As gold hits record highs, rumour and speculation abounds about this yellow metal. Are gold bars being counterfeited? Are the gold bars you buy actually gold-plated tungsten? It’s enough to bring out the alchemist in me…
Alchemy is the ancient study and practice of deconstructing and reconstructing matter. One of the quests for alchemists has been to try to turn base metals into gold.
Not quite alchemy but perhaps more relevant to traders and investors are these rumours of alchemists in the making who may or may not be producing tungsten-covered gold.
Last November I talked about how to invest in gold. The rumours about counterfeit gold re-surfaced during that time when gold reached record highs.
Gold is now enjoying another surge in popularity and once again is hitting further record highs.
Tungsten (meaning ‘heavy stone’ in Nordic) is a steel-grey metal with a high melting point and is used in many forms. It can be mixed with steel to make it stronger to produce heat sinks (which are used to remove unwanted heat from a device to keep it from overheating), light bulb filaments and in electronics, just to name a few.
One of the more bizarre uses for tungsten is as an ear-weight in show dogs. If your show dog’s ear is not flopping down as it should, some owners cheat and sprinkle tungsten powder onto wax attached to the inside of the dog’s ear. Weird!
If the rumours are to be believed, tungsten is also being used to counterfeit gold bars.
Gold is difficult to counterfeit due to its density. In terms of density and cost, only uranium and tungsten are really suitable. Uranium is ruled out due to radioactivity, which leaves tungsten. Handy that tungsten has a similar density to gold.
The problem with tungsten is that it is brittle while gold is malleable. The counterfeit bars are supposedly tungsten in the middle, coated by gold on the outside.
Leaving rumours aside, the last three quarters have seen central banks becoming net buyers of gold.
Gold is used as a hedge against inflation. While money can be printed, it takes time for more supply of gold to hit the market.
With concerns about the US printing money and now Europe printing money, gold has come into an era of popularity because gold cannot simply be printed.
The graph above shows the rapid rise of gold stocks using the code GOLDNY which is the index which tracks gold on the New York session and you can see in November 2008 the prices really shot up.
In my previous article Gold fever I talked about the currency effect when you’re thinking of investing in gold stocks. Remember too that the timing of your trades will be critical, especially when you consider how small and large miners will be impacted by the rise and fall of gold prices.
When looking at investing in gold stocks, generally the smaller gold miners are heavily leveraged to the gold price. That means that when prices go up, the smaller gold miners benefit and usually rise higher than the larger gold miners.
On the other hand, the larger gold miners may have lower costs getting the precious metal out of the ground, but when gold prices are hitting record highs, they often lag behind the smaller gold miners in terms of share price performance.
Last week I attended the Resources Roundup in Sydney. Take a look at the 5 minute interviews I had with some of the CEOs and MDs who attended the conference.
Two speculative gold explorers that got my attention (but unfortunately did not manage to catch for an interview) were:
Both of these companies have exploration programs in Burkina Faso (which is in West Africa).
Burkina Faso is the fastest growing gold region in the world. In 2009 it was the fifth largest gold producer in Africa after doubling production in 2009. The country has been politically stable for the last few decades and there have been six brand new discoveries in the last 12 months.
While there may or may not be any truth to the rumours of counterfeits, other ways to access gold is through holding it physically or indirectly through holding shares in gold companies.
In any case, if you’ve been considering investing in gold, now might be the time to dig in.
Happy trading!
Julia Lee Equities Analyst Bell Direct Have you started trading with Bell Direct for just $15 a trade? Register now for free.