The original American dream: a new gold rush

They've been talking about the gold in California's hills since 1849, when tens of thousands of pioneers rushed across the continent or even sailed round Cape Horn to join the fabled gold rush that transformed this remote rural backwater into the beating heart of the American dream.

Today, record gold prices, widespread economic turmoil, and the enduring optimism of America's entrepreneurial classes have combined to entice fresh swarms of prospectors to head west in search of hidden riches beneath the picturesque hills and ravines of the Golden State.

The "new 49ers," as today's wave of fortune-seekers are known, are a breed apart from their historic predecessors, driving trucks and SUVs down the dusty tracks first created by trains of horse-drawn wagons nearly 160 years ago. But they share with them a timeless predisposition for what veterans call gold fever. "It's like going to Vegas, except with this, we actually get to win something," said Mike Dunn, clutching almost an ounce of nuggets unearthed from the south fork of the Feather river last Sunday. "We've just hit a halo of gold, and this lot alone must be worth between $500 (£250) and $1,500. I've just about paid for my trip already."

Today's prospectors see their chance to strike it rich because economic turbulence has pushed up the value of gold, traditionally seen globally as a "safe" investment, to a point where skilled diggers can expect to make thousands of dollars a day. Even novices, who tend to use traditional gold pans to swirl soil and gravel shovelled from riverbeds, have a sporting chance of hitting a patch of pay-dirt, known as "a flash of colour".

The metal's spot value hit $1,000 an ounce this year, and now hovers between $800 and $900, almost three times the price it was trading at five years ago. Some forecasters believe gold could reach $1,500 by the year end, making it economically viable to mine areas with only moderate prospects.

As a result, California's traditional mining country, in the Sierra Nevada hills north-east of San Francisco, is at the centre of a speculative property boom. Mining claims registered in the state are up nearly 2,000 per cent in the past three years, from 132 in the first quarter of 2005 to 2,274 for the same period this year.

Mining rights to some individual patches of river (which cost buyers roughly $50 a year) change hands for tens of thousands of dollars. Even professional mining firms such as Almaco, a Canadian giant, are sniffing around the region.

Yet behind the giddy hopes that spurred the start of this year's gold-hunting season lies nagging fear. Since late May, when prospectors were allowed to hit the rivers (mining activity is banned earlier, to allow fish to spawn) scores of people have gambled everything to trek to gold country. Like all gamblers, some will lose. You only have to visit the eerie ghost towns around places such as Jamestown, unofficial capital of the 1849 rush, to appreciate the speculative nature of the trade, and to realise many of the "new 49ers" and their families will be left nursing broken dreams. "I'd say there are already 30 per cent more people here than last year, and they come from all over," said Brent Shock, one of the most well-known prospectors in Jamestown, thanks to his knee-length leather coat, enormous gold nugget ring, and a fabled pedigree as a gold-miner. "Some think they can fly to California and shove a spade in the ground, and find a toaster-sized nugget. But it's never like that, and it upsets me to see the ones who have quit their jobs and given up everything to move here, because some will go home with nothing.

"When I came here 25 years ago, I went three weeks without a find. Not long after, I blew into it deep enough to open my own restaurant. But I've been one of the lucky ones. Gold has been driving man crazy for 8,000 years, and this rush will be no exception."

Dreams won't be the only things broken. Last week, three men were killed trying to reopen a 19th-century mine in rural Madera County. Police said the men, all in their twenties, died from carbon monoxide poisoning while using a petrol-powered pump to drain the 20ft-deep shaft.

The 1849 rush began with the chance discovery of a nugget in the log-sluice of a saw-mill near present-day Coloma in the summer of 1848. Within a year, drawn by one of history's great Chinese whispers, 60,000 people had invaded the hills to seek gold, almost stripping San Francisco of able-bodied men.

By the end of the decade, California, which had a population of roughly 15,000 before gold was discovered, had 300,000 residents and was among the richest states in America. Sacramento, handily positioned near to gold country, became the state capital, a decision that looks like an anomaly today.

Vast fortunes were made, and lost. The first wave of miners made the equivalent of $6bn in today's money, but became notorious for wild behaviour. Many would think nothing of blowing all they had in a single night, knowing they could go and find more gold the next day. Bar-room brawls, shootings and prostitution became common, as did killings over disputed claims.

Today, the industry is regulated, and mining techniques have been modernised. The original 49ers had discovered an estimated 15 per cent of California's gold, mostly from the surface layers of riverbeds. Now small dredging rigs, rather than traditional pans, are the modern equipment of choice.

Many suppliers are cashing in on the support industry behind the new 49ers. Last year, Mike Dunn sold 8lb 7oz of gold stockpiled from his 20 years as an amateur prospector, and set up Gold Pan California, a firm selling portable dredging rigs at $3,000 to $5,000 each to would-be miners. "In the old days, a lot of people got rich selling picks and shovels to the miners, and I'm more or less doing the same thing," he said. "Right now, I'm selling anything from three to 10 rigs a week. People who are wanting liquidity and stability in difficult times have always gravitated towards gold, and this is no different.

"I reckon there are at least three times as many people out prospecting this year than last, and its going to get more the way the gold price is heading. If you've got people out there who are struggling to survive financially, then this is the sort of thing that can give them hope. And if we are headed for another 1849, it'll be good for everyone, because gold feeds directly into the bottom line of the economy."

The mining of gold, when you find a likely spot, looks deceptively simple. The dredging rig works, in essence, as an enormous vacuum cleaner that sucks up small rocks, dirt, grit and tiny particles of gold from the base of the river. A prospector, normally in a full wetsuit, dives under to control the dredge, using air from a compressor to breathe. On the surface, his rig contains compartments that sort the gold from value-less dirt by using comparative weights.

Skilled operators are able to "read" a river to work out where gold may have been washed after being forced to the surface of the earth by geological activity in California's tectonic plates. After particularly heavy winter floods, many riverbeds have fresh deposits of gold washed into them.

Yet however many people are flocking to the hills of California, experts say there will be plenty of gold to go round. Apart from a brief price spike in the 1980s, when it touched $900 an ounce, prices for the metal have remained unattractive; until now.

"There is so much of that stuff out here you wouldn't believe," said Ekhard Davisky, who pans for gold near Paradise in Butte County. "The trick is finding it. I think it was Mark Twain who said a gold mine is just a hole in the ground owned by a liar, and I think he just about got it in one there. But if you know what you are doing, and you are prepared to listen and learn about how to do it properly, there's never been a better time to be looking for gold. Back in 1849, an ounce of gold was $18.80, which was about enough to buy a man a nice suit and a steak dinner. And when you think about it, that's the price of it now. These are happy days."