Is Gold Good for Society?

Gold has many roles in the world.  It is used in everything from electronics to glass making.  Many will even argue, and rightly so, it is the only real currency that keeps money printing under control. No matter what the role is, the pursuit of gold itself can have a significant impact.  The World Gold Council recently concluded a study that looks at the effects gold can have on a society.

The study focused on four mines in Peru.  The mines were owned or operated by Newmont, Barrick, Gold Fields, and Buenaventura.  At the national level, the mining industry accounted for 60% ($16.3 billion) of Peru’s total export revenues in 2009.  Gold miners alone, accounted for $5.6 billion in exports for 2008.  The four mines in the study accounted for 60% of gold’s contribution to exports.  The report states, “Gold has played a pivotal role in Peru’s economy for centuries.  It has been an important source of wealth since the pre-colonial Inca civilization.”  Over the past 30 years, the mining industry in Peru has represented between 40% and 60% of Peru’s total earnings.  While the US collects the majority of its taxes from individuals, Peru’s successful mining industry has become the largest taxpayer in the country over the past 10 years, peaking to 25% of total government revenues in 2007.

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The credit bubble bust has left the US with a prolonged high unemployment rate.  The official headline unemployment rate is over 9%, and the broadest unemployment rate (U-6) from the BLS is over 16%.  While the US government enters into political debates and gridlock over job creation, Peru is seeing job creation through its mining industry.  The study explains that of the $250 million in mining salaries expected to be paid in the peak years 2011-2014, community salaries account for more than $100 million, which is a significant boost to the local and regional economies.  Looking forward, the study states, “Based on the multiplier used for this study, we estimate that the indirect job creation impact of the four mines from 2005 to 2014 to be approximately 8,000 additional jobs annually.”  Furthermore, the four mines in the study are directly improving the local job market for Peru.  Peruvian nationals are expected to make up 90% of their total workforces for 2011.

The success of the mining industry also has a spillover effect to other parts of the economy that is beneficial to many.  The study explains, “In terms of local procurement, the four mines’ expenditure with national suppliers averaged 90% of their total procurement or nearly $1.4 billion per year from 2007 to 2010.  In some years, this exceeds twice the total of all taxes paid by these mines and, in turn, generates additional revenues for government.  The local effects of this expenditure are just as noteworthy, with 41% of all purchases from national suppliers going to community-based firms (or some $70 million) for 2010.”

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In conclusion, gold mining has played an important role in the development of Peru’s economy.  It provides jobs for locals and strong revenues for the government.  Aside from gold’s hard asset and safe-haven status, the future looks bright for gold demand, which could prompt other governments to promote gold mining activities.  India, the world’s largest consumer of gold, demands 900 tonnes of physical gold a year.  Just in the second quarter, consumer gold demand increased 38% in India, and 25% in China.  Other countries around the world are taking note of the benefits that come from precious metals.  South Africa, a top platinum producer and gold exporter, is in the early stages of looking at developing its own metals exchange as the government tries to boost national revenues and employment.

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