Modern Day Gold Rush

Source: Bloomberg, Chris Prentice  (7/12/10)

"Gold's surge has led to a new crop of prospectors. . ."


Fear of financial collapse has enhanced gold's glitter, with prices soaring more than 300% the past decade, including 30% just in the last 12 months. Gold's surge has led to a new crop of prospectors seeking gold and the business around gold.

About four years ago, Mark Franklin decided to try his own luck at gold prospecting. The Dayton electronics technician had never prospected before but saw a future in the precious metal. He discovers about $50 worth of gold, in flakes and larger pieces called "pickers," on an average day prospecting in Ohio—or on longer trips to Idaho, Alaska, Michigan and Georgia. His total take? Just more than $4,000.

"Every time the gold price goes up, our membership increases," says Jinny Iodice of the Gold Prospectors Association of America (GPAA). The association's membership jumped 93% in 2008 but less than 10% so far this year. The GPAA has more than 62,000 members nationwide.

Just as past gold booms produced incredible wealth for some, far more seeking to strike it rich went bust. "When you see such a dramatic move, the tail end almost becomes hysterical," says Vanguard's Gus Sauter, comparing today's gold rush with the Internet boom of the late 1990s. "People who threw caution to the wind are still scrambling." In the past, gold has done well when U.S. Treasuries yielded less than the inflation rate, which is not the case right now, according to Paul Kasriel of Northern Trust. But "markets are weird," he says.

Increased interest in prospecting can mean better business for companies that sell mining systems and equipment. "There are about 50% more people walking in and asking about basic information and looking to buy tools," says salesman Mark Svidor, who has been prospecting since 1979.

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