Since last year the price of gold has increased 25 percent, from $1,200 to $1,500. Market watchers are saying things like gold is a “juggernaut” and $1,500 is “the new floor.” They’re bracing markets for “explosive” short-term price increases, and asking “Is $2,000 on the horizon?”
The price of gold has been rising for a lot of reasons, but all of them fall under a broad uncertainty and skittishness about the overall economy. Gold is usually counter-cyclical: when the economy falters, or even when investors fear that the economy is heading for rough weather, the price of gold goes up.
This is good news for gold bugs, investors who are extremely (and irrationally, some say) enamored with and bullish on gold as an investment.
Higher prices are arguably even better news for the gold mining industry. They’re paying what they pay to mine the gold whether the price is $1,400 or $1,500 an ounce. For a mining company, that extra $100 bucks an ounce is gravy.
But what does a spiking gold price mean for Nevada, which if it were a country, would be the world’s fifth largest gold producer?
Higher prices mean the mining industry, especially the Barrick-Newmont alliance that accounts for 70 percent of the state’s gold production, should pay a little more taxes to the state and to the counties in which the gold is mined.
Nevada’s mining tax is based on “net proceeds” — the operators only pay taxes on value of the mineral after deducting numerous expenses. Nevada’s mining companies have proven themselves extremely adept at amassing deductions and lowering their tax bills, even to the point that each year several operators pay the state general fund no mining taxes at all.
Higher gold prices should mean that operators will have more money left over after deductions, so Nevada should collect more tax dollars from the industry than currently anticipated.
But since Nevada’s mining tax is so small, higher gold prices will make only a negligible difference in the overall state budget. If the entirety of the last 12 months’ 25 percent price increase were reflected proportionally in tax revenue (which is unlikely, given deductions), the state would get at best about $12 million more than it got last year. Double that over two years, and it’s still a drop in the bucket that is the $9 billion biennial general fund budget.
So for Nevada, a spike in gold prices means what it has always meant: A blown opportunity, enabled by a recklessly generous mining tax structure that allows shareholders to reap handsome returns while the state of Nevada collects a pittance.
Is gold headed for $2,000? Maybe. And then maybe it’ll plummet to $1,000. Gold has always been a bit of a flibbertigibbet, value-wise.
If Nevada producers are convinced that higher prices are here to stay, they’ll try to ramp up production. If at some point prices hit a trough, mining companies will curb production until the market revives. The price of gold drives company decisions, not Nevada’s mining tax system.
All Nevada’s mining tax system does is fail to tax mining responsibly, whatever gold’s price.