I’m at the Diggers & Dealers conference this week, one of Australia’s most high-profile mining events.
It attracts some of the biggest mining firms, investment banks and service contractors and swamps the town of Kalgoorlie each year.
And on Wednesday night at the Gala Event, there was plenty of backslapping and cheering among those who had struck it rich in the previous 12 months.
And not surprisingly, all the accolades poured into the gold miners, chiefly Spartan and De Grey.
Companies that have been on the receiving end of multi-billion-dollar deals in recent months.
The Gala event showcased Australia’s newest multi-millionaire mining executives, leaving small explorers in the crowd salivating over their success.
Gold fever is well and truly upon us.
So, with that, I want to revisit the 1890s.
Perhaps the most feverish gold boom era in history.
A period that marked major gold discoveries around the world, including here in Kalgoorlie.
And to understand why that happened and how it’s repeating, I’m going to outline the setup that was taking place back then.
The 1890s: Gold Fever Erupts
So, what led to the 1890s gold euphoria?
As you probably know, gold has been central to national monetary systems for millennia.
But silver, too, has played a role.
In fact, gold and silver have battled it out over millennia in the fight for monetary relevance.
However, in the 1890s, America’s monetary system was being shaken up!
Back then, the US currency was exclusively backed by gold.
And that was splitting the US population… East versus West.
The established rich versus the hopefuls.
Wealthy bankers from the East Coast favoured America’s exclusive gold-backed standard. I’ll explain why in a moment.
Financial titans like J.P. Morgan were prepared to fight hard to keep this system in place.
Meanwhile, West Coast pioneers… entrepreneurs, farmers, miners—pushed hard for silver’s adoption into the country’s monetary system.
The battle was on…
Gold versus silver: But why the rift?
As you know, gold is scarce.
A currency exclusively backed by gold limits the amount of ‘cash’ flowing through the financial system.
For better or worse, that means the currency can hold its value. That’s good for savers, but it does lead to deflationary conditions in the economy.
The gold-backed standard benefited wealthy bankers in the East looking to PRESERVE the value of their loans—they were the wealthy creditors.
But on the other side of the ledger were the debtors…
The pioneers pushing west, funding their exploits by borrowing to farm, mine, or build. And establish the American frontier.
But with a gold-backed standard, monetary conditions remained tight.
Loans were hard to repay.
And by the late 1800s, this stifled growth in America’s West.
But there was a solution: Silver.
Those in the West understood that increasing the money supply would drive inflation and effectively reduce the value of their loans.
But back then, there were no money printers to inject the financial system with more cash. And gold’s scarcity kept conditions tight and restrictive.
So, how did these pioneers propose increasing the money supply in 1890s America?
Pour silver into America’s monetary system!
You see, silver is about 19 times more common than gold.
With its relative abundance, incorporating silver would inject more ‘money’ into the monetary system.
And in 1890, farmers, miners and loggers got their wish…
It was known as the Sherman Silver Purchase Act, where governments bought around 4.5 million ounces of silver each month.
A roundabout way of accepting ‘monetary silver.’
The law would erode bankers’ wealth but spark mass speculation in the West.
And the era of ‘free silver’ was born!
On the back of that decision, Colorado’s silver operations ramped up.
This was the 19th-century money printer… Monetary expansion was underway!
This drove up inflation and commodity prices… Wheat, base metals, and timber surged thanks to the government’s silver purchases.
A commodity super-cycle was underway.
Relying heavily on logging, mining, and farming, frontier townships on America’s west coast expanded rapidly.
Commodity-rich nations like Australia and South Africa also benefited, triggering one of Australia’s first real estate booms.
However, with rampant speculation and powerful bankers looking to end silver’s role, it was unlikely to last.
And what happened next kick-started one of the greatest gold rushes of all time!
Something I’ll cover next week.
Until then, take care.
Regards,
James Cooper,
Mining: Phase One and Diggers and Drillers
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