American Eagle gold coin popular way to invest

The American Eagle gold coin is the choice for many Americans who want to add gold to their portfolios, whether they're into gold coin collecting or simply want the security of the yellow metal.

American Eagles were launched in 1986 and since that time, the U.S. Mint has produced the American Eagle in 1 ounce, 1/2 ounce, 1/4 ounce and 1/10 ounce weights.

The American Eagle gold coin features Augustus Saint-Gaudens Liberty design, which was used on the $20, or double eagle, U.S. gold coin from 1907 to 1933.

It has a lower-budget counterpart in the American Eagle silver coins, which feature Adolph A. Weinman's "walking liberty" design, which grades the half dollar coin starting in 1916.

The U.S. Mint decided on two types of American Eagle products: The American Eagle bullion coins for investors and the American Eagle proof coins and uncirculated coins for collectors. The bullion coins come in platinum (only since 1997), gold and silver, but the gold Eagle coin is probably the best known. The coins are made with American-mined metal.

Contains a full ounce of gold

A 1-ounce gold Eagle contains 1 ounce of fine gold, but it's mixed down to 22 karat for durability. (It's 0.9167 fine, mixed with copper and silver.) That means each coin weighs about 1.1 ounces.

They're easy to buy and sell, from most major coin and precious metals dealers, and can be included in IRA. In Arizona where I live, for example, there are 10 dealers registered with the U.S. Mint who deal in the coins, but all are in the cities.

As with all of America's gold coins, the American Eagles are produced at the U.S. Mint at West Point (well protected!) and carry the W mint mark.

As with all such coins, the buying or selling price is a factor of the current market for gold.

The American Eagle platinum bullion coin is 0.9995 purity. As with all coins of the series, it carries an actual face value (though these are far less than the value of metal contained, it does make them legal tender) and the platinum coin, at face value of $100, carries the largest value ever for an American coin. The gold coin has a $50 face value and the silver coin, as would be expected, $1.

The other American Eagle product line, coins for collectors, will be covered in another article.

Understanding costs that go into gold mining

If you want to analyze a gold mining company, perhaps to buy its stock or perhaps to understand how it relates to the general market, you need to understand the cost factors that go into producing gold.

Mining companies general report two costs: cash costs and total costs. Cash costs are those which take place at the mine site, which can be impacted be the number of ounces removed from the ground and by the costs of supplies to make it all happen.

Some of the input costs in mining are diesel fuel, electricity, explosives, machinery parts and labor. During 2007 and 2008, for example, at a time of high energy costs, inputs throughout the mining industry zoomed. At the same time, however, prices of mined commodities were skyrocketing as well, at a pace faster than the cost of inputs. This was true with gold and silver as well as with other metals.

Requires moving mountains

A significant cost for open-pit gold mines is in the energy it takes haul massive amounts of rock. Each ton of ore might contain only about one-tenth of an ounce of gold. With gold at $900 an ounce, each ton is worth about $90. But it's worth the cost of a $2 million haulage truck because it can carry 300 tons or more in each trip. That makes a load worth a gross of $27,000. (Cut that in half, since a mine might have to move a ton of waste to get to the ton of ore.)

But these huge trucks, with 2,000-gallon fuel tanks, burn tremendous amounts of diesel, amounting to perhaps 25 percent of total cash costs.

Underground mines, such as the deep mines of South Africa, substitute electricity for diesel fuel. This energy must move massive amounts of rock as much as 2 miles to the surface. These ores are considerably richer than the material found in the large open pit, so each ton of underground-mine ore might contain half an ounce of gold and not require an accompanying ton of waste to be removed.

Open-pit mines also need large amounts of explosives. Today's blasting agent is ammonium nitrate (garden-variety fertilizer) mixed with fuel oil. This is manufactured from ammonia, which is a product of natural gas and thus dependent on the price of the feedstock. At the same time oil prices were rising, so were natural gas prices, so mining was squeezed by those additional costs as well. In a declining market for energy products, mining benefits.

Another commodity input cost for open-pit mines is cyanide, which is used to leach the gold (and silver) from the ore.

Labor also is a significant cost, more in underground mines than in open pits, where larger equipment has substituted for additional workers. In many nations of the world, labor is cheaper than in the United States, Canada and Australia, but also is more sensitive to strikes, which hold down production.

During the recent boom in commodity prices, labor has insisted in pay increases that share in the benefits of those prices.

The other cost figure companies talk about is total costs. That takes into account such things as corporate overhead and paying off the cost of developing the mine. Some companies try to do much of the work on a new mine with cash flow, holding down interest expenses, etc. But a typical gold mine today might cost $1 billion to bring on line, so a company will incur debt to do so, paying it off over the life of the operation.

A typical figure in a feasibility study will be the payoff time: If ever bit of operating profit from the mine were put toward paying off the debt, this is how long it would take. Payoff figures require assumptions, such as what the input costs and selling price will be during the payoff period.

Understanding a mining company's finances requires reading down into the management's analysis part of the quarterly and annual reports, all of which are posted on line.

Looking at both types of costs is important in understanding future profitability.  

A Guide To Gold Investing takes a look at issues you might want to consider in deciding whether to add gold to your portfolio and then how to go about doing it.

What's all the controversy over cyanide?

If you're like most people, you want to know that what you're investing in, no matter how you go about doing it, isn't causing more harm than good.

That's one reason there are many questions about the use of cyanide in processing gold- and silver-bearing ores. Much of the world's gold today is acquired through the use of cyanide, either on leach pads or in mills.

The question is, is it safe?

While the question might be considered ambiguous, I'll answer it "yes," then explain.

To misquote Bill Clinton, define safe. Is a car safe? Then why are there 10s of thousands of fatalities in the United States each year? Are hospitals safe? Then why are there 100,000 doctor- and hospital-caused fatalities each year?

Cars and hospital are things we "need" and we're willing to overlook a "few" safety issues in order to have them. Gold doesn't fall into that category, so we have almost zero tolerance. In fact, there are a few people who don't want us to be mining gold at all, saying it isn't worth the cost.

Cyanide for processing gold came into use in the 1890s, replacing mercury (which has a far worse safety record.) It really started to be used in the gold boom of the 1980s, when the price of gold shot up 10 times what it had ever been before.

Workers knew virtually nothing about the effects of cyanide (yes, it's the same stuff that used by spies to kill themselves when captured) and failed to take precautions. Miners allowed spills of cyanide-containing waste into watercourses and these issues got major press attention.

Over the last couple of decades, however, cyanide safety has become both a science and an institution. Most major gold producers belong to an international organization which sets standards for handling cyanide.

Cyanide even used to make cosmetics

By the way, many industries use cyanide and all have become more attuned to using it safety over recent decades. More than one and a quarter million tons of cyanide are produced each year, with almost 90 percent of that used for basic industrial and consumers items, including plastics, pharmaceuticals and even cosmetics. Just over 10 percent is used in mining.

Fortunately for all of us, cyanide, which is basically carbon and nitrogen along with sodium, calcium or potassium, breaks down quickly upon exposure in non-alkaline conditions; in other words, to keep it useful for mining, it must be carefully controlled.

Most mining companies in the "third world" are North American firms, which much meet U.S. or Canadian standards for environmental rules and for safety and have to report back to shareholders who are general far more concerned about these issues than the general public.

So, is cyanide a reason to keep from investing in gold? Not unless the investor demands a perfect world. Then he won't have a chance to invest in much at all.

Click here for a guide to gold investing.

Who's the biggest gold producer?

Though the company only turned 25 years old in 2008, Barrick Gold Corp. is the world's largest producer of gold by several measures of size.

It certainly produces the most ounces, with its various mines turning out 7.66 million ounces in 2008. It certainly is most profitable as well, with an operating cash flow of $2.21 billion in that year, seeing that figure 27 percent over 2007 in a time when most of the world's companies were contracting rapidly.

Barrick is pretty much a pure gold company. In fact, it turned down the opportunity to invest in a major gold property in Mongolia recently because it felt that too much of the property's value was attributable to copper rather than gold.

The Toronto-based miner, like most major resource companies today, gets its gold from mines in diverse regions around the world. Its first big mines, where it got its start 25 years ago, were in Nevada and it still produce quite a bit of gold from that state. (A little over 3 million ounces of its production came from North America in 2008, with most of that coming from Nevada.)

Mines on other continents

But it moved rapidly into South America as well, and today has production in Peru and Chile and is developing mines in Argentina and the Dominican Republic. (About 2.1 million ounces of production came from South America in 2008.)

It also mines gold in Africa and the Australia-Pacific region.

While many mining companies develop a "balance" in many parts of their operation -- base vs. precious metals, underground vs. surface mines, mining vs. refining -- Barrick works to achieve a geopolitical balance. Most of its mines are in stable political jurisdictions, but it also is willing to pioneer development in regions that may be more challenging, such as Africa.

Barrick currently is producing gold from 27 operating mines on five continents. It is developing several more, some as replacements and some for growth, from its in-the-ground reserves of 138.5 million ounces.

With relatively low operating costs, and huge reserves, Barrick is likely to do nothing but stretch out the amount by which it leads the gold-mining race.

If you're one of the millions playing World of Warcraft online, you'll know that gold is what everone in that world wants to possess. And there are services out there to help you learn how to get it! If you don't know about WoW, you may want to disregard this part of the article.

Where does newly mined gold come from?

Where does most of the world's gold come from?

The old answer, last year's answer, was South Africa. For years, the deep (some more than 2 miles beneath the surface) mines of this nation provided a lion's share of the world's newly mined yellow metal. And they're still significant.

But last year, electric power shortages cut back on South Africa's output and that nation was replaced in the No. 1 position by a quickly rising new producer: China.

Yes, China is rapidly becoming a major producer of many metals, though it also buys metals and ores from other nations. In gold, it has reached the pinnacle and has done so through many small mines rather than a handful of larger ones.

In second place is the United States, with most of its production coming from primary mines in Nevada. (Primary means that gold is the major product of the mine, rather than being a byproduct from a copper or silver mine.)

Nevada's current gold boom began in the 1960s and is still growing strong. Most gold from Nevada exists in the form of microscopic particles that can only be economic to mine because of the vast amounts of rock that can be moved using enormous equipment, including haulage trucks that can move 320 ton of rock or waste at a time.

Couldn't have been mined in 1800s

An interesting point about Nevada's current gold production is that it comes from ore that the '49ers, on their way to California in the middle of the 19th century, probably camped on, but didn't have the tools to know what they had.  Neither did they have the tools to mine the fine grains even had they known.

Most of the gold around the world is mined from deposits like this today. It's all stuff that couldn't have been profitable without modern technology and large-scale production methods.

The next big producer is South Africa, followed by Australia. In many ways, Australia is much like Nevada in terms of mining. Large open-pit mine provide most of the gold from desert regions that aren't used for much else.

Many nations today are looking at their gold resources in the group as a way of earning foreign exchange or employing local residents. And these resources, currently unknown, will satisfy the increasing world gold demand of decades to come.

Here's a report on how to buy gold for less than market price.

Why you need to understand the world of gold

Though we're no longer on the gold standard, and despite periodic suggestions by a few economists that we should return being considered almost "crackpot," it's still important for anyone who has more than a few dollars invested to understand the value of gold.

The term "gold standard" is still used in marketing to describe the best available product or idea, and it's for good reason.

In the economy of early 2009, we see that the U.S. dollar is continuing to decline when measured against other currencies. On the other hand, we see the value of gold continuing to appreciate, having hit $1,000 early in the year before settling back in a range above $900. But it hasn't been too long since the price was far less than this.

There are probably no metals more recycled than gold. Gold once possessed by King Solomon or King Midas may well form part of the wedding ring you're wearing today.

Gold is eternal; it is virtually impossible to destroy and it is too valuable for much of it to be lost.

In the 2009 commodities industry, gold is just about the only commodity that is holding its own. Base metals, including copper, zinc, aluminum and even iron ore, have fallen dramatically in price in the past year. Other precious metals, including platinum and silver, have fallen far from their year-ago peaks.

Gold continues to appreciate

Yet gold continues to march ahead. Virtually any gold mine in the world that can be operated is running at capacity. New projects are on the drawing board. Why? Because demand is running so far ahead of supply. Only when this happens does the price move up this markedly.

Combine this with the fact that because gold was mined extensively during the recent "good times" in the world's economy used up the resources of many major mines, and you'll see why there is so much demand.

Many instruments of investment today are non-tangible. While you can walk around a home or other building you own (and cry as you watch their values fall), you don't see stocks and bonds and futures contracts and 401Ks and the like. Gold you can hold in your hand.

Just as many people prefer a physical book to an e-book, many also like to be able to feel their investments. And if this is true in the industrialized West, how much more true is it in the developing economies, such as Brazil, Russia, India and China.

As those nations develop much larger middle classes, they compete for access to tangible wealth, especially gold, and that drives up the price.

If you're going to consider gold as part of your investments, do yourself a favor and learn as much as possible about it: its history, its uses (other than as an investment, and yes, there are many), its mythology and the forms in which gold investments can be made. Only then can you feel comfortable about putting part of your wealth into gold.

Learn about treasure hunting, gold prospecting, metal detecting and exploration.