As you read this, I’m walking the hills of gold-rich Nevada, the world’s fourth-richest gold region. My trip is taking me close to the historic boom towns of Carson City and Virginia City. What am I after? GOLD! Big, thick, veins of it. And silver, too.
The company I’m visiting has projects on the Oreana Trend, in one of the newest and most promising gold districts in the world. This company is finding gold equivalent ounces at the rock-bottom low price of $1.25 per ounce, and it has a stated target of 10 million ounces of gold inventory by 2012.
Nevada is certainly the place to do your prospecting. It has a rich history of gold and silver mining. For example …
- Total gold production from Nevada recorded through 2008 totals 152,000,000 troy ounces — worth over U.S. $2.5 trillion at 2011 prices.
- Nevada’s Carlin Trend — a patch of ground 5 miles wide and 40 miles long — has produced more gold than any other mining district in the U.S.
- Nevada produced a lot of silver, too. The Comstock Lode — the richest silver deposit in American history — yielded $400 million in silver (and some gold) between 1859 and 1878. Back then, silver was selling for $1.30 an ounce, so the haul would be worth $9.2 billion at today’s prices.
- Nevada’s biggest gold production year was in 1971, when miners hauled a whopping 9 million ounces of gold out of the ground. It’s been downhill ever since, and gold production in the state dropped 30% over the last decade. But if the company I’m visiting has its way, that trend is going to change.
Nevada is so rich with mining history that I feel compelled to share a little of it with you today because there are some valuable lessons to be learned.
A Big Discovery
The first big discovery in Nevada was placer gold in a stream flowing into the Carson River near the present town of Dayton. This discovery, made by Mormon ’49ers on their way to the California gold fields, led others upstream into what was later known as the Virginia Range. There, they found the outcroppings of the Comstock Lode in 1859.
Two miners, Peter O’Riley and Patrick McLaughlin, began prospecting with a rocker (a sifting tool) on a mountain slope near a small stream. They found some gold … but also large clumps of heavy blue-black mud that clogged the rocker and made it near impossible to wash out the fine gold.
Closer inspection revealed that the blue-black mud was almost pure silver. It could be dug out by the ton with a shovel, and each ton was worth $2,000!
Anyone with a pick and shovel
came to work the mines.
Every story needs a villain. Enter Henry Thomas Paige Comstock, who had an advanced degree in weaseling. He came across O’Riley and McLaughlin, saw their discovery, and declared that he had a claim on the ground. That was a lie, but the panicked men didn’t want trouble. So they gave Comstock and his partner shares in the claim, which became the famous Ophir Mine.
News traveled fast: The silver rush was on! Prospectors, drifters, and ne’er-do-wells poured into the valley to work in the underground mine tunnels.
Nevada’s Original Sin City
One of the feckless adventurers was none other than Samuel Clemens — Mark Twain. By the time Twain got to town, the mines of the Comstock Lode were a beehive of activity, and Virginia City was a festering den of scum and villainy. Twain wrote:
“The country is fabulously rich in gold, silver, copper, lead, coal, iron, quicksilver, marble, granite, chalk, plaster of Paris (gypsum), thieves, murderers, desperadoes, ladies, children, lawyers, Christians, Indians, Chinamen, Spaniards, gamblers, sharpens; coyotes (pronounced ki-yo-ties), poets, preachers, and jackass rabbits. I overheard a gentleman say, the other day, that it was ‘the d—-dest country under the sun,’ and that comprehensive conception I fully subscribe to.
“It never rains here, and the dew never falls. No flowers grow here, and no green thing gladdens the eye. The birds that fly over the land carry their provisions with them. Only the crow and the raven tarry with us. Our city lies in the midst of a desert of the purest, most unadulterated and uncompromising sand, in which infernal soil nothing but that fag-end of vegetable creation, ‘sage-brush,’ ventures to grow.”
We like to think of Las Vegas as the original, 24-hour Sin City. But Virginia City claimed that title much earlier. In 1863, the number of arrests equaled one-third the town’s population of 30,000 people!
The original Sin City, Virginia City, where one-third of the population was arrested.
The wealth of the mines fueled Virginia City’s growth, turned grubby prospectors into instant millionaires, and made many more millions for Wall Street. Hordes of stock speculators made fortunes from the Comstock boom.
The Comstock Lode hit peak production in 1877, producing more than $14 million of gold and $21 million of silver that year. But three years later, the mine was mostly played out.
As for the people who started the boom …
- After weaseling his way into the deal, Henry Comstock sold his share of the Ophir Mine for $20,000 and opened a series of businesses. Every one failed. He became a prospector again, but without success. In September 1870, he committed suicide.
- Peter O’Riley, one of the discoverers of the Comstock Lode, held on to his interest, collecting dividends and finally selling out for $50,000. He became a dealer in mining stocks and spent his fortune tunneling into the Sierras, certain he would find a richer claim than the Comstock. That didn’t pan out. He lost everything, went insane, and died in an asylum.
- Patrick McLaughlin, co-discoverer of the Comstock, sold his share of the Ophir Mine for $3,000, lost his money quickly, and worked at odd jobs until his death. He was buried in a pauper’s grave.
4 Lessons from Nevada’s Boom Times
Still, there are lessons from the Comstock that apply to today’s gold and silver investors …
Don’t expect every prospect
to turn into a winner
Do your due diligence. No whims, tips, fantasies, or wheeling and dealing. Just good, solid research, and discipline. Otherwise, the consequences can be unpleasant to say the least.
Don’t underestimate the potential
value of a great discovery
If McLaughlin and O’Riley had stood their ground and hung on to their blue-black mud, they could have given Thomas Comstock the bum’s rush.
You don’t have to be a miner
to make a fortune in silver
While a minority of prospectors became fabulously wealthy, many more stock investors made fortunes without ever seeing the inside of a silver mine. The same holds true today: You don’t need to don a hard hat to benefit from high metals prices. You can build your wealth quite nicely by buying the right stocks.
Don’t sell too soon
Time and again, many investors sold too early and missed out on the biggest gains.
For example, in 1870, shares of Crown Point, one of the most productive Comstock mines, went from $2 to $5 each. That was a big move and many sold. Two years later, one share of the stock was trading for $1,872! Talk about leaving money on the table!
With that in mind, let’s take a look at a chart of gold …
You can see that despite the steep correction in the last month, gold is still in a big uptrend. In fact, gold can pull back even more and not shake its bull market.
So if anyone tells you the gold bull market is over, tell them to go soak their head. The gold bull market is going strong, and may be about to enter a new, even hotter phase.
The company I’m visiting has a heck of a project. If it turns out to be all they say, it will make a nice recommendation for Red-Hot Global Resources or Global Resource Hunter. Heck, I know it’s a bargain, trading at about ONE-TENTH of the value of its known gold resource in the ground — a resource that gets bigger all the time.
In fact, gold stocks in general are on sale. That doesn’t mean they can’t get cheaper. Sure they can get cheaper. But I’m making a shopping list for when the turn comes, because it is going to be big. And many of these beaten-down stocks are going to pick themselves up and come roaring back so fast, it will make your head spin!
Yours for trading profits,