/us/en/economy/spotlight/economics-insights-analysis-10-2018.html

Western Australia’s Gold Output Affected By Bad Weather

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The weather is an important factor in the mining industry. As much as rain is important for pretty much everything, it affects mining production in a bad way. The weather in Western Australia and Queensland where most of Australia’s gold mining operations are found. According to the latest reports, Australia has managed to produce 74 tonnes of gold in the first quarter. That’s a 7% decrease from the amount produced around the final quarter of 2017.

 

According to experts, the figures are better than what was anticipated considering the amount of rain that came down in the first quarter of the year. The figure is actually 4% more than what was reported for the first quarter of the previous year. However the wet weather affected production at various mines. Wet weather cause haulage problems and forces operators to use low-grade gold stockpiles just to maintain the mill throughput. In addition to that, wet ore tends to be sticky and when it is, it becomes harder to crush and affects conveyor belts and other equipment designed to deal with mining ore when it is dry. Production plants either run slower or they shut down in parts and stockpile the ore to be run through when the conditions are more favourable. Heavy rains also affect the supply of essential services and consumables like diesel to mines located in remote areas of Australia.

 

Looking at individual operators: the Tropicana Joint Venture by AngloGold and Independence Group produced 34,000 ounces less gold than the previous quarter; Barrick and Newmont’s Super Pit produced 28,000 ounces less gold; Newcrest and Telfer’s operation production was down 33,000 ounces whilst Newmont’s Boddington and Tanami operation fell by 30,000 ounces. The Tanami desert area needs as much rain as it can get, however the rainfall early this year was particularly high, it caused sustained flooding in most areas. Because of this, diesel, which is Tanami mines’ primary fuel could not be trucked to the mine. As a result production fell by 30,000 ounces. Only a small number of mining operations reported a higher output, these include AngloGold’s Sunrise Dam Mine BHP, Silver Lake’s Olympic Dam operation and Mt Monger mining operation. These mining operations produced more gold than expected under the circumstances of wet weather.

 

Weather isn’t the only thing creating difficulties for the mining industry. There is talk that the Australian government is contemplating increasing the royalties of gold mined in Western Australia. This would be a disaster for the mining industry. Although the sector works hard to keep costs low, some gold producers have been unable to control costs and have All In Sustaining Costs (AISCs) that are above the gold price. Imposing a higher royalty would be a peculiar way for the government to retain jobs in an industry that is already struggling. It will also reduce the earnings that the government will make with gold exports. The situation is still being closely monitored and mining companies will soon meet with government to discuss the royalties and the taxes that they are already paying especially at this crucial point in time when the industry isn’t doing as good as it.

Sources:

  1. https://www.australianmining.com.au/news/australian-gold-output-strong-despite-wet-weather/
  2. https://www.abc.net.au/news/rural/2017-09-27/how-will-a-wa-gold-royalty-rise-affect-the-nt/8989634

The West Buys Fewer Investment Grade Gold Coins And Bars In The First Quarter Of 2018

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According to the World Gold Council, Europe’s demand for freshly minted coins and bullion bars is at its lowest. The drop is significant. It is at levels that have not been seen in a while. Jewellery owners, on the other hand, have reduced the selling of their gold jewellery despite the high price of gold. Recycling is an important cog in the gold production cycle and with talk of mines reaching peak gold, the trend is worrying. It means that there is less ready to sell gold on the market or that bullion dealers are sitting with inventory for longer periods than they should.

 

The levels of recyclable gold for the first quarter of 2007 and of 2018 reached the low levels that they were on in 2007. The high price of gold should have translated to more people selling their scrap gold, but it would seem there are less cash-strapped people. This might have to do with the strong economic growth in most Western Countries. Brexit has the UK worried, the U.S Trade war, The U.S withdrawing from the Paris Climate Accord spells impending disaster, but that trouble hasn’t been evident yet and maybe people aren’t worried about buying gold to store their wealth.

Europe and America might have gotten used to the story of gold being near depletion which would have made scrap gold dealers less sensitive to the gold price. For dealers, the spot price of gold might be too high for launching a concerted effort to get as much gold as they can. The decline in demand for new bullion coins in the U.S has given rise to the secondary market where coins are being circulated amongst collectors. This trend has continued on to the second quarter of 2018 despite the rising gold price. More gold coins are sold at auction or traded amongst collectors. This is the gold that mostly goes unaccounted for. Gold that is sold by gold dealers, refineries and mints is easy to account for but the amount of gold that has been moved around from dealers to dealer and then to investors is based on speculation. Is it that the industry has enough mined gold to fulfil all that is required and there is supplementary gold needed in the form of recycled gold to meet demand?. Maybe the demand for investment bars and coins has declined but the demand for gold in industrial use has not subsided.

 

The US Mint has reported sales levels they have not seen since 2007. Germany, on the other hand, has increased its gold consumption. It has managed to move from 12th place to 4th place in the table of gold consuming nations. Germany’s household demand for investment gold has risen to 92% between 2013 and 2017. The global average during this period was close to 33%. However, in the first quarter of 2018, it too experienced a dip in demand. The gold market is holding out for this to change but there are so many factors that play into this, it’s hard to determine when everyone will reach a tipping point for things to start changing.

 

Sources:

  1. https://www.coinworld.com/news/precious-metals/2018/05/gold-demand-off-to-slow-start-in-2018.all.html
  2. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2018

The Volcker Rule and its Effects on the Precious Metal Industry

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Before moving on into the topic of how the Volcker rule affects the precious metal industry, it is crucial that the Volcker rule itself be understood first. The Volcker rule is basically a reformation act that restricts the banks in the United States from taking high risk investments, especially high risk investments that do not benefit the customers of the bank. In view of the major scandals involving banks using people’s money to make short term gains that saw profit flow into the banks but not to the customers, but when things go wrong, the customers bear the burden of the loss.

In other words banks are prohibited from investing in short term or long term hedge funds, speculative markets that are highly risky and it also prevents banks from investing in the precious metals industry (gold bullion / silver bullion). Banks are currently actually looking for loopholes in the legislation rather than comply to it, but according to the legislators the loopholes do not exist. How this would affect the precious metal industry is multi tiered, as some analyst say that banks are the biggest buyers and sellers in the precious metal commodity trade industry and that they are the main ‘market forces’ applied through hedge fund managers and their absence would create a huge void in demand and drive prices down. On the other hand there are those who believe that the absence of these speculative strong forces would provide stability to the prices of gold as most of the trading done by these market forces are for short term gains and in retrospect most of the gold bought by them are never held fopr more than a few days.

Looking into the average investor who looks towards the shiny yellow metal as a safe haven to secure wealth, the absence of these speculative forces will actually bring about the true essence of the gold value and allow the average investor to sleep peacefully knowing that there are no hedge fund managers trying to manipulate the gold market prices. Many have applauded this move, especially the savers, as many have seen what has happened in recent years to big financial institutions that were financially ruined and in the process ruined many other lives of individuals who had trusted these financial institutions to keep their life saving safe.

The reformation brought about by the Volcker rule is expected to bring confidence back into the precious metal industry as smaller investors will no longer have to contend with big players who use other people’s money to fill their coffers. Nevertheless, prior to this there have been numerous other ‘so called’ rules that were supposedly supposed to protect the small people, however in light of what transpired during the global financial meltdown and other similar situations, how long this rule lasts before it is overwhelmed or manipulated by the powers that be would not be long, and those who want to place themselves within the safe zone amidst a financial crisis would typically be the ‘Average Joe’ with a fistful of gold.

Is there a Pattern to the Precious Metals Market?

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The precious metals market unpredictability has many in a bind over which direction to go, those who are holding on to physical precious metals or even mining stocks are at the edge of their seats based on what has been unfolding, and many have actually turned towards the capital markets based on the more attractive returns that it has to offer.

Although this may seem to be the best move currently and for the short run, those holding on to precious metals related assets are definitely in a better position for the long run. This based on the fact that the precious metals market has been pressured into submission by the powers that be, and it is only a matter of time before the lid pops open sending the precious metals markets soaring. Gold related assets are and have always been long term investment schemes and buying gold with the intention of making gains in the short term is not only unadvisable, but it is also extremely dangerous from a financial perspective as the precious metals market is known to fluctuate steeply in both ways triggered by the slightest economic spark and unless would be investors have enough patience and resources to endure market pressures working against their positions it is best not to dabble in it.

Most gold bugs who own physical bullion however are optimistic about the current lower prices of gold as it is allowing them to bring the cost of their physical gold holdings by at least 10 % giving them better margins for the future.
What exactly is happening to the precious metals industry is pretty obvious, despite the current shaky global financial situation and volatile markets the strength of the dollar and the appeal of the capital markets are holding ground. Coupled with lower oil prices and governments trying to stimulate economies which require them to inject funds into the markets, the lure of the capital markets is difficult to resist. This has also rendered conventional theories related to the commodity markets and how they respond inapplicable as markets are anything but predictable these days. One thing that is for certain is the fact that the disorganized and fragile global financial system is destined to crumble as even well informed financiers are uncertain of the mechanics that are at work and over the last two to three decades the financial machine has become too obscure to a point that it has become mystical and the only constant in the equation seems to be the fact that gold and other precious metals are still being considered as a safe haven by everyone and it does seem that most have a finger or two in precious metal pies in the event that the capital markets disintegrate.

Many have grown tired of waiting for gold prices to rise and gold bugs are reeling from the losses that they are incurring from the costs of holding, storage and insurance and many gold bugs fear that when the time does come to sell, the margins will not be justifiable.

Golden Conflicts

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It is not new to the world when certain factions misuse natural resources to finance or advocate conflict which has become a common phenomenon over the last few decades: from crude oil in the Middle East, timber in Cambodia, blood diamonds in Sierra Leone and Angola and even gold in low income countries. Very often natural resources provide a means to finance as they are internationally tradable assets which are mobile and easy to dispose off. Without appropriate measures, these assets may find their way towards funding armed groups that are conditioned to overlook human rights and grossly neglect humanitarian laws.

The Democratic Republic of Congo for Instance was responsible for 0.8 % or 22 tonnes of newly mined gold, but because of the countries weak governance coupled with the fact that most of the gold mines are artisanal small scale mines, they are often subjected to the whims and fancies of armed groups who frequently extort them, therefore the possibility of the gold produced in the Democratic Republic of Congo getting into the gold supply chain is minimal. These are only some of the issues as incidences of forced labour by armed groups, low wages, adverse working conditions, negligent mining practices and conflicts continue to be highlighted and the only way to deter these incidences is by obstructing gold mined under these conditions to get into the supply chain.

However this is not an easy task as gold from independent small mines are usually melted down and mixed with gold from other sources (usually with recycled gold – 35 % of the annual gold supply comes from recycled gold) and sent off to end users through a complex transactions which make them virtually impossible to be traced back to its origins. It is largely due to the availability of ready buyers that these armed groups are brazen about their activities as once the gold artisanal and small scale mines reach a refinery, their origins cannot be traced and therefore refineries have become a strong element in the value chain of armed groups and establishing a relationship with a refinery that would accept their gold (knowingly or unknowingly) is all that they need.

Recently the World Gold Council has launched a ‘conflict free gold program’ which aims to stop or prevent gold from conflict zones or high risk areas from reaching refineries and subsequently end users as this would be an effective measure towards eliminating these conflicts and bring reprieve to those who bear the brunt of these armed groups.

However, it is undeniable that artisanal mining is a vital economic activity in some places and if it was not for the gold, the communities in these places would be left without nothing and based on the fact that a significant proportion of mining in these places are illegal and operate beyond government supervision it is prone to smuggling which is often backed by armed groups.

Proving that a gold batch is from these situations or sources is the first step, but a difficult one undeniably.

Gold Mining Companies & Investments

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Investing in gold does not necessarily mean buying gold bars by the dozen and storing them in a impregnable safe tucked away behind a portrait of the Mona Lisa, although that is an option and according to most gold bugs, it’s the best way to invest in gold, there are investors who prefer to take a much more indirect approach towards investing in the shiny yellow metal. They do it by investing in gold mining company stocks; however, before you take the leap into this realm, there are some things that an investor should essentially know if he or she is going to use this approach to invest in gold.

The good thing about gold mining stocks is that gold mining stocks are rather easy to buy or sell hence if the situation arises whereby you need instant cash you would be able to sell your stock immediately and in comparison to physical gold bullion that you have stored in a safe, the process may take a tad bit longer as it goes through the assaying process and getting a buyer who would be willing to pay a reasonable price for it.

On the flip side however, if at all the gold mining stock that you own belongs to a company that is embroiled in some kind of issue that may range from low production, lack of funds, pollution or land acquisition issues, it may not be quite as easily traded. Always remember that by buying a gold mining stock, the investor is actually buying a portion of the company that is mining the gold and although there is potential for additional upsides the downside risks are more often than not equal.

For instance, gold mining is capital intensive meaning that it requires a substantial amount of cash to develop and operate a mine, hence buying into a mining company that has a sound financial background is one of the most vital aspects. Gold mining companies are also known to play the market by lowering production when gold prices are low and increasing production when prices are favourable to maximise profits, thus gold mining stocks may tend to undergo massive price swings making patience a key component in being successful with gold mine investments.

Nevertheless the main thing about investing into gold mining companies is in being able to identify good gold mining stocks and this obviously would take a significant amount of research. Most seasoned investors go for value-plus proposition which in layman terms mean that if the price of gold rises significantly they expect the mining company to be able to offer a 1x plus gain as an additional profit potential, because if that is not in the option, then the investor might as well invest in physical gold and as mentioned earlier store it in a safe hidden behind a DaVinci painting.

It is also imperative that the gold mining company has distinct qualities that make them good investments such as effective management, competent with environmental and political risks and also has the ability to obtain finance at the drop of a hat.

Canadian Gold Tales: The Canadian Wild West

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Towards the end of the nineteenth century around 100,000 people overpowered the Klondike area arranged within as far as possible searching for gold, is a noteworthy piece of American history. Presumably, a couple made their riches, yet most lost all that they had. The Klondike’s record is one of disturbance and obsession that passed on them to the region, and in addition brought the most exceedingly terrible out of a huge part of them. Gold fever held people all over the place all through the United Sates and when news of Klondike gold spread like crazy flame and people like George Carmack, Skagway criminal Soapy Smith and others, for instance, Mountie Sam Steele got to be enlivened.

Brutality, starvation and even the unforgiving atmosphere of the Yukon and were not satisfactory to keep mineworkers away. Stories of the Klondike has wound up central to Canadian history and also the gold business as it arrived that excavators started obtaining and offering cases instead of burrowing for the gold themselves as a result of the way that, if whenever there was a spot on the planet where burrowing was in every way that really matters unbelievable for individuals with picks, hammers and tomahawks – it was the Klondike. The masses extended so fundamentally (from 500 to 30,000 within months) that the immediately manufactured wooden structures as often as possible seethed to the ground and to compound matters unsanitary conditions killed various.

On the other hand, various don’t have the foggiest thought regarding exchange drivers behind the dashes for unheard of wealth of the Klondike, it was not on account of the interest of the significant metal alone, it was in like manner as a result of the mistake of the cash related structures in the US, banks were falling level all through the United States and various were about section 11 in the midst of that time, and when news of the gold disclosure went to these people, it was all in all the principle decision they expected to recoup their financial strength. Another component that empowered the Klondike dash for unfathomable riches was furthermore the high rate of unemployment that stretched out from San Francisco to Seattle. Each one of these segments was the key components that drove such countless prospect for gold in the Yukon.

However within a few years, gold had been found in Alaska and the scene was an extraordinary arrangement also obliging to prospect for gold in examination to the Klondike that enacted another move, the Klondike district was left for a time span, before people started mining the Klondike scope of and on. At whatever point a noteworthy gold piece was found in the Klondike and news spread, “littler than anticipated” undertakings for incredible riches consistently came about, however these downsized dashes for inconceivable riches when in doubt, did not last over a month preceding mineworkers left.

Gold Bullion Investments

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It is a commonly known fact that the ultimate hedge against inflation has and probably will always be precious metals, particularly gold. The best way or approach towards investing in gold is also (hands down) ownership of the physical metal itself while mutual funds or mining stock do provide a little hedge, nothing can be compared to owning gold bars on your person. As it provides the most direct counter to the dollar if the dollar was to fall, which it will not too long from now, judging from the way things are transpiring. This is so due to the fact that when the dollar falls, the value or price of gold will inevitably rise and at that point in time buying gold would not only be counterproductive, but plain foolish as the prices will rise quickly and without warning. According to Dailyreckoning.com, the dollar is on a self destruct path faster than most other currencies as the finance of the US economy is being raised on debts. However there are ways to position portfolios in a manner that lowers risk levels and increase real potential for profits in time to come – in a long time to come.

It is becoming more evident that the future growth of economies will be based on gold bullion stocks as the world economy will inevitably head back towards the gold standard. However how you invest in gold bullion besides purchasing physical gold is an entirely different matter, it all comes down to your level of market expertise or experience as the more familiar you are with gold related derivatives the better you will be able to handle the case scenarios that would present themselves.

Direct ownership is the best way to own gold bullion it is without any doubt the ultimate expression of pure value. As most of us already know civilizations over the eons have recognized the permanence of gold’s value to an extent where great wars were fought for the sole purpose of pillaging stores of gold. The reason for it simple – Gold, silver and other precious metals are the only real money that has value which cannot be manipulated or controlled by any faction, including governments. If gold bars do not appeal to you other forms of gold bullion include gold coins such as the South African Krugerrands, Canadian Maple Leafs, or American Eagles. Other forms of gold bullion investments that could be considered but not recommended unless you have a good grasp of trading is Gold exchange-traded funds or more commonly known as ETFs. In recent times exchange traded funds have become popular as they provide an interesting way to invest in gold. In essence they are similar to mutual funds that trades trade in the stock exchange like an ordinary share. However an ETF’s portfolio is fixed and does not change.

Gold mutual funds on the other hand are more suitable for those who are not too keen to invest in physical gold, but still want a piece of the precious metal industry action. They are good for diversifying portfolios. For more on ETFs and Gold Mutual funds visit: http://www.nasdaq.com/etfs/what-are-ETFs.aspx