The real price of the gold boom

Its value goes up and up, producers are scrambling to cash in, and people are being hurt in the rush
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The Independent Online

The headlong rush for gold bullion amid the ongoing global market turmoil carries a social and environmental cost in every corner of the world and seems to be of little immediate economic benefit to the countries producing the precious metal, according to experts.

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Gold reached an all-time high of $1,878 an ounce yesterday, the latest rise in a trend that has seen the metal increase in value by 70 per cent since the beginning of last year. Demand is driven by the impact of the euro crisis, the downgrading of US debt, inflationary pressures and the fragile outlook for Western economies.

"Theoretically the gold price is fantastic for an economy like South Africa's," said Peter Major, a mining analyst with financial services group Cadiz. But he said Africa's leading gold-producing country – currently struggling with an unemployment rate estimated at up to 36 per cent - is not reaping the benefits of the boom. "There are about 6,000 abandoned gold mines here. We should be seeing them reopening but it is just not happening," he said.

Economists say a high gold price strengthens the currencies of producer-countries, increases the inflow of dollars and protects indebted consumers by keeping down inflation. But the impact on emerging economies of a boom sparked by circumstances elsewhere has to be carefully managed.

In January, an economic outlook report by Renaissance Capital warned that gold producer Ghana faced the danger of "Dutch disease" – the process whereby a country's revenues from its natural resources kills its own farming and manufacturing industry. Crucially, developing economies feature a lack of democracy and gaping wealth gaps. These have yet to be levelled by taxation, domestic poverty-reduction measures or regulatory environments that produce a trickle-down effect and protect farmers from destitution. The mining industry argues that the sector delivers results over long periods and that it invested heavily in equipment at a time when the gold price was much lower than it is now.

The industry is itself worried about current imbalances and the fertile ground they provide for popular discontent in the hands of populist politicians. An Ernst & Young survey published earlier this month listed "resource nationalism" as the leading risk for the industry.