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MA Capital Management (MACM) is an investment management firm founded by professional investors and traders with decades of experience at some of the largest banks, hedge funds and asset managers around the world. MACM has been providing investment management services to some of the largest... More
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  • Why Is Gold So Rare? A Cosmic Insight 0 comments
    Jan 7, 2013 7:50 PM

    I was recently at a dinner with my friend, Steve, who is an engineer by training and an astrophysicist by passion. Given the meteoric rise in the price of gold of late, our discussion moved to the subject of gold's monetary value. But then Steve posed a very interesting question to me which had me scratching my head and also turned our discussion from finance to astrophysics. I would like to share with you the rather fascinating insights I gained into gold from our discussion. While this discussion does not offer much financial insight into gold, it nonetheless provided me with a new dimension into understanding the rare nature of gold.

    Steve's question to me was:

    "Monty, do you really understand why gold is so rare"?

    To this I replied that it is a long and cumbersome geological process which brings gold from the Earth's center, or magma, up to the surface where it can be mined. We obviously have not found rivers of gold deposits and the easily available gold has been mined. Going forward we will need new technologies for locating and extracting gold from the deposits. That is why gold is so rare and expensive.

    Then Steve posed a second question. He said; let's get a little more basic than that. Do you think the atoms of gold are formed:

    A. Deep inside the Earth by molten lava

    B. In our own Sun

    C. In a Supernova explosion of a distant star

    D. In the Big Bang

    This had me completely stumped, so I ventured a logical guess, 'a', inside the Earth's magma. Fortunately I was wrong, because the correct answer and the explanation that followed were truly fascinating.

    About 13.75 billion years ago when the Big Bang occurred and the various sub-atomic particles combined to form the first elements, we had just 2 elements, Hydrogen and Helium. Hydrogen is way more abundant than Helium by a margin of 12 to 1. Hydrogen and Helium therefore are also the first 2 element in the periodic table.

    The big bang was not a uniform process and it led to the formation of dense clouds of Hydrogen and Helium that eventually collapsed on themselves due to gravitational forces to form stars. Inside stars, the high temperatures and pressure have created a nuclear power station where fusion processes are constantly creating heavier elements from lighter elements.

    In nuclear fusion of two atoms, the total number of protons and neutrons is conserved, but some protons are converted into neutrons in the process. A proton becomes a neutron by emitting a positron, the antiparticle of the electron, and a neutrino in an exothermic process that releases energy. Therefore while our Sun is busy creating heavier elements we benefit from the by-product which is light and heat and the amount of energy released from this exothermic process is directly proportional to the mass of the neutrinos and is defined by the well known equation:

    E = MC2

    It is known that, beginning with hydrogen, fusion like that which goes on in our Sun will yield heavier and heavier elements while contributing heat energy exothermically. But, once the fusion process reaches Iron (Fe) number 26 on the periodic table, continued fusion begins absorbing heat rather than giving it off. So how are the elements heavier than iron formed? Gold (Au) after all is much heavier at number 79.

    (click to enlarge)

    To create elements heavier than iron, like gold and silver, requires the most destructive forces known in our universe. As a star undergoes its death-throes, once its nuclear fuel is consumed, explosive emissions of heavy material are ejected in a violent process known as a supernova.

    (In fact we are recently witnessing the closest supernova in a generation, which will be visible in the sky with a good pair of binoculars)

    During a supernova, a star emits as much energy in a very short period of time as it does during its entire lifespan of running the fusion process. In this explosive event, some materials undergo further fusion to form elements heavier than iron. And this is what leads to the formation of heavier elements like platinum and gold.

    Therefore, our Earth's core is not producing any gold and neither is our Sun and the correct answer to Steve's question is 'c' or a supernova.

    Our Earth is the by-product of a star that went supernova about 4.5 billion years ago and during that supernova, our Earth collected some rare formations of Gold atoms. Not every star goes supernova when it runs out of nuclear fuel to burn. In fact 97% of stars never explode which makes a supernova and the chances of gold atoms forming in the universe that much rarer.

    As a final anecdote on the rarity of gold, I was further surprised to learn that the entire gold that has been mined in the history of our planet would fit in a cube roughly 20.5m a side. Or put another way, it would fill about 3.4 Olympic size swimming pools.

    That's pretty rare!

    Explanation

    Total gold mined in human history: 165,000 tonnes.

    As of 2009 (Source: World Gold Council)

    Gold Density: 19.3 grams / cm3

    Volume = Mass / Density

    = 165,000 * 1,000,000 / 19.3 = 8,549 m3

    = 20.5m cube

    Volume of Olympic size pool = 50m X 25m X 2m

    (Assuming a constant depth of 2m)

    = 2,500 m3

    Therefore, number of Olympic size pools = 8,549 / 2,500 = 3.4

    Themes: Gold
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