DURING THE LATE SUMMER OF our recent stock market discontent, a strange phenomenon occurred in world security and commodity markets: the price of gold, the value of the dollar, and securities prices all declined in unison.
This heretical occurrence is much like stock prices and the prime rate going up together. Gold is supposed to be an absolute hedge against a declining dollar and falling securities and is supposed to work in orchestrated apposition to them. But the decline in the price of gold from more than $120 an ounce back to par didn’t faze the gold bugs who will quickly determine that a 10 per cent decline in IBM presages an imminent disaster.
Encouraged by a stock market as unrewarding as being a pro football fan in Houston, more and more investors are embracing the idea that the sky’s the limit for gold. “Buy high and sell higher” becomes “buy high and never sell,” the cry of the gold bug.
Many American investors are catching gold fever, a disease more easy to contract than to cure, from their European cousins who have long been convinced that no paper currency is worth more than the cost of an additional printing press. Europeans have been converting their paper currency to gold and hoarding it for centuries.
The Cassandras of international monetary doom saying have abetted the tendency to buy gold by predicting worldwide recession for many years. The advance in the price of the gold has vindicated them somewhat, and gold has been picking up some unlikely riders on its bandwagon as it climbs.
The investing housewife no longer calls her broker to inquire about the price of Houston Lighting and Power.
“What’s London Gold at the afternoon fixing?” she asks. “And how about American South African?”
And they call in to buy shares in gold mining companies in Africa, the kaffirs, companies whose names investors can’t pronounce and whose local politics are as stable as a mountain ram in rutting season: Blyvoor, Kloof, West Dreifontein. Never mind the politics, the interest equalization tax, nationalization threats or anything else. They mine gold, don’t they?
So far the major beneficiaries of the boom in gold have been deposed South American dictators, Middle Eastern potentates, and the gnomes of Zurich.
Rumor is that $1.5 billion worth of gold has been cashed by Juan Peron in the past few months to finance his return to power in Argentina. One wonders if that’s all the Argentine leader was able to spirit out of his country when he ran for Spain a few years ago. Even if that’s the bundle, the logistics are staggering. Even at $150 an ounce, that’s more than 300 tons of gold. If there is that much of the stuff in the possession of just one man, why is there a shortage?
But there must be a shortage, because the price is going up. The oil rich sheiks of the Middle East don’t care for dollars. As soon as we deliver a bale of dollars to them in return for their oil, they rush to Zurich or London or Paris to convert their dollars to gold, prompting gold bugs the world over to Greek chorus: “You see, the dollar’s weak and gold is strong.”
Any day now the Arabs are going to present a new demand: No more oil except for gold. The cunning Arab knows how to cut out the middleman.
That will be bad news for the gnomes of Zurich.