California Gold

James Wilson Marshall was an unlucky man. Born in New Jersey in 1810, he headed west across the USA, settling down to farm on the banks of the Missouri River. It was there he contracted Malaria, a common affliction in the area. On doctor’s orders, Marshall left, heading to California via Oregon to start his second stint as a farmer. A keen patriot, Marshall volunteered to fight for his nation when the American-Mexican war began in 1846, on the assumption he would return home a war hero. Unfortunately, when he did come back to his ranch the following year, he found that most of his cattle had been stolen and with his sole source of income gone, he lost his land.

Taking a job at a local Sawmill near Caloma, Marshall examined the river that turned the waterwheel at the mill with a colleague. It was there he noticed some small shiny flecks on the channel bed.

“What is it?” inquired Scott.
“Gold,” I answered.
“Oh! no,” replied Scott, “That can’t be.”
I said,-“I know it to be nothing else.”

The metal was confirmed to be 23 Carat, 96% pure gold several days later. Marshall had stumbled upon one of the largest gold deposits ever found, inadvertently starting the California Gold Rush. News of his find soon attracted swathes of prospectors, with approximately 300,000 people from the US and abroad pouring into the local backwater town of San Francisco.

Recent scholarly research on the period confirms that it was merchants rather than the miners themselves that profited during the great gold rush. On average, around only half of the prospectors who were enticed over to the west coast made any worthwhile profit, with many finding nothing of note. The same sentiment rings true for poor James Marshall, who was eventually forced from his gold rich land by the arriving hordes of prospectors, leaving him to die penniless some years later.

It was no coincidence that the wealthiest man in California at the time, Samuel Brannan, owned the newspaper that published the news of the gold rush across the USA. He also purchased all the prospecting supplies available in San Francisco, including picks and shovels and re-sold them to those hoping to find their fortune, at a substantial profit.

Many parallels can be drawn between the mining boom of 1849 and a more contemporary mining boom, that of Bitcoin. Having been hailed as the future only a year ago, the digital currency craze attracted its fair share of prospectors around the world, allowing Bitcoin to rise an astonishing 1,318% during 2017 alone. However, a toxic combination of hacks to exchanges, increased regulation on trading platforms, power costs, falling profitability and general lack of interest have all taken their toll on the digital currency this year, leading to heavy losses. With Bitcoin now having fallen c.80% since its highs last year, the sparse numbers of those making any profits mirror those who flocked to California centuries beforehand.

Whereas during the gold rush, miners relied on picks and shovels, today’s miners favour graphics cards and processors. Mining Bitcoin is not a cheap pastime, demanding increasingly rapid processing power and consuming ever more electricity. To mine a single coin, machines need to run 24 hours a day, competing against other computers around the world to solve complex maths problems that yield the currency. It has been estimated it can cost up to $26,170 to mine just one Bitcoin. To put this into context, the global power usage of all Bitcoin mining is already the equivalent to the uptake of a country the size of the Czech Republic, and is predicted to rise to match that of a nation the size Bangladesh in the near future.

It is with some irony then, that as a new generation of miners hunt for digital gold, their instruments are more than likely powered by technology invented in a city that grew up on the back of the original mining boom. Today, San Francisco’s southern portion is home to a more modern type of ‘gold mine’, Silicon Valley. Home to companies such Nvidia, who were major beneficiaries of the cryptocurrency boom late last year when Bitcoin reached record levels of $20,000.  Back in May of this year, Nvidia reported that it generated $289 million from processor sales to the crypto market. Chips for crypto mining made up 76% of the group’s revenue, which was up 115% from the previous quarter.

But as prices have fallen drastically in 2018, so has the chip-maker’s ability to profit from its digital assets, dragging its shares down accordingly, losing 23% in October alone. It seems that gold mining, digital or otherwise, is not as lucrative as it may seem. Although there are some that have undoubtedly profited from the mining booms, for the majority, everything that glitters is not necessarily gold.


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This article is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Any opinions expressed in the Investment newsletter are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.


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