Analysis: Gold heads into RSPT territory

Is a price of $US1300 an ounce high enough for the Australian Government to consider adding gold to its mining super-profits tax?

That is a question so loaded with political implications that no-one is yet brave enough to ask, but they will if the gold price keeps rising - which it will.

Events in the U.S. are dictating the price of gold, especially the imminent re-start of quantitative easing, or QE as it is being called, code for cranking up the printing press and flooding the market with more dollars to try and avoid a damaging bout of deflation.

For goldminers this is bonus time because they are producing a metal which has reclaimed its role as the world's reserve currency. Already at an eye-popping $US1288/oz the next hurdle of $US1300/oz should be easy to clear - so why not $US1400/oz or even $US1500/oz?

Would those higher prices and the bumper profits flowing into goldmining companies cause the government to "revise" its promise of only hitting iron ore and coal with its proposed Minerals Resource Rent Tax?

Perhaps, is the answer, which is hardly re-assuring because gold would be the thin edge of the wedge. Once a third mineral is added to the super-tax list, why not a fourth?

Gold, it might be argued, is a special case being driven by a worldwide flight to a safe investment haven.

However, the first step in changing the MRRT was taken last week when the Prime Minister, Julia Gillard, hinted that her patchwork government would be forced to drop some of its promises because of the deals struck with cowboy independents. Significantly, she did not say what promises would be trashed.

The rise and rise of the gold price is making it an easy target for inclusion in her MRRT, the successor to Kevin Rudd's original all-inclusive Resources Super Profits Tax (RSPT).

Adding to pressure on Gillard to renege on her tax-deal with BHP Billiton, Rio Tinto and Xstrata (none of which is a big gold producer) is that since she waved her "peace in our time" agreement at the electorate prices for iron ore and coal have stagnated, or fallen slightly.

The price of gold and a range of other metals have risen, sharply in some cases.

On July 2, the day Gillard waved her MRRT agreement at the electorate in re-run of Joseph Chamberlain's famous "peace in our time" deal with Germany, the gold price was $US1200, it has since risen 7 per cent -- but the pro-tax lobby will be quick to point out that it is up 60 per cent since the election of the Rudd government in 2007.

Other examples of minerals moving into dangerous tax territory include:

- Nickel, which was $US8.50 a pound on MRRT-day, July 2. It is now $US10.11/lb, a rise of 19% in just over four months.
- Copper, which is up from $US3/lb to $US3.48/lb, a rise of 16 per cent, and
- Zinc, normally one of the world's less exciting metals, which up from US80c a pound to US96c, a rise of 20% -- in less than four months.

Those price rises, plus the cost pressure of Gillard's deals to cling to government, plus her admission that some election promises are off is reason for the mining industry to start looking very closely at which minerals might be added to coal and iron ore.

Right now, the smart money says gold is in the government's cross-hairs because it is seen as rich man's metal, favoured by speculators and hoarders. A little tax wouldn't hurt them at all, goes the government's logic, especially when the price clears that next hurdle of $US1300/oz.

After gold is added, the pro-super tax cheer squad in the Labor and Greens Party will push for a full-scale revival of the RSPT, or a salami-slice game of adding one mineral at a time.

Tax-peace in our time? Yeh, right!