Cold Gold in the Arctic

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Gold dredge site in Fox, Alaska, near Fairbanks [Photo by Marc Lanteigne]
by Marc Lanteigne

In the conventional wisdom of business circles, the value of gold tends to increase in times of global economic uncertainty, as the precious metal is often considered a ‘safe haven’ investment option when other financial indicators start trending downwards. When gold prices approached near-unprecedented highs last week, it was understandably viewed as a sign of the numerous challenges facing the global economy in its attempts to recover from the coronavirus pandemic.

On 24 July, the price of gold approached US$1900 per troy ounce, (the equivalent of approximately 31.1 grams), nearing a record value set in 2011, (the price of silver, another common safe haven metal, also rose at a rapid clip this month, surpassing US$23 per ounce at time of writing).

However, this month has also seen an uptick in the price of copper, and it is unusual for the prices both copper and gold to rise at the same time. Copper is not a precious metal, nor considered a safe haven investment option, but it is a necessity for various types of infrastructure development. This unique trend may reflect optimism about China’s potentially swift recovery from the virus, and the possibility of short-term economic revivals elsewhere.

Analysts have viewed these developments, especially the renewed popularity of gold sales, as not only products of the global recession, (including a falling American dollar and the aftershocks of the Sino-American trade war since 2018), but also the ongoing inability of the United States to bring the COVID-19 outbreak under sufficient control, as well as other geopolitical uncertainties.

Even before the start of the pandemic late last year, gold prices had been on the rise, reflecting demand from several quarters, including purchases by China and Russia, and other governments in Asia. It had also been speculated that both Beijing and Moscow were seeking to increase their gold reserves as a hedge against the American dollar at a time of deteriorating relations between the two powers and the United States, as well as the possible foundation for a gold-backed digital currency. However, it was announced in March this year that Russia would cease further gold purchases indefinitely, likely as a result of lower revenues from oil sales.

This month, reports have suggested that the value of gold might breach the US$2000 barrier before the end of the year, and this might have an affect on the economic fortunes of the Arctic, at least in the near term, given the prevalence of current and potential gold mining operations in the far north.

The relationship between gold and the Arctic region is hardly new, and one event that embedded the precious metal in the lore of the region was the Klondike Gold Rush, in what would become the Yukon Territory, during 1896-9. Americans represented the dominant share of the estimated 100,000 prospectors who moved into the region at that time, a situation complicated both by issues of widespread smuggling and border disputes between Alaska, (which had been purchased by the US from Imperial Russia in 1867), and Canadian territory. Not all voyages to the Klondike were lucrative of course, and one bane of many prospectors was the mistaking of near-worthless iron pyrite (FeS₂), aka ‘fool’s gold’, for the real thing (Au), due to the similarity in outward appearance between the two metals.

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‘All that glistens…’ Iron pyrite (fool’s gold) from Greenland [Photo by Marc Lanteigne]
Famous (and sometimes infamous) figures who emerged from the stampede in the Klondike included Joseph Ladue, who founded Dawson City in early 1897, Major-General Sam Steele [video], head of the Yukon detachment of the then-Northwest Mounted Police, entrepreneur Belinda Mulrooney, and gangster and con artist Soapy Smith. The creation of the Yukon Territory in June 1898 was itself largely due to the influx of prospectors during the gold rush, as the region was seen as easier to administer if it could be separated from the Canadian Northwest Territories.

Gold has continued to factor into many Arctic economies, and like other regional commodities has seen its share of boom and bust cycles. In light of recent economic conditions, however, there has been a considerable amount of activity involving gold extraction in various parts of the far north. In Alaska, which has been struggling both with the pandemic and with the economic impact of collapsed oil prices, controversy has erupted over plans to open a gold and copper mine southwest of Anchorage, with the project (Pebble Mine) promoted by supporters as a potential boost for both the local and state economies. However, the would-be mine has also faced opposition from environmental groups and others concerned about the impact on local salmon stocks. The project had been vetoed under the administration of President Barack Obama, but this decision was reversed by his successor this month, as the current government in Washington continues to dismantle environmental regulations throughout the country.

A different sort of controversy has been swirling around another gold enterprise in Nunavut since earlier this year. It was announced in May that Toronto-based TMAC Resources, which operates the Hope Bay gold mining project in the Kitikmeot region of Nunavut, was to be potentially sold to Shandong Gold Mining (Shandong huangjin kuangye goufenyou xiangongsi 山东黄金矿业股份有限公司), a state-owned Chinese concern headquartered in Jinan.

Opponents of the sale, including local Indigenous communities, have since expressed misgivings about whether the operation will benefit the region, as well as the fact that the purchasing firm is directly tied to the Chinese government. Critics of the deal have also noted [paywall] that the Hope Bay region is adjacent to Canada’s Northwest Passage, an Arctic waterway which China has expressed interest in using for future maritime cargo transits. The frosty diplomatic relationship between Canada and China since the Meng Wanzhou incident began in late 2018, as well as recent moves by Ottawa to limit sales of Canadian assets to state-owned enterprises, may also adversely affect any final agreement.

Elsewhere in northern Canada, other gold projects have begun to materialise, including a report this past week that Gold Terra Resource Corp., based in Vancouver, would commence experimental drilling at sites in the Northwest Territories starting next month. A Canadian firm, AEX in Toronto, is also at the centre of recently confirmed plans to reopen the Nalunaq gold mine, located southwest of the town of Qaqortoq in southern Greenland. The plan received approval [paywall] from the government of Greenland, and the site also garnered praise this month for its limited environmental impact.

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[Photo by Michael Steinberg from Pexels]
While Greenland has been widely viewed as a potential source of numerous metals and minerals in recent years, much of the attention in this regard has centred on the island’s supplies of uranium and rare earth elements (REEs). However, Greenland also houses considerable deposits of precious metals, (gold, silver, palladium and platinum), as well as base metals, (copper, iron, nickel, titanium and zinc). Surveys have suggested that southern Greenland, including the area eyed by AEX, contains distinctively high-quality gold deposits [in Danish].

As noted above, Moscow had previously embarked on a gold purchasing spree, but more recently its own gold production has intensified, including via mines in the Russian Far East, such as in the Chukotka (Чукотка) region, suggesting that the government is anticipating an increasing demand for the metal. This month, it was reported that for the first time since 1994, the value of Russian gold exports surpassed that of natural gas sales during the spring months of this year, reflecting not only reduced energy demand but also global interest in gold purchases. Moreover, it has recently been estimated that nine years from now, Russia will have surpassed China as the world’s largest gold producer.

Uncertainty over the trajectory of safe haven commodities now matches the insecurity of the global economy this year, but at least in the near term the Arctic might be finding itself in the middle of a new, larger, and much more complicated, gold rush.