THAT'S FOOL'S gold," says Chris Sangster, shining his head torch onto a rust-coloured patch of rock above my head. "Come with me," he adds, as he strides off into the darkness. We are underground in a freezing cold mine shaft under Beinn Chuirn in the Scottish Highlands. It is eerily silent and black as night, and the beams of light from our hard hats dart like manic spotlights as we go deeper. Sangster, a tall, bearded, mining engineer, leads the way as we follow the rail track that leads up a tunnel blasted into this hillside by explosives more than 20 years ago. As we walk, the rays from our heads catch each other's breath in the freezing damp air, giving the impression we are walking through dry ice. A couple of hundred metres in, Sangster bends down to pick up a rock the size of a brick. Rubbing the rugged white quartz with a finger, he shows it to me and points to black markings on the rough surface, appearing as if lightly drawn on with a marker pen. "See here. This rock has gold. That's what we're looking for here," he says.

In most people's minds, gold prospecting is synonymous with America's old wild west, as opposed to Scotland's Highlands, conjuring up images of grizzled men bent over in streams double-panning the water, of the famous 49ers and the Californian gold rush, and of gnarled nuggets the size of ginger root. That Yankee-sounding cliché, "thar's gold in tham thair hills", doesn't quite fit the west of Scotland brogue. But here, underground, about 50 miles north of Glasgow, a modern-day gold rush could be about to begin. As Scotland holds its collective breath for the impact of the credit tsunami that has overwhelmed Wall Street, locals here in the glens are rubbing their hands in anticipation.

Sangster, who has 20 years' experience mining in countries such as Australia, Africa, Canada and Zambia, believes there are gold deposits in these hills worth millions and millions of pounds. And, with the backing of investors from the other side of the world, his company Scotgold Resources has just begun drilling into 420 million-year-old Scottish rock in an effort to find the precious metal. The site here is called Cononish, on farmland a few miles from the village of Tyndrum.

Sangster shines his light upwards. "This seam of quartz runs right along this mine shaft. It once ran all the way up into what is now Norway and Sweden, when those lands were joined with Scotland. Buried within it are very fine particles of gold," he says, reaching up and touching his treasure with a hand.

Scottish gold, which is a rich yellow colour, is particularly valuable because it is rare, so Sangster is convinced he is onto a winner. Moreover, the price of gold has been going up and up, from about £130 an ounce just six years ago to around £450 an ounce today. Even if only the bare minimum of metal is found, Sangster says, there should be enough work at the mine to provide the area with 60 new jobs for at least eight years. He is convinced he can do this. But what goes up can come down, as Sangster knows only too well. Some 20 years ago, a previous plan the Scot had to mine here at Cononish was abandoned when the price of gold across the world plummeted. Today's venture could be the gamble of a lifetime.

In the village of Tyndrum, a few miles from Cononish, support for the gold mine is solid. Tyndrum, or Tigh an Druim in Gaelic, meaning "house on the ridge", is a major Highland junction and a milestone for many people travelling north or south. A tiny community of around 250 people, its villagers have long made a living offering hospitality to passers-by, a tradition stretching back to the days when weary drovers taking Highland cattle to central markets would stop to be watered and fed.

Today, the visitors tend to be hikers doing the West Highland Way, or motorists and tourists heading up and down the busy A85 and A82 trunk roads.

I am in the restaurant of The Green Welly Stop, a well-kent Tyndrum landmark, under various monikers, for nearly half a century. Ahead of me in the lunch queue stands an elderly American man taking off a sodden beanie hat and waterproof jacket.

"What the helliz Cullen skink?" he asks loudly, in a familiar drawl. "It's fish soup," replies the assistant, ladling some into a white porcelain bowl. "Try some, it's lovely."

This busy restaurant, Tyndrum's other gold mine, has been run by a local family for three generations. "We used to close for three to four months during the year because it was so quiet, but now we open all year round," says Mhairi Wilkie, who runs the business with her husband Iain and his family. A Glaswegian who moved north 15 years ago, Wilkie welcomes the prospect of a working gold mine nearby and says most villagers seem in favour of the venture. "A few are concerned about big trucks driving around everywhere but I'd say the majority of people are supportive. There is a recession on the way so it will bring jobs to the area and, who knows, it may also stop some of the young people leaving home to go south for work," she says.

For its part, Scotgold has said that local people will be prioritised for the 60 jobs if the mine begins production, an assurance that has been warmly welcomed by Strathfillan Community Council. The group's chairman, John Riley MBE, a former Tyndrum hotelier and metallurgist by profession, believes the Strathfillan area could benefit greatly from the gold.

"We used to have strong farming, railway and forestry sectors but tourism is the mainstay nowadays. But bear in mind that a good week in winter only brings in as much as one Saturday in summer, so it's very much seasonal. The mine could bring more stability to the economy," he says.

Aside from people being employed directly in the mine there could be spin-offs, and Sangster touts the idea of a new trade in jewellery made entirely from Scottish gold, an industry to rival the market in Welsh gold jewellery from the now-defunct Gwynfynydd Mines Royal in Dolgellau, and Irish gold currently being extracted in Omagh. Riley concurs. "One local businessman has already mentioned the possibility of opening a boutique selling unique gold jewellery from Cononish," he says.

There is one conundrum for locals, however. Where would mine workers live? According to Riley, building has been hindered in Tyndrum for 12 years due to - improbable as it sounds in this part of the country - a shortage of water for treating sewage. Furthermore, the farmer who owns the land at Cononish, John Burton, points out that obtaining planning permission for new housing could prove problematic as the surrounding area is a national park. And who would be interested in building homes linked to a project that could last only eight years?

But this is all by the by, as there are many more months of painstaking exploratory work to be completed before mining can begin and, what's more, Scotgold is still waiting for permission from the Loch Lomond and the Trossachs National Park Authority to extract gold. The former requires a substantial amount of investment but Sangster and his team remain optimistic.

At the firm's small office in upper Tyndrum - a refurbished building that had lain empty at the railway station for 20 years until Scotgold arrived - geologist Ron Thom explains why. Such is his belief in the find, Thom relocated to Scotland last year, bringing his wife from Australia when Sangster offered him a job. "I was born in Forfar and studied geology at St Andrews University before moving there Australia in 1970 to become involved in exploration," says the 64-year-old, who has spent the best part of 40 years searching for gold, copper and zinc. Thom is convinced there are significant quantities of gold to be found in the Highlands, and not only at Cononish. He says he is "very excited" over samples found already.

The precious metal, Thom explains, comes from fluid deep in the Earth's crust, which dissolves in fissures (cracks in rocks) which are then filled by quartz.

"The geological conditions here in Scotland are very similar to where gold deposits were found in Ireland, so geologists came here and discovered gold in 1984," he says.

Thom reckons there is at least £80 million of gold waiting to be found and the Scotgold team are not the only people backing this horse. After being told a 2200 square kilometres stretch of the southern Highlands, from Glen Lyon in Perthshire down to the northern tip of Loch Lomond, could contain gold, Australian investors backed Scotgold to the tune of £2.5m to allow a drilling rig to be brought in from Chile.

On the hill above the mine shaft, exploration work has just begun. We walk up Beinn Chuirn in a howling gale to see for ourselves and the driller, a Glaswegian called Sandy Hail, explains that his equipment can bore 350 metres into the rock to take samples. "The drill bit is impregnated with diamonds," he says.

Back down at the entrance to the mine, Sangster explains how he intends to overcome stiff environmental constraints. In the 23 years since gold was discovered, Cononish has become part of the Loch Lomond and the Trossachs National Park, a special area of conservation, so concerns have been raised about the process of extraction and the crushing of half a million tonnes of rock on site, as well as the mineral-rich run-off.

Sangster says previous techniques using cyanide have been made redundant by new, non-harmful methods for separating gold dust from crushed rock. "These techniques - using gravity and flotation - have also made gold recovery far more efficient and cheaper, a key factor in changing Cononish's viability. We would put large rock-crushing mills inside the mountain and could dump much of the resulting slurry and tailings in the mine," he says.

The park authority has still to make a decision but acknowledges this is a unique project with wider benefits to be had.

When gold was discovered at Cononish in the 1980s, a local shepherd called Donald McLean paid homage to the find by penning some verse: "And in these times we're living in, I'm sure you'll agree/A little gold is handy/ If you're going on a spree."

A couple of decades on, and as times get tough again, word of the find has spread. Sangster takes me into one of the sheds where samples of rock from the hill are laid out on the ground like rolls of wallpaper. "Someone tried to break in here recently. I think they were expecting - rather foolishly - to bag the heist of the century and to find the shed piled high with bars of gold bullion," he says, chuckling.

We walk back to the entrance of the mine and Sangster talks about his dream and his new gamble, more than two decades after his involvement in the ill-fated 1984 venture, abandoned when the price of gold plummeted. Could history repeat itself?

"Sure," he says, looking out over a golden glen, "it's possible. But look at this land. What a beautiful place to have a gold mine."