Losing Bet

For a tumultuous 30 minutes every afternoon, traders mill around a closed-off corbeille on the Paris Bourse to buy and sell gold for French banks. Much of the activity centers on a hoary, 20-franc gold piece known as the Napoleon--and when the market opened last week, an unprecedented buying spree sent the Napoleon's price soaring to its highest level in 15 years. At 50.4 francs ($10.29), the coin was selling for a whopping 57% more than its gold content is worth at official world prices.

Such dubious investments have always had a special appeal for the gold-hoarding French. As a result, perhaps one-eighth of the estimated $30 billion worth of privately held gold in the world is now in French hands. One reason is that many Frenchmen see gold as a hedge against the kind of devaluation that plagued the franc after World War II.

Beyond that, their hoarding has been encouraged by the example of their own government, which in early 1965 started siphoning gold away from the U.S. as part of Charles de Gaulle's offensive against the dollar.

Still Pressuring. By cashing in its dollars for bullion at a $54-million-a-month rate, France has aggravated the U.S. gold drain, weakened confidence in paper currency in general, and touched off a worldwide wave of speculation in gold. The resulting gold scarcity has left the free world's official monetary reserves--for the most part bullion and dollars--annoyingly tight. Last week the International Monetary Fund reported that worldwide reserves increased by a scant $460 million during the first nine months of 1966.

Though a deteriorating balance-of-trade position forced France to halt its bullion purchases last fall, the De Gaulle government has found other ways to keep up its pressure on the dollar. This month, in an interview with Paris' Le Monde, French Finance Minister Michel Debre obliquely suggested that one possible way to assure more international liquidity is to raise the official world price of gold, which has been fixed at $35 an ounce since 1934. Debre's remarks, in which he neglected to point out that nothing has aggravated the liquidity problem more than France's hoarding, ignited last week's surge of activity in the Bourse's gold market; in purchasing Napoleons at inflated prices, investors were betting, in effect, that the official world price will rise.

"Completely Unacceptable." Forthe foreseeable future, that is a losing bet. For one thing, most of the world's governments and central banks are against a gold price increase. Moreover, no increase is possible without the acquiescence of the U.S., which guarantees to sell gold at $35, still has $13 billion in gold reserves to back up its word. And the U.S. is determined to resist a move that would have the effect of devaluing the dollar. "Any suggestion that the price of gold be raised," said a Treasury Department official last week, "is completely unacceptable."

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