The price of gold rose in 2016. This encouraged owners of gold mines to employ more resources to increase the supply of gold. The level of competition in gold production varies in the different gold producing countries. A number of countries, including India, impose a tariff on imported gold.

Discuss whether or not an economy should mine and sell all of its gold now.

Step ➊ : Introduction.

Many countries are faced with the decision to either use or conserve their resources. Several factors must be considered when deciding whether or not an economy should mine and sell all of its gold now.


Step ➋ : Discuss why a country should mine and sell all of its gold now

There are several reasons why a country should mine and sell all of its gold now:

➤ 2.1 It will create employment and lead to higher economic growth.

The country will benefit from economic growth if it mines all its gold now, at least in the short run. Mining can increase output and create jobs in the country. Mining more gold will increase it's exports and also improve the current account position on the country’s balance of payments. In addition, the higher output can increase tax revenue that can be used, for instance, to improve the country’s infrastructure and education. This can in turn further generate economic growth.

➤ 2.2 Mining all its gold now would help the country benefit from economies of scale.

A country may need to mine a large amount of gold in order to achieve efficient production flows and develop at a faster rate. Mining a large amount of gold will help the country to benefit from economies of scale. This would enable the economy to earn higher revenue, minimize the costs and would help boost the development rate. If gold is mined in small amounts at a time, the cost of production would rise and efficiency would fall resulting in slow economic development. A low-income country may mine all its gold now in order to develop faster.


Step ➌ : Discuss why a country should not mine and sell all of its gold now.

There are several reasons why a country should not mine and sell all of its gold now.

➤ 3.1 Future generations will not be able to benefit from gold mining.

In the long term, economic growth will be reduced as resources will be depleted. Very rapid economic growth may be achieved but this may be at the expense of the living standards and quality of life of future generations. The reckless use of resources will be harmful in the long term. Furthermore, concentrating only in the mining of gold may lead to over specialisation and there may be structural unemployment in the future.

➤ 3.2 More revenue can be earned from gold in the future.

The price of gold may rise in the future. It might not the best time to sell gold now for a low price. Furthermore, the exchange rate may currently be low which may reduce the revenue that the country can gain from exporting the gold .

➤ 3.3 Advances in technology may lower the costs of extraction in the future.

It may be advisable to conserve a resource if the country does not currently have a comparative advantage in producing the related product but may have in the future. For example, a country may have significant gold deposits but they may currently be too expensive to extract. Better technology may help to reduce the costs of mining in the future and new mining methods can be developed to minimise environmental damage.

➤ 3.4 Gold mining may cause external costs.

Regular operations at gold mines adversely affect the environment in several ways. For example, the operation of large mining equipment requires fuel and results in the emission of greenhouse gases. However, potential mine accidents and leaks pose an even greater threat to nearby land and water resources. Mines must operate wastewater treatment plants to remove cyanide, mercury and other toxins from the water used for mining, and a treatment plant failure could also result in the contamination of the surrounding landscape.


Step ➍ : Conclude

To conclude, the country should aim for sustainable development. This occurs when output increases in a way that does not compromise the needs of future generations. It would be preferable if a country does not mine and sell all its gold now. The price of gold may rise in the future and more revenue can be earned. Furthermore, technology may lower the private cost as well as the external costs of extraction in the future.