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Losing Faith in Gold From Ghana to Vancouver Proves Rout

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Going Mainstream

Bullion’s earlier run-up in the political and financial turmoil of the 1970s ended on Jan. 21, 1980, when the price hit $850 -- equivalent to more than $2,400 today when adjusted for inflation. Gold didn’t top $850 again until 2008, as the crash of the U.S. housing market led to the worst financial calamity since the Great Depression.



Viewed as a fringe holding by some pension funds and advisers during the long bear market, gold suddenly went mainstream. In the U.S., “Cash for Gold” signs sprang up on street corners coast to coast. Radio personalities promoted gold coins, purchased by people like Mann, as protection against U.S. deficits. Exchange-traded products opened the market to everyday investors, allowing them to buy shares representing actual holdings of gold without the hassle of taking physical delivery.


Some 2,273 U.S.-based mutual funds -- 32 percent of those tracked by Morningstar Inc. -- have an exposure to gold bullion, mining or exploration, according to the Chicago research firm.

Amid the frenzy, gold advocates made dramatic predictions that the precious metal would be the only way to protect wealth.



Global Ripple

The boom rippled out to as many as 60 million people around the world -- 10 million of them gold miners and 50 million others who sell them merchandise or services, said Kevin Telmer, executive director of the nonprofit Artisanal Gold Council in Victoria, Canada. People switching from farming could expand their earnings as much as fivefold, he said.

In Ghana, Africa’s second-biggest gold producer, farmer Francis Addai joined others thronging the industry around Dunkwa, where the typical daily wage for farmhands is $4 a day. Addai got a job in 2008 where he poured buckets of muddy water over a board to strain out gold. In 2011, he was hired as a security man at Josteh Mining, the operation Akwesi Boahene started with his partner that year. Addai said he earned $60 a week -- three times the income he’d patched together from growing cocoa and weeding neighbors’ farms.


‘Quite Bearable’

“The weekly earnings made life quite bearable for me as a responsible father,” said Addai, 51, who supports five children and a niece, ages 2 to 23. Tuition is free in Dunkwa public schools, but books aren’t. Addai said he was able to buy more books and new school uniforms.


In July 2011, months before Addai started his new mine-security job, 125 people packed a patio outside the Four Seasons Hotel on West Georgia Street in Vancouver for a C$500-a-plate Hawaiian-themed luau that signaled the confidence of people at the companies that explore for new deposits. The charity and networking event, dubbed “Murdigras,” was the brainchild of Murray Seitz, 42, co-founder of Riverside Resources Inc. (RRI), a Vancouver exploration company whose shares had surged to C$1.25 that year from as little as 18 Canadian cents.


Seitz started the parties in 2006, midway through gold’s rally, and they became something of a barometer for the industry. After collecting C$3,000 for local charities in a downtown bar that first year, he raised C$100,000 in 2010, when Murdigras featured a gold-painted Camaro and gold medal-winning athletes from that year’s Vancouver Olympics. Once Seitz added up the donations for 2011, he realized it was a warning sign: they slipped to C$60,000.


“It was already starting to happen,” he said. “It’s been a slow, continuous slide.”

Era’s End?


What’s been good for the economy has paradoxically been bad for gold. The U.S. jobless rate fell to 7.4 percent in July from a 2009 peak of 10 percent, helping push the Standard & Poor’s 500 Index to a record high. The Federal Reserve’s preferred measure of inflation has undershot its 2 percent target for 14 straight months, even as the central bank kept interest rates near zero.


In April, the French bank Societe Generale (GLE) SA declared “the end of the gold era,” and Goldman Sachs Group Inc. forecast a price of $1,270 by the end of 2014, contributing to the price plunge. Goldman has since lowered its 2014 target to $1,050.

Seitz went to London in April to raise money for his newest venture, a developer of Kazakhstan gold assets called IRG Exploration & Mining Inc. He met with eight analysts and bankers. Six weeks later, four of them had lost their jobs, he said.

“In my professional career, it’s been the toughest couple years of my life,” Seitz said.

The 2011 Murdigras was the last.




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