A Brief History of Gold

The story of gold begins, as does the story of all metals on earth, 4.6 billion years ago. That’s when a giant star — a real colossus — burned through its last joules of fuel and erupted in a burst of raw energy and heavy metals.

The star was composed primarily of hydrogen with a dash of helium. Those are the original building blocks of the universe. And as stars burn through their hydrogen and then their helium, they transform those elements into lithium, boron, beryllium and carbon.

After burning up all that fuel, most stars graciously dim into white and brown dwarf stars. Some, the bigger ones, will burn even their waste elements, creating other elements — nitrogen, oxygen, fluorine, neon, sodium and magnesium. Soon, even these hulking stars dim their lights.

But not our colossus.

It was one of the rare breed of super-giants that burn even these other waste elements, and in the process make sulfur, silicon and a whole host of other elements. And then it made iron.

Ah, iron! Iron is the last-ditch fuel of a stellar leviathan. After burning their other elements, truly massive stars will then transmogrify their cores into iron in the time it takes to put out a daily newspaper.

But that’s when the giants hit a wall.

The Death Scream of
A Stellar Drama Queen

Iron isn’t a good fuel. The star of our story suddenly found itself without the energy to support its massive size. That’s when our giant star collapsed in on itself — shrinking tens of thousands of miles in a matter of seconds. That collapse crunched the atoms in the core, stripping and compacting them into new forms.

But our giant star wasn’t done.

Like any stellar drama queen, it knew how to make an exit. It EXPLODED with the brightness of a billion stars.

The force of that supernova took the swirling soup of protons, neutrons and electrons in the star’s core. And, using all that leftover iron as a building block, it created the higher elements — including cobalt, nickel, zinc, silver … and gold.

These elements were flung outward, riding the wave of the star’s death like the devil’s own surfers.

These newly born elements, including gold, rode the wave out into space, only to find they weren’t the first. At least one and perhaps two stars had previously gone supernova in our neck of the galactic neighborhood, and the detritus of their explosions lay in path of the supernova like flotsam in the path of a tsunami.

So this wall of energy and matter collided with the dust particles from the previous supernovae, and the whole mess swirled into a super-heated cloud. This cloud got its own momentum mojo going, and became our sun.

Clouds of dust circling the sun began to accumulate, and the rocky, inner planets — Mercury, Venus, Earth and Mars — were born. The outer planets — Jupiter, Saturn, etc. — are mostly failed stars, formed when gas ejected from the sun’s birth pangs clotted together, and they don’t fit into our story, the story of gold.

So, Earth formed, and had coalesced into its basic shape 4.5 billion years ago. It was a mess, a soup of disparate elements. But soon, molecules of like-minded elements began clotting together and formed deposits.

And some of those deposits were gold.

The Restless Earth

We’re still not done with the story of gold. Some of those deposits lay deposited in nice piles, either buried nuggets or placer deposits left behind by water action. Such deposits are rare.

More gold is buried deep beneath the surface of the earth … so deep that you’d never find it. That is, you wouldn’t find it if the Earth were quiet.

But the Earth is restless, and if you did time-lapse photography over millions of years (well, you’d need one heck of a lot of patience), you would see the Earth’s surface move and crack and fold on itself.

Through those cracks, the boiling-hot, resource-rich innards of the Earth bubble to the surface, rising over and over again. And each wave of boiling hot goodness leaves minerals behind, trapped in the cracks of the host rock. And sometimes — rarely — the mineral left behind would be gold.

Over time, miners learned how to release gold from its rocky prison. Hard-rock mining produces most of the world’s gold.

Sure, some molecules of whatever gold you’re wearing may have been found in a riverbed, and may have once graced an Egyptian queen.

Gold is salvaged and melted down and reused over and over again. But most of it was freed from the earth by sweat and blood and cunning artifice.

And it was probably mined fairly recently, too. About two-thirds of the world’s existing gold supply has been mined since 1950.

But How Did Gold Become Money?

The stuff found in streambeds was first used for jewelry, then merchants started using it for payments by weight, but pure gold was still very rare.

In the 7th century B.C., people in Lydia, in what is now central Turkey, started turning natural electrum, an alloy of gold and silver, into coins.

Coins made trade so much easier — the fad caught on.

Finally, around 545 B.C., a very smart Lydian king figured out how to separate electrum into gold and silver. He struck the first gold coin — and became very, very rich. You may have heard of him — King Croesus.

With King Croesus’ invention, gold as money was born. The world would never be the same.

Some people get hung up on the evil associated with gold. To be sure, rivers of blood have been shed over the yellow metal. Slavery, genocide and naked greed are all twisted into bands of gold.

But there are also the good things about gold. How many marriages have been sealed with a gold wedding band? Surely they are countless.

Likewise, countless anniversaries, acknowledgment of years of loyalty, and joyful appreciation in lovers’ eyes have all been marked with gold. Heck, they aren’t just good things, they’re great things!

Gold would sit quietly where nature left it if people didn’t pick it up. Gold would be nothing without humanity. The truth is, we bring out both the best and worst in the yellow metal.

And historically speaking, gold is cheap! Even more so when you realize that paper money is being created at a ton per minute, while all the gold that can ever exist has already been created.

3 Things We Learn From Gold

Lesson #1: Gold is an investment for the real long term. Gold has been around for 4.6 billion years. It’s not going anywhere. So, it’s a good anchor for any portfolio.

Lesson #2: Real rarity has real value. People ask me why I like investing in gold. The reason is I like real wealth — hard assets. It’s all too easy for the government to print more money, or for a high-flying company to print more shares. You can’t make more gold.

Lesson #3: Avoid the easy-come-easy-go syndrome. Investment fads come and go, and all too often, those who get rich quickly on those fads get poor again even quicker. Gold, on the other hand, is in a big trend, and I and my subscribers are riding it for all it’s worth.

Take a look at that gold you’re holding or possibly even wearing. That gleam you see is a last spark of ancient starlight. Gold’s rarity is a fact of nature. Gold’s value is something that has existed since the first gold nugget was plucked out of a riverbed thousands of years ago.

That value — though it may go up or down — will exist as long as people walk this Earth.

Have a great weekend,

Sean

P.S. IWNATTOS points out that I left out Goldschmidt's Classification. Basically, gold is classified as one of the high-density "transition" metals that tend to sink into the core because they dissolve readily in iron either as solid solutions or in the molten state. This is why there is relatively little gold in the Earth's crust. It's a good point that was missing from the original story. 

PPS: Here's a nice UPDATE

The Cariboo Gold Rush: Grub High, Whiskey Bad, Money Plenty!

Gold rushes in Canada have all the exciting elements of one of the old pulp action-adventure novel.  Greed, bloodlust, native Americans, Chinese prospectors! For example, let's look at the Cariboo Gold Rush.

Panning for Cariboo Gold

When I say "Cariboo Gold Rush," you may say "What?"  Most people have forgotten what was the most exciting event of its day. The Cariboo was sandwiched between the California Gold Rush of 49 and the Klondike Gold Rush of 89.

The Native Americans knew about the gold long before the White Man, of course. Heck, it was scattered around for the taking, and when it was buried, they could dig it out with iron spoons. But then some white men found gold on a sandbank in the Fraser River in the 1850s, and the race for gold in British Columbia began in earnest.

The Hudson Bay company first found the gold and succeeded at keeping it quiet for a while. Then Hudson Bay sent 800 ounces to San Francisco to be assayed. Whoops! San Francisco, in that day, along with being a den of villainy, drunkenness and riff-raff, was filled with idle miners who had either blown their fortunes from the 49 gold rush or never found one. At news of the yellow metal, 25,000 men set out from San Francisco for the wilds of British Columbia.

Even before they got there, trouble broke out. The story goes that Indians came into a gold camp under a flag of truce and then slaughtered the unsuspecting miners while their backs were turned. Modern-day historians doubt it was that cut-and-dried. But true or not, one thing the story provided was an excuse to kill the Native Americans who lived on ground the miners wanted to mine. Greed, blood and gold have intertwined throughout history; British Columbia would prove to be no different.

Big Winners and Bigger Losers

On the miners came. More gold was found at a place called Cariboo — even richer than the first strike at Fraser. 

The gold rush started paying off big-time in the summer of 1861.One company estimated that they had made a profit of $80,000 by early August -- this was when gold fetched $18.93 per ounce. A day's worth of work was not measured in ounces of gold -- it was measured in POUNDS of gold.

Some prospecting teams produced up to 30 pounds of gold a day. By the end of the 1861 mining season, $2,600,000 worth of gold had been produced, most of it from the Cariboo region. The output for the next year, 1862, was slightly more.

Thousands of men lined the rivers, panning for gold, and digging up every hopeful inch with wild abandon.

Miners sent letters home to friends, like this one: 

"Dear Joe,
I am well, and so are the rest of the boys. I avail myself of the present opportunity to write you a half dozen lines to let you know I am well, and doing well - making from two to three thousand dollars a day! Times good - grub high - whiskey bad - money plenty.
Yours truly,
Wm. Cunningham"

Such letters spread the word about the gold diggings and the money to be made.

And sure, fortunes were made ... and usually lost. Sometimes they were lost with real style. Big winners who became losers include Billy Barker, Michael Costin Brown and John “Cariboo” Cameron.

"Cariboo" Cameron

 Barker pulled $1,000 worth of gold out of one small crevice he found 80 feet down in a hole that other miners ridiculed. That shut up the doubters right quick.

 Cariboo Cameron gets my vote for the most amazing mix of good and bad luck. He had already made a good strike in the California gold rush with his two brothers. They then heard about the strike on the Fraser River, went north and hit it big again, returning with $20,000 between them, a sizeable sum.

John Cameron then married a beautiful woman, Margaret Sophia Groves, and she had a baby daughter just in time to take her to Cariboo, where Cameron wanted to try his luck.

The baby died on the trip.

Sophia Cameron

Pickled in a Tin Coffin

Meanwhile, Cameron bought $2,000 worth of candles and sold them for $10,000 in the mine fields. That was a surer profit than he could have probably made with gold itself, and a reminder that you can do just as well in pick-and-shovel makers than gold miners, (something Ill be sure to include in my Gold & Resource Trader).

A bitterly cold winter set in. Sophia had another baby, who arrived in the world stillborn. Then Sophia died as well. Cameron became obsessed with the mine, working at it night and day. And sure enough, he struck paydirt.

Cameron was rich, but he was also heartbroken. He wanted to take his wife home for burial, so he hired miners to work three shifts, 24/7 to get the gold out soon as possible. Then he took Sophia home, pickled, in a tin coffin.

The story doesn't end there. Cameron invested his money in everything from steamships to timber, and lost it all. He married a new wife, came back to the gold fields, and met with no success at all. He died flat-broke.

Enter China

Other people were having luck in the gold fields, including the Chinese prospectors.

Yes, even back in the 1850s, the Chinese were hot on the trail of Canadian resources. By 1863, there were some 4,000 in the Cariboo region. They were only allowed to work areas abandoned by the white miners.

But surprising their detractors, Chinese miners were both more disciplined and persistent. They invented the panning machines used to separate gold from mud. And they had some big strikes, even in the abandoned mines. It turns out that the good ol boys just werent looking hard enough.

Chinatown in Barkerville was a huddle of small shacks warmed by wood stoves. There was also a laundry and at least one gambling den. The Chinese men -- and a few women and children -- were used to farming, so they raised pigs and chickens and grew vegetables in their backyards. Along with mining, the Chinese also worked as doctors, herbalists, storekeepers, innkeepers, cooks and restaurant owners.

Welcome to the Boom Town

By the end of 1863, more than 100 companies had staked a total of 3,000 claims, and the value of the gold removed that year was just under $4,000,000.

The years 1864 and 1865 saw similar gold production levels. Most of the gold was found during the first five years of the Cariboo gold rush. Still, many claims were worked until 1900. It is estimated that William's Creek and two of its tributaries, Conklin and Stout's Gulch, produced $30,000,000 worth of gold between 1861 and 1898. 

All Good Things Must End

Gold Rushes always end in a bust. In 1868, the town of Barkerville burned to the ground in what became known as the Barkerville fire. Though reconstruction began the next day, the Gold Rush was already dwindling.

The Cariboo petered out, but the death knell came in an act that had its seeds in 1867; when Russia sold Alaska to the U.S. In 1896, settlers in Alaska found that you could dig up amazing quantities of gold right on the beach.  Those miners that were left in the Cariboo picked up stakes and headed for Alaska. 

Canada hosted other gold rushes -- and an amazing silver rush that I'll have to tell you about as well. But that story, as well as the story of the Klondike Gold Rush, will wait for another time.

4 Lessons from the Cariboo Gold Rush

There are several key lessons to learn from the past:

Lesson #1. Greed may lead you to riches. But keeping them is another matter entirely. For that you need prudent management and financial planning.

Lesson #2. Discipline often separates winners from losers. A disciplined, scientific approach to investing, carefully removing the wheat from the chaff, is equally important.

Lesson #3. There's plenty of ways to make money in a resource boom. You don’t always have to invest in the companies that extract the gold, the oil or other natural resources from the ground. You can do equally well with those that service the industry.

Lesson #4. Booms are often followed by busts. British Columbia sank into an economic depression once the gold ran out.

I think there is plenty of money to be made in gold and other metals right now.  In fact, I'll have new picks for my Gold & Resource Trader subscribers very soon. Good luck and good trades this next week,

Sean

Invest Like a Pirate. Arrrgh!

Here's some weekend reading for you ...

My family loves the Pirate of the Caribbean movies, and pirates in general.  We live in Florida, which doesn't have areas named "The Gold Coast" and the Treasure Coast" for nothing. 

Ye deadly lass bears little likeness
to a real pirate ... dammit!

What I really find interesting is the economics of piracy, I’m talking about more than “pirate gold” — namely, the four S’s — silver, smuggling, sugar and slaves.

I think natural resource investors can learn a lot from the pirates. I’ll give you the specific lessons in a moment. First, I want to explain how all of these factors contributed to the rise of an entire pirate economy …

Silver and Smuggling:
Taking a Shine to Pieces of Eight

Spain's rush for silver in the new world had some serious blowback.  It made a lot of people greedy and jealous. And some of those people were pirates.

But can you blame them?  The gold and silver of the new world were making the Spanish filthy rich!

The yield from Mexico’s mines doubled the world supply of silver in less than two centuries.

By the 1700s, Mexico’s silver mines were producing nine million troy ounces of silver each year.

How you make pieces of 8
from Spanish silver

If you include production from Bolivia and Peru, from 1530 to 1800, approximately $6 billion to $8 billion worth of gold and silver were mined in the Spanish American colonies.

You can see why Spain quickly became the wealthiest state in Christendom. However, the country was so beggared by its corrupt, war-mongering rulers that it couldn’t afford to defend its vast holdings in the New World.

That had “opportunity” written all over it for French, English, and Dutch pirates. They swarmed the Spanish treasure ships like fleas on a bunch of slow, ungainly dogs.

What really enraged the Spanish was that the pirates did this with varying levels of complicity from their governments. Heck, Henry Morgan was such a successful privateer and pirate that the English Crown knighted him and appointed him governor of Jamaica. 

Why were the other European powers so friendly to pirates? Because they were left empty-handed after the Pope gave the Caribbean and most of South America to the Spanish in the Treaty of Tordesillas (1493).

See, in the 16th Century, the Spanish “owned” South America and the Caribbean. To keep out the riff-raff (English, French and Dutch), they passed laws allowing only Spanish merchants to trade with Spanish colonies in the Americas.

Big mistake! The Spanish merchants fleeced the colonists. So, the colonists found it much better to do business on the French island of Tortuga, England’s base on Barbados, and the Dutch island of Curacao.

Meanwhile, the Spanish did have one busy port — Trinidad. But the governor there had a laughably small garrison and no fortifications. Not being a fool, he took bribes and looked the other way as French, English and Dutch smugglers did a rip-roaring business. So Trinidad also became a base for smugglers and pirates.

Every now and then peace would break out and ruin business for pirates, privateers and smugglers. But it never lasted long. And the smugglers really hit paydirt in the mid-1600s when the British Crown decreed that English colonial goods be carried only in English ships and limited trade between the English colonies and foreigners.

These laws were aimed at ruining those uppity Dutch merchants who depended on free trade. But they amounted to a windfall for smugglers.

There’s little doubt that silver and smuggling helped establish the economies of the Caribbean colonies. But Spanish silver eventually became a back-story to a much bigger commodity …

A Bittersweet Tale of
Sugar and Slavery

Sugar was so important that Columbus brought sugar cane with him on his voyage to the New World. And when the gold ran out, colonists focused on producing lots of it. By 1540, there were several large sugar plantations in Hispaniola.

Sugar and slavery went hand in hand.

Unfortunately, sugar and slavery went hand in hand. Starting in 1512, slaves were brought over to work the land. Why bring slaves all the way from Africa? Because in their rush for precious metals, the Spanish worked the natives to death (diseases played a big part, too).

As Europe’s appetite for sugar grew and grew, sugar became the white gold of the Caribbean. Along with rum (made from sugar), tobacco, chocolate, and lumber, sugar was the foundation of the “golden triangle” of trade.

These were the goods that pirates were more than likely to pillage. After all, the silver fleet only sailed once a year. But an industrious pirate could make money on slaves, sugar, tobacco and manufactured goods all year long!

All the while, the European powers battled over prime sugar-growing islands. For example, the Dutch sugar island of Saint Eustatius changed ownership 10 times between 1664 and 1674 as the English and Dutch slugged it out! And guess who the European powers hired to do their dirty work in these constant battles? You get one guess, and I’ll spot you the letter “P.”

It’s fair to say that the late 1600s and early 1700s constituted a “Golden Age of Piracy.” Spanish silver production surged. Slaves were shipped by the ton. The European hunger for sugar approached a mania. And constant warfare between the European powers provided plenty of opportunities to pick up government work both preying on enemy ships and guarding colonies.

The salad days of pirates only came to an end when Britain won decisive victories at sea. That freed up the country’s navy to clear the scum from waves. After 1720, pirates were rounded up, sworn to live by the law or hanged. And this is the period we see portrayed in the Pirates of the Caribbean — when the world is changing and pirates like Jack Sparrow and Barbossa are trying to stay one step ahead of the hangman’s noose.

With the age of steam, the golden age of piracy sailed into the sunset. However, the period has left behind quite a legacy that continues to capture our imaginations today. And, for investors, there are some great lessons to be learned …

Five Pirate Tips for Sailing Through
Today’s Tricky Financial Waters

First, precious metals never go out of style. Gold and silver are great investments today, just as they were in Henry Morgan’s day. That’s because they continue to have real value.

Other metals can have their day in the sun.  For example, I believe palladium demand will ramp up with demand for new cars -- and there are already expectations of a supply/demand gap in that metal.

But it's not just metals. Oil is a hot commodity, as the rest of the world wants to drive like Americans. Sure, America is producing a lot more oil. That has weighed on prices. But there are still companies that can make a killing worthy of a pirate king.

Second, it’s best to become an early investor. The first pirate to attack a Spanish treasure fleet was Jean Fleury, a privateer sanctioned by the King of France. In 1521, he bagged two lumbering treasure ships off the Azores. In those early days, nobody was expecting piracy in the middle of the Atlantic, so the treasure ships only had a few cannons and no chance against a heavily armed and determined pirate.

Jean Fleury, the privateer
hero of France.

Here’s just part of what Jean bagged: 680 pounds of pearls, 500 pounds of gold dust, 150,000 ducats, three cases of gold bars, and five cases of silver bars!

Jean became a hero in France, and he was quite wealthy. But his major investor, the Viscount of Dieppe, took an even bigger share of the loot because of his foresight … and he never even had to get his feet wet.

Third, think big and long-term. By the time Henry Morgan came along, pirating was already a booming business. So he didn’t have the first-in advantage of Jean Fleury. But by 1661, young Morgan was a captain in his own right and proving himself as a master of battle tactics.

Henry Morgan

He rode the waves of on-again, off-again wars between England and Spain to military success and wealth. Other pirates captured ships; Morgan captured whole cities — Gran Canada, Portobello, Maracaibo, even Panama City, which was the biggest, richest city in the New World at the time.

Here’s the point for investors: Even if you find out about an investing trend after a lot of the easy money is made, you can still make big money with good timing and a long-term view!

Fourth, good management is critical to an endeavor’s success. England’s Queen Elizabeth I, or Queen Bess, had kind of a “thing” for pirates. Although it didn’t start with Sir Francis Drake, he was one of her favorites. He also happened to be brilliant, thoughtful and cool under fire … the perfect combination to make him a terror on both sea and land.

Francis Drake

Drake also didn’t give up in the face of adversity. When his scheme to attack the city of Nombre de Dios on the Isthmus of Panama blew up in his face, he had his crew lay low for four months. Then, when their wounds were healed, they ambushed a gold-laden mule train. Nobody expected a pirate to attack a mule train!

Drake bagged 200 mules carrying hundreds of pounds of silver and gold. This daring made him a millionaire.

Investors would be wise to emulate Drake’s resolve and resourcefulness. And they should also look for these same traits when they investigate the management of a company they’re about to invest in.

Fifth, good PR is worth its weight in swag. When pirates flew the skull-and-crossbones flag, they were advertising. And the message was simple — “Give us your cargo or we’ll kill you.”

Pirates relied on their fearsome reputations. One pirate captain, Edmund Condent, put three skulls on his pennant. Edward “Blackbeard” Teach wound cannon fuses into his beard and set them on fire during attacks to make himself look like the devil. And Edward Collier was known for ferociously torturing anyone who didn’t give up easily.

Though it’s slightly different these days, good advertising can still do wonders for business. Well-executed PR helps companies bring in revenue more quickly and at greater volumes. It also helps get the word out to the investment community.

So when you’re looking at a potential investment, check out the company’s marketing plans. They can really help light a fire under profits … not just the firm’s but also yours!

Modern Piracy

We still have pirates today. And they can make quite a profit. For example, when a gang of Somali pirates hijacked the supertanker Samho Dream, which was carrying 2 million barrels of crude oil from Iraq to Valero’s refineries on the U.S. Gulf Coast, the crew was ransomed back for millions of dollars. Pirate ransoms, often paid to the kind of Somali pirates recently portrayed in the Tom Hanks movie Captain Phillips, range from $1.6 million to as high as $8 million. 

The total cost of piracy worldwide is somewhere north of $1 billion a year. That's a flea bite compared to the $7 trillion a year international maritime trade. But you can see why pirates still take the risks.

Yours for trading profits,

Sean

The Quest for the REAL City of Gold

Another blast from the past -- my story about "the city of gold," Timbuktu. Happy Friday, and have a good weekend.

Quest for the City of Gold

El Dorado … Cibola … Quivira … these are all fabled “lost cities of gold” that fired up the imaginations of explorers who pursued their dreams to the four corners of the Earth. These cities only existed in the fevered imaginations of storytellers.

But there was a real city of gold … or at least, a city richly associated with gold. Its discovery by European explorers is the story of unlocking mysterious Africa … a tale that rings down through the ages … and holds lessons for investors today.

The real fabled city of gold is Timbuktu. In present day, this incredibly remote city at the southern edge of the Sahara is not much to look at.

Timbuktu today -- not much to look at

But in 1324, Timbuktu made a dazzling impression on the civilized world when its emperor, Mansa Munsa, passed through Cairo on a pilgrimage to Mecca.
The emperor arrived with a caravan of 60,000 men, all dressed in fine Persian silk and brocade. He was preceded by 500 slaves, each carrying a golden staff weighing four pounds. And Munsa was followed by a baggage train of eighty camels, each weighed down by 300 pounds of gold.

The Golden Emperor …

Munsa made his pilgrimage and passed into history. But he spent so much gold that he flooded Cairo’s market with enough yellow metal to last the next dozen years.

By the late 1700s, when the Europeans started carving up Africa, Timbuktu was lost in the mists of time. Arabs along the Mediterranean coast may have heard of Timbuktu and could even visit it, if they could survive the grueling journey across the Sahara. But Europeans who tried to reach it were summarily killed by tribesmen who considered non-Muslims “enemies of the prophet” (and juicy targets for robbery and murder).

There was another approach to Timbuktu — through the fever swamps of Africa’s east coast. But these swamps were known as “White Man’s Doom” for a good reason, because the Europeans had no resistance to the diseases that plagued the area.

You might think these would be good reasons to stay away from Timbuktu. But the British and French explorers of 1800, eager for fame and fortune, cast covetous looks at one of the last uncharted places on Earth.

The Last Blank Space
On the Map …

By 1800, there remained few corners of the Earth upon which some European foot had not trod. But most of Africa’s map remained blank.

Africa spreads out across 11 million square miles — 3 times the size of the United States, including Alaska. Yet a well-regarded map of Africa produced in 1829 left most of the interior spaces empty. That’s because it was easier to map the surface of the moon with a telescope in 1829 than to produce a detailed map of Africa.

And no destination in Africa burned brighter in the fevered imaginations of Europeans than Timbuktu, a “city paved with gold.”

The Geographical Society of Paris offered a price of 10,000 francs for the first European to travel to Timbuktu and return with proof of his journey. And the race was on.

Many of these expeditions are covered in an excellent book, The Race for Timbuktu by Frank Kryza. I highly recommend putting it on your Christmas reading list.

British expeditions were backed by leading figures of the day. But one brave explorer after another would set foot in Africa’s interior only to end up dead in a matter of weeks. The killers were …

Disease. Malaria and other illnesses infested not only the fever swamps but also the oases dotting the desert.

Poor planning. Not only did the explorers have to pack everything they needed for the months-long journey on foul-smelling, spitting camels, but they also had to bring enough money to bribe local warlords. Running out of funds was a common calamity for the British explorers.

Poor navigation. Finding Timbuktu was one problem … finding precious water holes along the way was another. “Whole caravans of a hundred men simply vanished like ships in the ocean because their calculations were off by a hundred yards,” Kryza writes.

Attack. The Arabs, Tuaregs and various tribes of the desert were constantly at war with each other. So traveling in disguise didn’t work that well, because eventually you’d be disguised as someone’s enemy.

Clapperton

Oddballs in the Desert …

Still, lured by tales of Africa’s “city of gold,” the explorers pressed on.

My favorite explorers are a real “odd couple” — Captain Hugh Clapperton, a Scottish-born adventurer, and Lieutenant Dixon Denham, a preening social climber with a mean streak a mile wide.

Clapperton, Denham and their team journeyed across the Sahara and were the first Europeans in recorded history to visit Lake Chad. Along the way, the two men grew to detest each other, and finally resorted to communicating only by writing letters to each other.

Denham

Local political intrigue and illness prevented them from pushing on to Timbuktu, so they returned to Tripoli. That was enough for Denham, who was just using the exploration to boost his career.

The Lady
Or the Crocodile …

But Clapperton became obsessed with finding Timbuktu. And his obsession ignited when he found out that another explorer, Alexander Gordon Laing, was already making a new attempt south from Tripoli. So Clapperton hurried to take his chances through the fever swamps of Africa’s east coast.

Most of Clapperton’s party died of disease in the first 150 miles. Then, exiting the swamps, the survivors entered the country of the Yoruba. There they found a happy, healthy people who were incredibly friendly to the white explorers.

Laing

Perhaps too friendly. Clapperton and his surviving team drew the attention of the Widow Zuma, a rich schemer who wanted to marry one of the white men as a way to further her political ambitions. Clapperton might have gone for it.

But the local male ideal of feminine beauty was “the more bulk, the better.” Zuma was the size and shape of a walking water barrel wrapped in fine threads. And she relentlessly wooed the British explorers from one end of the country to the other.

Clapperton and his crew fled Zuma’s attentions, swimming a crocodile-infested river to make their escape.

Finally, though, Clapperton succumbed to disease and joined the rest of his men in the grave. A lone, faithful servant turned back to report the unhappy news.

Success …
And Disappointment

Meanwhile, Laing, who was racing Clapperton to find Timbuktu, endured one hair-raising adventure after another and finally reached the fabled city. And what a disappointment!

All Laing found was a city of mud!

The city of gold was a city of mud. A thousand years old, it was crumbling. Its population, down from 100,000 at its peak, was reduced to 12,000 and devastated by war. Timbuktu’s golden glory days had long since passed by the time Laing strode through its gates.

Laing was in Timbuktu only a month before he was chased out for being an unbeliever. Then he was murdered and robbed by the men who were supposed to guide him to safety.

Finally, a Frenchman entered Timbuktu and returned to tell the tale.

Rene Caille journeyed from the West Coast of Africa disguised as an Arab, surviving months of illness and hardship. He returned to France to collect his prize from the Geographical Society of Paris and was greeted as a hero. But the fact that Timbuktu was NOT a city of gold was certainly a disappointment to the people following the drama.

Caille won 1st "Amazing Race"

Within a short time, the various European powers carved up Africa’s rich interior under the guise of stamping out slavery. And Timbuktu became just another bump on the dusty trail.

What Investors Can Learn
From the Men Who Sought Timbuktu …

Persistence Pays Off. Reading the tribulations and exploits of the early explorers, I was constantly reminded that those who persevere can triumph. Refusing to be discouraged by early setbacks was what separated the men from the boys. Even those who didn’t find Timbuktu sometimes found enough to make the journey worth their while.

Be Prepared and Be Flexible. Anything can happen, and often did on the trail from Tripoli to Timbuktu. Whether it was an attack by tribesmen armed with poison arrows or the amorous advances of a milktruck-sized widow, the best explorers planned ahead and adapted when plans changed.

Be Open to New Opportunities. Many of the great adventurers had temperaments that drove them to look beyond the next hill. If you never stretch yourself to try new things, you will have missed out on all the thrilling adventures life has to offer. Likewise, while the bear market has burned many investors, those open to new opportunities will likely reap the greatest rewards.

Don’t Let the Sandstorms Throw You Off the Trail. More than once, the explorers lost the trail in the sand-swept Sahara. But they knew the general direction they had to travel, and they pressed on. Today, we need to keep our eyes on the big picture and not let short-term noise throw us off.

Let’s Apply Those
Lessons to Gold …

(Updated chart)

This 7-year chart shows the comparative performance of gold, the CRB index, which tracks a broad basket of commodities, the S&P 500, the 10-year Treasury note and the U.S. dollar. Over a 7-year period, gold has more than doubled. The S&P 500 is FINALLY starting to play catch-up. The CRB is up 10% not even keeping up with inflation. Treasuries did a little better. And the US dollar index has lost value over the long-term.

It’s just another case of gold’s eternal value shining through. Much as it beckoned British explorers over vast distances of space and time to Timbuktu, gold now beckons us today.

The explorers of the 1800s arrived in Timbuktu centuries too late to enjoy the city’s golden age. And that leaves us with today’s last lesson: Timing is everything. Don’t be left in the dust when the next upward leg of gold’s journey begins.

The Ancient Empire of Oil

I’m a history buff, as anyone who reads my old columns could tell you (examples here and here). And I'm fascinated by the Nabataeans, aka “the Oilmen of the Dead Sea.” It’s a story of oil, war, greed, and even involves two of the world’s most famous lovers, Antony and Cleopatra. This story has everything!

The Nabataeans built a kingdom in the 4th to 3rd centuries BC that spanned from northwestern Saudi Arabia to Syria. Their trading routes went even farther, More than a thousand years before Columbus went looking for a passage to India, the Nabataeans sailed longer distances – all the way to Southern India. In its day, the Nabataean Empire was famous throughout the world, as far as China.

The Nabataeans’ capital was Petra, ("rock" in Greek), a city carved out of stone that you may remember from the movie “Indiana Jones and the Last Crusade.”

Oil, along with a lock on the lucrative spice trade, made the Nabataeans so wealthy, explains Dr. Zayn Bilkadi, that “they are the only people in history known to have imposed a punitive tax on whomever among them grew poorer instead of richer.”

Oil Wealth Breeds Jealousy

As in present times, oil wealth bred jealousy. The Greeks sent an army to drive the Nabataeans away from their oil patch. The general leading the Greeks was Hieronymus – the famous historian – and he described what he saw on the shore of the Dead Sea. Scores of tribesmen camped on the shore next to reed rafts, waiting for what they called the thawr – the word was Arabic for “bull” – to appear in the middle of the sea.

The “bulls,” Hieronymus discovered, were great iceberg-like mounds of tarry crude oil – bitumen – that floated up from the depths of the Dead Sea. These giant chunks of floating asphalt were found after storms, which dislodged the tar from the bottom of the Dead Sea.

When the thawr reared in the waters, the tribesmen leapt aboard their rafts and paddled furiously after it. They chopped pieces of the tar off with axes, loaded up their rafts, then headed back to shore.

Sprinkled with sand, the tarry mess would then be taken by camel-back to Alexandria Egypt (then the cultural and economic center of the world) for sale. It was used in the Egyptians’ sacred mummification rituals. Bitumen was substituted for the even more expensive myrrh (the ancient words for both are very similar). Since everyone who was anyone in Egypt had to be mummified, demand for the thawr-oil was very high.

Hieronymus and his troops were under orders to drive the Nabataeans away from the oil-strewn shores and secure the prize for the Macedonians. However, Hieronymus was a better historian than a general, and he had his ass handed to him. His army was attacked by 6,000 tribesmen and massacred in a hail of arrows, and Hieronymus himself was forced to flee for his life.

Over the centuries, the immense wealth of the Nabataeans attracted one would-be conqueror after another. For a while, they crushed their enemies, but when the armies attacking them became too large, they started buying off potential adversaries with silver. This only made their enemies eye them more greedily.

A Love Story for the Ages

And this brings us to the love story. The expanding Roman empire wasn’t satisfied with huge ransoms of silver. Roman leader Marc Antony finally annexed the Nabataeans’ kingdom.

However, Marc Antony became smitten with a drop-dead gorgeous Egyptian princess, Cleopatra. She wrapped him around her finger and he gave her the Nabataean thawr-oil monopoly as a gift in 36 BC. Cleopatra had no stomach for running a complex business, so she leased the operation back to Nabataean king Malik in for 200 silver talents a year (roughly $400,000 a year in today’s money). This is history’s first recorded lease-back operation.

That oil wealth allowed Cleopatra to build a fleet which helped Marc Antony temporarily defeat his rival for the Roman throne, Octavian.

But the Nabataeans chafed under the expensive terms of the leaseback and rebelled. Antony sent Judean king Herod to quash the rebellion, and Herod had his ass handed to him. Lacking funds, Antony was then beaten in battle by come-back kid Octavian. It was time for Antony and Cleopatra to get out of Dodge.

Cleopatra had some of her ships dragged overland to the Red Sea in preparation for an escape to India. Holding a grudge, the Nabataeans swooped down on the ships and burned them. Hopelessly trapped in Egypt, Cleopatra had her … ahem … asp handed to her, and she and Antony committed suicide.

It was a lose-lose situation for the Nabataeans as well. When Octavian became emperor, he ended the ancient Egyptian custom of mummification. It was the equivalent of modern-day Saudi Arabia’s customers switching to alternative fuels. The bottom fell out of the bitumen market, and the Nabataeans faded into history. So, along with everything else, the Nabateans had history's first recorded oil boom-bust.

In 747 A.D., what was left of the Nabataean civilization was destroyed in a major earthquake. Now, this empire that was once famous throughout the known world is only known to most Americans because its former capital was a backdrop for an Indiana Jones movie.

Something to think about in the age of American super-power. Sic Transit Gloria Mundi. 

The Millionaires & Madmen of the Comstock Lode

Today, I'm in Virginia City, Nevada. I'll be checking out a gold miner, and I'll post videos and an analysis when I can.

In the meantime, Nevada is so rich with mining history that I feel compelled to share a little of it with you today.

A Precious Find

The first big discovery in Nevada was placer gold in a stream flowing into the Carson River. This discovery was made by ‘49ers on their way to the California gold fields. It led to other discoveries, and finally the outcroppings of the Comstock Lode in 1859.

Two miners, Peter O’Riley and Patrick McLaughlin, prospected on a mountain slope near a small stream. They found some gold, but also large clumps of heavy blue-black mud that made it difficult to sift out the fine gold.

Closer inspection revealed that the blue-black mud was almost pure silver. It could be dug out by the ton with a shovel, and each ton was worth $2,000!

Enter the Villain

Enter Henry Thomas Paige Comstock. Comstock was a shady character with an advanced degree in weaseling. He came across O’Riley and McLaughlin, saw their discovery, and declared that he had a claim on the ground. That was a lie, but the panicked men didn’t want trouble. So they gave Comstock and his partner shares in the claim. This project became the famous Ophir Mine.

The silver rush was on! Prospectors, drifters, and ne’er-do-wells poured into the valley to work silver claims.

Grubby Prospectors Became Instant Millionaires

You probably already know one of those adventurers – a man by the name of Samuel Clemens, better known as Mark Twain. Twain found the mines of the Comstock Lode were a beehive of activity, and Virginia City was a festering den of scum and villainy.

Twain wrote:

“The country is fabulously rich in gold, silver, copper, lead, coal, iron, quicksilver, marble, granite, chalk, plaster of Paris (gypsum), thieves, murderers, desperadoes, ladies, children, lawyers, Christians, Indians, Chinamen, Spaniards, gamblers, sharpens; coyotes (pronounced ki-yo-ties), poets, preachers, and jackass rabbits. I overheard a gentleman say, the other day, that it was ‘the d—dest country under the sun,’ and that comprehensive conception I fully subscribe to.”

We like to think of Las Vegas as the original, 24-hour Sin City. But Virginia City claimed that title much earlier. In 1863, the number of arrests equaled one-third the town’s population of 30,000 people!

The wealth of the mines fueled Virginia City’s growth. Nearly overnight, grubby prospectors became instant millionaires. The boom extended to Wall Street, where stock speculators made fortunes from the Comstock boom.

The Comstock Lode hit peak production in 1877, producing more than $14 million of gold and $21 million of silver that year. But three years later, the mine was mostly played out.

As for the people who started the boom ...

• Henry Comstock took his profits from the Ophir Mine and opened a series of businesses, every one of which failed.  He committed suicide in 1870.
• Patrick McLaughlin, one of the original discoverers of the Comstock, sold his share for $3,000, lost that stake, worked a series of odd jobs and died a pauper.
• Peter O’Riley did better, holding on to his stake and finally selling for $50,000. He spent that fortune tunneling into the Sierras, certain he would find a richer claim than the Comstock. He lost everything, went insane, and died in an asylum.

Now, not everyone who dug for Comstock riches ended up broke. Some great American family fortunes were dug out of the mud in Virginia City.

•  James Graham Fair was a poor Irish immigrant who parlayed his Comstock fortune into a railroad empire and a U.S. Senate seat.
• John MacKay was another Irish immigrant and silver miner. At the time of his death he was worth $30 million.
• George Hearst made a fortune in Nevada, a fortune later parlayed into a publishing business by his son, William Randolph Hearst.

In fact, there were many people who did well in the Nevada boom and stayed rich. But many more made fortunes and lost it all. So this gives lessons we can all live by …

Don’t underestimate the potential of a great discovery. If McLaughlin and O’Riley had stood their ground and hung on to their blue-black mud, they could have given Thomas Comstock the bum’s rush.

Don’t expect every prospect to turn into a winner. Do your due diligence. No whims, tips, fantasies, or wheeling and dealing. Just good, solid research, and discipline.

You don’t have to be a miner to make a fortune. While a minority of prospectors became fabulously wealthy, many more stock investors made fortunes without ever seeing the inside of a mine. The same holds true today: You can build your wealth quite nicely by buying the right stocks.

Importantly, never think you know it all. I learn something new on every trip I make into mining country. I can’t wait to see what I learn this time.