What is gold worth? It is a question worth asking. If you ask it on a trading floor someone would probably say about $1,665.00 an ounce. But why? What makes gold so valuable?
I recently did some research on gold as part of a commodities study. Did you know that gold is mostly used as a measure of wealth? According to The U.S. Geologic Survey almost ninety percent of gold production is used to make either jewelry or gold ingots that sit in vaults. Much of the jewelry is used as savings by people in the developing world. In fact, so little gold is used in industrial applications that recycled broken jewelry could easily cover all industrial demand. And even if everyone stopped selling their scrap gold, there are good substitutes for all of gold’s industrial uses.
So what is it about gold that makes it so valuable? It does not provide food, shelter, or clothing, and its industrial uses can all be covered by other substances. When I ask that question people start waxing philosophical about intrinsic value. After all, they remind me, the market sets the price, and everyone knows what it is worth. Only one person, Federal Reserve Chairman Ben Bernanke, has been candid enough to call it what it is. When asked why the United States holds gold reserves he responded “Well, it’s tradition – long-term tradition.”
When one considers how limited the truly productive uses for gold are, it becomes apparent that gold is wildly overvalued.
And yet the price of gold does not nearly reflect its true cost.
The best way to understand the cost of gold is to examine gold mining. There are several methods commonly used for mining gold and all of them are very hard on the environment.
Most gold “mining” these days is done using a process called heap leaching. In heap leaching hundreds of thousands of tons of rock are ground into a fine powder. Bulldozers are then used to pile the powder on top of a plastic liner where it is sprayed with a cyanide solution. The solution is left to leach its way through the pile, after which it is filtered to collect the gold. Heap leaching is done out in the open and accidents do happen. Plastic liners fail under the stress of bulldozer traffic. When the liners hold up, heavy rain often exceeds the capacity of the liner and cyanide solution is released. There have been numerous incidents where cyanide was released into rivers killing fish and poisoning drinking water. Another problem is that tailings—the piles of powdered rock remaining after leaching—sometimes collapse fouling nearby rivers into which they spill. In one incident, a tailings dam in Baia Mare, Romania collapsed, causing extensive damage to over 1,000 kilometers of river ecosystem.
In the Amazon, artisanal miners spend their days shoveling mud into mercury-coated chutes, where minute flakes of gold are absorbed by the mercury, forming a paste. These “artisans” then evaporate the mercury with a blow torch to separate the gold, poisoning themselves in the process. According to some estimates, as much as 2,000 metric tons of mercury have been introduced to regional waterways in Brazil and neighboring countries as a result of artisanal gold mining. Studies show this mercury has entered the food chain and has led to measurable mercury poisoning of indigenous populations who eat fish from these rivers.
These are not isolated incidents. In 1995 the U.S. Environmental Protection Agency created a technical document on environmental damage from U.S. mining activities. Eighteen of the sixty-six cases discussed involved gold mining. Case titles like “Cyanide Solution Spills Into Reservoir” and “Uncontrolled Release Kills 200,000 Salmon” paint a grim picture.
The most troubling aspect of all of this is that it is completely unnecessary. Gold has no real useful purpose that cannot be filled with a reasonable substitute. Still, we continue pursuing increasingly extreme and destructive methods to mine gold.
Why? Why will people pay close to $1,700 an ounce for a substance that won’t provide life’s necessities? Here’s a hint. Ben Bernanke was right. It’s tradition – long term tradition. Thousands of years ago someone declared gold a valuable substance and nobody thought to question that assertion. Today we are destroying our environment and poisoning our food and water because it makes us feel rich. We don’t know why, but we know we want more. You know, maybe there is one area where gold has no substitute. It’s one Hell of a catalyst.
Cathy Coburn is a graduate student at the School of International and Public Affairs at Columbia University. She is currently working on a Master of Science in Sustainability Management.
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