Uganda’s Gold Fallacy

Early last June, Reuters reported that the Ugandan government had announced discoveries of up to 31 million tons of gold ore within its territories. Some non-specialists mistook this for a deposit of 31 million tons of the pure metal. However, this is not the case.

Gold ore is basically dirt in conjunction with many other minerals – such as quartz, silver, copper, iron, etc. – with minute traces of gold. To extract it, the ore is processed and thus the precious metal is separated from its other components through different methods.

Of course, what the Ugandan government is looking for by sharing this news, is to draw attention and attract capital to heavily invest in the country and thus develop and modernise its mining sector, which is dominated by informal mining using inefficient and dangerous methods.

According to estimates by Uganda’s Ministry of Energy and Mineral Development, up to 320,000 tons of pure gold could be extracted from these 31 million tons of ore. However, this figure seems very fanciful and hard to believe.

Despite the spectacular nature of the announcement, the news had gone more or less unnoticed, until it began to go viral on social networks, where “YouTubers” and amateur commentators began to speculate on the impact that this supposed geological discovery would have on the price of gold in the short and long term.

As is often the case, misinformation and lack of understanding in the matter led to many of these communicators and their audiences to mistaken and, frankly, even nonsensical conclusions.

For example, we read things like that because of the “excess” of gold that Uganda’s discovery will cause, the international price of the precious metal will plummet in the future to minimum levels, perhaps as low as those of copper. No kidding!

But neither of these and many other claims are true. 

Look: Uganda’s government is not characterized as one of the most transparent and honest in the world to begin with. In fact, in the Corruption Perceptions Index it ranks 144th out of a list of 180 countries, which gives us an idea of how untrustworthy this government is. 

But even if the giant deposit(s) issue were true, producing gold can take 1 to 5 years or more to start extracting it, and that is assuming that there were significant investors willing to take a massive risk to invest in that country, which is highly doubtful.

Furthermore, it is currently estimated – according to the World Gold Council (WGC) – that there are some 205,000 tons of gold on Earth, of which two thirds, i.e. 136,000 tons, have only been mined since 1950. 

In other words, in only 72 years the amount of gold available on the planet has tripled, and the price, far from falling, has gone from 35 dollars per troy ounce at that time, to the almost 1,800 dollars per ounce at which it trades today. Not to mention that the all-time high is over 2,200 dollars an ounce.

So even if the Ugandan discovery were true, it would take decades (if not centuries) to extract all that treasure in the first place, and when it enters the market it will have no negative bottom line impact on the price.

In fact, the opposite will be true. 

Because of the fraudulent fiat (paper) money system in which we live, the price of gold as a major long-term trend can only continue to rise. Yes, of course, as in all markets, there are cycles and corrections, but the constant devaluation of people’s money by the infinite and permanent expansion of the monetary base – carried out by the central banks – and its false backing in the issuance of public debt by the governments of the world, predisposes that real money (gold) will continue to appreciate.

The documented efforts to manipulate the gold futures market are of little use: it is the physical gold market that prevents this artificial depression of the price from going unpunished and long lasting. Every time the price sinks in this futures market, physical gold “disappears” from circulation and is NOT available at that depressed price. 

That is the main reason why anyone who wants to get gold in coins, bars or bullion for investment purposes always has to pay a “premium” or overprice (with respect to the futures market) so that bidders can agree to sell it.

So with historic levels of inflation and a recession looming, it is smarter to listen to the more than five thousand years of monetary history of gold as a safe haven and real money, than to heed the false advice of our favourite “YouTubers”.