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April 17, 2014

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J. Patrick Coolican:

As gold bubble deflates, tired excuses will soon follow

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J. Patrick Coolican

Well, no one could have predicted this. The The Financial Times reports that “investors are losing their enthusiasm for gold as signs of improvement in the U.S. economy tempt them away from the traditional haven.”

And if it’s made the financial press, you know the bubble has really started to deflate in earnest.

Since 2001, the price of gold has increased more than sevenfold, from just $253 in 2001 to a peak of nearly $2,000 last year, according to the FT. Now it’s down to $1,665 or so.

For the life of me, I can’t figure out why, but people put their money in gold when they’re anxious and economic volatility abounds. And the past decade, beginning with the terrorist attacks on the United States, has been a period of extreme economic volatility, with destabilizing wars, the financial bubble and the Great Recession.

Especially since ACORN fixed the election and the scary Muslim usurped the White House, gold has become a favorite investment of the likes of Glenn Beck, which has driven still more white-knuckled La-Z-Boy occupants to invest. To be fair, newfound wealth among the middle classes of the developing world has also probably increased the demand for gold as decorative jewelry.

Rural Nevada, which is one of the prime gold mining areas of the world, has enjoyed significant prosperity during this boom, halting what had been a long slide into economic stagnation.

The chief beneficiaries of the gold boom, however, are two companies: Barrick Gold Corp. and Newmont Mining Corp.

So, one might think Nevada’s tax coffers would be overfilled with revenue from the gold boom. Nope.

The tax on gold is set in the Nevada Constitution at 5 percent of net proceeds. They’re allowed to deduct a bunch of expenses before the tax is calculated.

They also pay property, payroll, sales and use taxes like the rest of us, but all in all, they have an extraordinarily sweet deal.

But now, with the American economy recovering, investors sense the end of the gold bubble because money is going to start flowing into, shall we say, more productive arenas, like new companies and factories and so on.

Of course, anything is possible. We could have another war in the Middle East or the American economy could stutter again, and gold would probably recover.

But on the present course, I know exactly what we’ll hear if voters are faced with an initiative to increase the mining tax, or what I’ll hear from lobbyists and credulous legislators in Carson City next year if the price of gold continues to float down.

Oh, woe is the gold industry and the proud communities that mine it! Now is no time to raise the mining tax!

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  1. Gee -- what are you really trying to say? Isn't it nice that the Progressives have a media like you to promote their cause and give them free advertising? I think the initiative should be to have a 25% gross proceeds on garbage, then media outlets like the Sun would take the biggest hit!!

  2. Mr. Coolican,

    Methinks that economic analysis is not your strong-suit.

    Purgatory

  3. WOW.....it scares me that I have been agreeing with you so many times lately, but this one is Right On The Money. The mining industry, long time sweetheart of Carson City, has been allowed to carry on business relatively free, while enjoying windfall profits on the metals markets. Newmont and Barrick can either pay their fair share, or their claims can be left to expire, and other companies would be more than willing to take them over, but we KNOW that would not happen. They will pay whatever it takes, because it is not like they can go someplace else. Minerals are here and that is why they are, well besides the fact that they operate for what in essence is free after all the allowed deductions they take.

    It seems we might have a governor that will not wilt under pressure and keeping the taxes in place as they should be...so the next question is.... how can we clean out the state legislature and start the State on a path to prosperity?

  4. First, don't count Gold out just yet. Gold prices aren't based on the US economy alone. The biggest buyers are in Asia and Russia. Part of Gold's value has been based on the US dollar which over the past several years has lost much of its value. When the dollar looses value everything cost more including gold. Of course gold prices may fall but don't plan on such a fall as to back to the 500 dollar range. That won't happen. It may fall to the 1,500 dollar range or a little lower but as long as the dollar is weak, gold prices will remain high.

  5. I agree that mining companies should pay their fair share of taxes, which it does not appear they do. Ordinary citizens pay property tax and sales tax on most everything they purchase, with few loopholes to escape. This privileged status for mining has been in place for a long time, and is carefully guarded. Nevadans are accustomed to being dominated by the few major industries that manage to prosper here. It will be difficult to effect changes that will remedy inequities in the tax code, but it is a worthy consideration. Companies should be good citizens.

  6. Folk who are complaining about J Patrick's economic analysis have a significant problem. Mostly that he's right. Gold is a place to put your money when nothing else is productive, at least not compared with its risk.

    As productivity increases and risk abates investors will pull their money out of gold and put it into these better investments. This is how every recession has gone.

  7. Coolican just lost all credibility by mentioning ACORN. he might actually want to learn what the electoral college does. ideologues are worthless as analysts as bias inhibits the critical thinking process.

  8. "Especially since ACORN fixed the election and the scary Muslim usurped the White House, gold has become a favorite investment of the likes of Glenn Beck, which has driven still more white-knuckled La-Z-Boy occupants to invest."

    ROTFLMAO!

    Just a mental cartoon visual of that sentence is enough to keep me laughing all week! Thanks, Patrick, you Word-Dog you!

  9. On a more serious note - unless NV develops a real legislative branch that focuses on the problems of the state, bans lobbying, and stops the big money companies from stealing, raping, and pillaging NV, there's no solution.

    NV is a microcosm of what is happening in the country, only to the extreme.

    Carson City is deaf, mute, weak, and controlled by the 1%. Sound familiar?

  10. Speaking of the economy recovering,lol. It has been on autopilot for 8 months now as Obama has been in full campaign mode now for 8 months and will continue throughout 2012. He is absent from office and will continue to be a non-leader throughout 2012. He is scared to make any major decisions for our country that might have a negative impact on his re-election and is postponing all of them until after the election if he can. That is anything but a strong leader! This is what happens when you elect a man with absolutely zero leadership experience to run the greatest free country in the world.

  11. As long as the republicans complain about Obama then he has done his job I am Happy and will vote for him again.

  12. May I point out that that conventional wisdom ten years ago said:

    "Houses will NEVER go down in value in Vegas because they are not making anymore land."

    "Vegas is recession proof so investments in housing here will always give superior yields."

    SO:

    Don't worry, pour massive amounts of money into gold shares and coins etc because, just like houses, gold will never devalue and, it is not in a bubble.

    Really, would people and companies selling gold for commissions (often on credit) lie to you?

  13. @a-joker

    I think you are the one that missed the sarcasm about ACORN...LOL

    oh well - not gonna 'splain it to you unless you get out of your laz-e-boy first

    lmao

  14. OMG - Nevada is a State? I thought it was a Banana Republic.

  15. Cognastics, please take your blue tinfoil hat off and read my comment again. The main point was about a non-leader behaving like a coward because he will not make any major decisions that might affect his re-election even if it hurts our economy. All other Presidents democrat or republican have been leaders during a campaign year and made major decisions except this one.

  16. Anyone who paid over $600.00 oz for gold was stupid. Obama isn't going to be in office long and gold will plunge when we're back on the right track. Go back during the Carter era, same hype, and same outcome when he was booted. Gold and oil prices will plunge when the liberal agenda goes bye bye.

  17. This summer, our United States Lawmakers/Leaders did NOT pass a budget for our country. It still hasn't. Until that is done, gold will command preminum prices.

    It is about our economy, and the confidence citizens have. Those who crashed our economy are still FREE and continuing the same path without anything more than verbal, public condemnation. There is incredible injustice in such.

    We are quick to jail shoplifters and potheads, but hey, in the United States, you can steal money and thrive, even the government will pay you to do so!

    There are citizens behind the scenes preparing for martial law and government take over. They garner supplies of gold in such preparation. Gold prices will not drop much. It is an election year, and the current establishment wants to dazzle and make it appear and for people to believe all is well.

    All that glitters ain't gold.

    Blessings and Peace,
    Star