GOLDEN DREAMS
GOLD RUSH IN NV GAINS MOMENTUM
BY DOUG FRENCH

While Nevada�s number one industry � gaming � dominates headlines, the state�s number two industry � gold mining � is also on a tear these days. Nevada, forgetting the other 49 states, is the third largest gold-producing country in the world at 8 million ounces per year, trailing only South Africa and Australia.

Northern Nevada is home to the Carlin Trend, North America�s most prolific gold producing area and the second largest gold depository in the world (only the Witswatersrand in South Africa is larger). The Carlin Trend is situated in northeastern Nevada and consists of a 40-mile north-west/south-east line of major gold deposits. More than 107 million ounces of known proven and probable reserves reside on the Carlin Trend. This Trend alone accounts for more than 35 percent of all U.S. gold output.

The original Carlin mine was opened by Newmont Mining in 1965. Mining started with open pits, some of which have been extended underground since 1994. 

Newmont Mining estimates that it has just short of 31 million proven and probable ounces of gold in the 3,000 square miles it controls in northeast Nevada, not to mention another 8 million ounces of silver, copper and other precious metals. Barrick Gold has over 20 million ounces of proven and probable gold waiting to be mined at its Goldstrike and Round Mountain locations. And Nevada is home to many others with golden visions.

�Nevada is quite important to our company,� said Michael O�Connor, public relations manager for Nevada Pacific Gold. �In addition to our mine in New Mexico, we have 10 exploration properties in Nevada, of which three are joint ventures with Placer Dome U.S.�

Besides these major producers, dozens of exploration and small gold companies are scouring Northern Nevada (and especially the Carlin Trend) for the next big find. 

�A whole lot of smaller companies are moving in, and it�s tough to determine what they are going to be doing. Small junior companies may look for a profit, without a vested, long-term interest in the state,� said John Dobra, gold expert and associate professor of economics at the University of Nevada, Reno. �Companies like Newmont, Placer Dome and Pacific Gold, however, have a long history, commitment and strong property holdings in Nevada.�

The regulatory environment in Nevada provides for a smooth working relationship between the state and gold mining companies. In the late �90s, the federal government made a push to slow exploration, Dobra explained, but recently gold companies have seen a more reasonable approach. The problems that delay mining are activist groups. 

�Great Basin Mine Watch, they�re not so much people who like to get together and take walks in the desert. They are lawyers who make money off suing,� Dobra said. �Every time a company files an application, these guys sue. Every time a company may find a deposit, it may take three to five years to mine. It�s not the regulations, it�s the lawsuits these companies have to go through that delay mining.�

The gold rush has slowly gained momentum after gold hit bottom at $256 per ounce April 2, 2001. Since then, gold has climbed comfortably over the $400-per-ounce mark, hitting a high of $456 per ounce late last year. 

At four years, this is the longest gold bull market since the gold price was freed after the London Gold Pool collapsed in 1968. The second longest was the 41-month bull market that saw gold rise from $104 per ounce to $850 per ounce from August of 1976 to January of 1981.

With the current up market being a bit long in the tooth, what are the prospects going forward?

While indirect, O�Connor offered some telling input.

�Short term, Nevada Pacific generally declines to give a prediction of the price of gold; however, it is the company�s feeling that the price of gold will be substantially higher,� O�Connor shared.

This is because gold bulls see plenty of upside remaining � the primary reasons in the center of this country�s troubling current account deficit. America�s current account deficit reached an all-time record of 5.7 percent of Gross Domestic Product ($666 billion) in the fourth quarter of last year. As John Doody, editor of the Gold Stock Analyst points out, this is a level associated with Third World economies. 

What the current account describes is the import and export of goods, services and income payments. And, as Jim Grant describes in the March 25 edition of Grant�s Interest Rate Observer, �the U.S. is a massive net importer of goods, a small net exporter of services and a very small net exporter of interest and dividends.� 

In 2004, foreign central banks purchased $328 billion in U.S. government securities. Foreign investors purchased $48 billion in Treasuries, $145 billion in capital investment, $680 billion in non-treasury securities and had $470 billion on deposit in U.S. banks. 

This massive current account deficit has put the dollar under pressure. The greenback has fallen more than 40 percent versus gold since 2001, 38 percent against the Euro, and nearly 27 percent against the Canadian dollar.

As legendary investor Jim Rogers points out: �With the White House in a race with the Federal Reserve to spend money faster than the Fed can print it, the dollar is shakier than ever.� However, Rogers sees no other currencies that are any better than the dollar.

Gold competes against other currencies, but while investments in other currencies pay interest, gold pays none, a huge disadvantage. But, while not paying interest, gold is an �investment in historical truth,� according to Jim Grant. Being long the yellow metal is essentially being short Alan Greenspan and the Federal Reserve. 

The most powerful central bank in the world has never been more revered than it is currently. But, when Grant hears central banker, he thinks government employee. When he hears rate setting, he thinks price fixing. �How could the Fed know what the interest rate should be?� Grant asks. 

Just how high can the price of gold go? Comparing the present economic climate to the early 1970s, gold expert James Turk believes, �Gold could go from $350 to $8,000, which is no crazier than going from $35 to $800.� The price of gold rose from $35 in 1970 and peaked at more than $800 in 1980. 

Turk points out that the Treasury is floating trillions in debt and that if unfunded liabilities are included, the federal government owes $43 trillion. Households and businesses have also joined the borrowing party, making the total debt per family of four, $500,000, and increasing at an accelerating pace. 

The combined effects of the trade, current account and budget deficits will eventually destroy the dollar. It�s a currency that �has lost an astounding 90 percent of its value versus gold, and 70 percent versus the cost of living,� Turk writes in his book The Coming Collapse Of The Dollar And How To Profit From It. 

Turk and his co-author John Rubino contend that the monetary demand for gold is about to soar because of the Federal Reserves inflationary policies and the fact that there is so little gold in existence � 135,000 tonnes. By way of comparison, the authors point out that 240,000 tonnes of steel are produced in the United States each day.

Central banks around the world hold much of the world�s gold supply. But, Turk estimates that these central bankers have loaned out 12,000 tonnes of their gold or five years worth of mine production. As the price of the yellow metal moves up, the central banks will be �short squeezed� and forced to bid up the price of the metal to cover their short positions. 

Boomtowns are the rule in Nevada history, not the exception; Goldfield, Virginia City, Dayton, Austin, Eureka, Pioche, Tonapah, Berlin and Rhyolite all boomed (and busted) with mining. 

But imagine, if the price of gold does go to $8,000 per ounce; Nevada�s next boomtowns exploding along I-80 will be Elko, Carlin and Winnemucca, and gaming in Las Vegas will be playing second fiddle.