Monday, October 31, 2005

All that glitters ...


... is bad! For Mother Earth.

See this long NYTimes report by Jane Perlez and Kirk Johnson for some seriously bad news about how gold is made.

One doesn't need to be a Nobel winner to assert that much of the Indian demand for gold is through Indians' ever growing appetite for jewellery. And, as we can all see from the ads for the Chennai-based jewellery shops, we (and particularly, we, the south Indians) seem to like heavy ornaments, and we want them in the 22 carat grade. [BTW, do the people in other parts of the country prefer other kinds of jewellery?] In the West, however, the 18 carat variety is quite common, and their jewellery tends to be light, and IMO, more elegant than the horrible stuff we see on our ads and during our weddings.

Much of the problem arises due to two facts: There is a huge demand for gold in Asia -- particularly from India and China. Did you know that for India, gold is the only metal that is consumed in proportion to its population? NYTimes report says that the demand in India grew by a whopping 47 % last year!

The second factor, of course, is that many investors think of gold as a hedge against inflation.

Gold in India used to be extracted from the mines in Kolar, some 70 km from Bangalore. As the ore got leaner, it became progressively uneconomical, and production stopped sometime ago. To my knowledge, the gold mines at Hutti, also in Karnataka, are the only ones from which gold is produced in India.

A team of scientists used the deep recesses in some of the defunct mines at Kolar for their research on cosmic ray muons way back in the seventies. They are probably used for such purposes even now.

On the supply side, things could be helped if the gold hoarded in the reserves of the US and many European countries is unloaded in the markets (perhaps, over a period of time). I remember the Swiss government did it a few years ago.

Where is the environmental disaster in all this? It arrives in the form of quirks of nature. Gold as such is quite rare. It does occur in its pristine, metallic form; but the early prospectors have already found and exploited the rich sources containing chunks of gold. The gold ores that are being used now are so lean in gold content that

[A]t sites like Yanacocha, one ounce of gold [about 30 grams] is sprinkled in 30 tons of ore. But to get at that ore, many more tons of earth have to be moved, then left as waste. At some mines in Nevada, 100 tons or more of earth have to be excavated for a single ounce of gold ...

Okay, what do you do with so much of stupid rocks and stuff, so that you can find that 'single ounce of gold'? You use a process called heap leaching on mountains of excavated earth:

These new man-made mountains are lined with irrigation hoses that silently trickle millions of gallons of cyanide solution over the rock for years. The cyanide dissolves the gold so it can be separated and smelted.

The cyanide, as we all know, leads to some serious problems. There are some indirect problems, too, that we don't often think about:

But much of those masses of disturbed rock, exposed to the rain and air for the first time, are also the source of mining's multibillion-dollar environmental time bomb. Sulfides in that rock will react with oxygen, making sulfuric acid.

That acid pollutes and it also frees heavy metals like cadmium, lead and mercury, which are harmful to people and fish even at low concentrations. The chain reaction can go on for centuries.

The reporters do give the other side of the story from the miners' point of view but the emphasis, clearly, is on convincing you that heap leaching is bad news.

5 Comments:

  1. Mridula said...

    Never knew any of this!

  2. Aadisht Khanna said...

    Abi,

    I've always been intrigued by the fact that gold remains so popular in India.

    A professor of mine once pointed out that gold is a form of social security in India- if you have no pensions or life insurance, you can always fall back on gold, especially if you're a widow.

    The hedge against inflation is true of course. It would be interesting to see if currencies based on some standard other than gold do eventually evolve to fulfil this need.

  3. Abi said...

    Mridula, Aadisht: Thanks for your comments.

    Well, the New York Times article was an eye-opener for me too! Gold's allure is deeply etched in the psyche of pretty much everyone, I suppose. This allure is going to ensure that its demand will continue to rise. However, it could be obtained easily (remember the gold rush?) until I don't know when. All I know is that we now get it from mines where it is hidden in the minutest of quantities; to tease it out, one has to use the cyanide treatment. I was taught this as an undergraduate student in the early eighties, and the NYTimes article tells us now that this is what is still being done.

    While gold's allure is something I understand (and feel, too!), what I don't understand is the hoarding of gold by various countries as a part of their 'reserves'. I have no idea why -- wasn't the concept of money de-linked from gold reserves a long time ago? Also, has gold truly served the purpose of inflation hedge -- particularly since the early eighties?

    Well, if some one knows about all this economics stuff, I would like to be enlightened! Thank you!

  4. Aadisht Khanna said...

    Ooh, had forgotten all about this. Well, I'd guess that countries hoard gold for the same reason people do- even if currencies might no longer be linked to gold, gold still has value. A hundred rupees may buy ten idlis or one tomorrow, but ten grams of gold is always ten grams of gold.

  5. Abi said...

    Thanks Aadisht, for re-visiting to comment. I can understand it if only those countries with vulnerable currencies choose to hoard gold. But, the US? the EU? Switzerland? I just don't understand!