Is Gold Good for the Global Economy?

Wall St. Cheat Sheet

Gold is perhaps the most controversial asset in the market. Some people view the precious metal as a long-term storage of wealth and a hedge against financial chaos, while others see gold as a barbaric, lifeless rock held only by doomsayers. The debate over gold is not likely to be resolved anytime soon, but the precious metal is still helping to boost economies around the world.

According to a new report from PricewaterhouseCoopers and the World Gold Council, the gold industry generated more than $210 billion for the global economy last year — roughly equivalent to the gross domestic product of Beijing. It is the first study to factor into account the entire value chain, from large-scale mining supply to consumer demand. Due to difficulty researching small mining operations, the report likely underestimates the total fiscal contribution of the gold industry.

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“With the global mining sector facing challenging times and increasing costs, transparency is vital — and this research is important as it examines the economic value generated by gold and where that value is created,” said Jason Burkitt, U.K. mining leader of PwC. “The industry does make a significant impact globally, and this report helps us to understand better the fundamental role that gold plays in advancing economic development.”

Gold mining alone made an economic contribution of $78.4 billion to the top 15 mining countries in 2012. Those 15 countries accounted for approximately three quarters of global output and directly employed an estimated 527,900 people in the gold mining industry last year. South Africa is the leader, with an estimated 145,600 mining employees, while Russia and China have 134,000 and 98,000 mining employees, respectively.

The importance of gold mining varies significantly across the globe. Last year, gold accounted for 36 percent of all Tanzanian exports, as well as 26 percent of exports in Ghana and Papua New Guinea. Gold only made up 2.2 percent of total exports in the United States, but its dollar value of $33.7 billion was the highest among major gold producing countries. China came in second, with $22.9 billion, and Australia third, with $16 billion.

Jewelry, the largest proportion of gold fabrication and consumption, directly added almost $70 billion to the global economy. India is the top fabricator and consumer of gold jewelry, at 1,170 tons, accounting for nearly one-third of global fabrication and consumer demand. China is the second largest, at 1,017 tons.

Terry Heymann, director of Gold for Development at the World Gold Council, commented: “From mining and refining to fabrication and consumer demand, it is clear that gold makes a positive contribution to economic growth along the entire value chain. In particular, consumer demand for physical gold products from the 13 largest gold consuming countries directly generated very substantial economic value: around $110 billion in 2012.”

Even though the price of gold has retreated sharply from all-time highs made in 2011, there is still a significant amount of demand. Between 2007 and 2012, global gold demand surged 42 percent. Jewelry demand reached 1,908 tons last year, while total bar and coin demand came in at 1,256 tons. Central banks, which often treat gold as an important reserve asset, purchased 535 tons of gold, or 12 percent of global demand.

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Disclosure: Long EXK, AG, HL, PHYS

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