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O C T O B E R / N O V E M B E R 2 0 1 7 www.resourceworld.com 13 BUT WHY ARE THEY CONSIDERED PRECIOUS? They are pre- cious because, quite simply, they are rare and, therefore, hard to find – especially when compared to industrial metals such as copper and iron. To illustrate, imagine a solid block of pure gold measuring around 21 metres on each side. This block would weigh nearly 190,000 tonnes. This sounds like a lot until you con- sider that to make that cube you would need to use every single ounce of gold ever mined since the beginning of time. Contrast that to copper where some 19 million tonnes is produced annually and you can appreciate why gold is valued at around US $40,000 per kilogram whereas copper is around US $6.5 per kilogram. And gold is the most abundant of the precious metals. Historically, gold and silver were important as currency but are now used mainly for two purposes: as industrial commodities and investment vehicles; the latter especially in times of political and financial uncertainty. Price-wise, gold has languished between US $1,000 and US $1,400/oz since 2013 but that may change as two notable events currently playing out on the world stage – North Korea's belligerence and global concerns about president Trump's credibility – are showing signs of stoking fear in investors. The silver price is well off its highs of more than US $40/oz back in 2011 and has been in a US $14 to US $20/oz. range since the beginning of 2016. Recent rallies having been driven by many of the same factors that have pushed the gold price higher, the key ones being the geopolitical tensions caused by the US and North Korea and weakness in the US dollar. In bulk form, precious metals are known as bullion and are traded on commodity markets. Bullion metals may be cast into ingots or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. The level of purity varies from issue to issue. "Three Nines" (99.9%) purity is common although the purest mass-produced bullion coins are in the Canadian Gold Maple Leaf series, which go up to 99.999% purity. Gold bullion coins, which sell in the millions weekly, tap into the allure of investing in gold. American Eagle and Canadian Maple Leaf gold coins have high gold purity and are easily bought and sold through precious metals dealers. Silver coins are popular with collectors due to their relative affordability and unlike most gold and platinum issues which are valued based upon the mar- kets, silver issues are more often valued as collectibles, sometimes far higher than their actual bullion value. Recently, palladium, in the form of palladium bullion, has become a popular bullion metal. Aside from physically holding gold in the form of bullion, jewelry or coinage, investments in so called "papergold" – gold stocks or shares in exchange traded funds (ETFs) –an be an effec- tive way to gain exposure to gold and to hedge physical holdings; but not without risk. The amount of paper gold in circulation far exceeds the actual level of physical gold behind it. In the event of a monetary or banking crisis leading to a total loss of confidence in money, there is a possibility that investors might not be able to take delivery and ownership of the underlying assets. When the dust settles, paper gold will be little more than a piece of paper. A bar of gold will always be a bar of gold. Each year, global gold mining adds between 2,500 and 3,000 tonnes to the above-ground stock of gold. But this mine produc- tion only satisfies some 75% of the global demand – mostly for jewelry – with the shortfall made up from recycling. Gold mines and operations have become increasingly geo- graphically diverse, far removed from the concentrated supply in the 1980s and 1990s when the vast majority of the world's gold came from South Africa. China is now the world's largest gold producer accounting for around 14% of total annual produc- tion. But the easily mineable gold – typically close to surface and readily extractable from the host rock – is becoming harder and harder to find. Miners are having to dig deeper and deeper underground and consider the more metallurgically challenging gold deposits such as those containing refractory gold; that is, gold ores that are naturally resistant to recovery by standard processes and require some sort of pre-treatment to render them amenable for gold extraction – or gold associated with toxic elements such as mercury and arsenic. Whilst deeper mining and complex ore treatments drive the cost of gold production up, they may not necessarily do the same for the price of gold. Why? Aside from minor losses, most of the 190,000 tonnes of gold in our gold cube is still around in one form or another and is readily recycled. Over the last decade, demand for gold has moved East driven by cultural affinity and wealth creation in rapidly growing econo- mies. India and China are by far the largest markets in volume terms, together accounting for over 50% of current global gold demand with China now the world's fastest-growing market. Like gold, silver has been used throughout human history as currency and as decoration and is used in some of the same indus- tries today that use gold such as electronics and technology. Until the advent of digital media, photography was the prime industrial use of silver. Traditional film photography relies on the light sensitivity of silver halide crystals present in film. When the film is exposed to light, the silver halide crystals change to record a latent image that can be developed into a photograph. According to the World Silver Survey 2017 produced by the Silver Institute, industrial applications are now the largest com- ponent of physical silver demand, accounting for around 55% of total physical silver demand last year. The same survey notes that total silver physical demand fell by 11% in 2016 due to weaker offtake for jewelry, silverware and retail investment. That said, silver demand for photovoltaic applications posted an impres- sive 34% rise, the strongest growth, since 2010, driven by a 49%