Gold Rush

Element No. 79 heats up

As any goldbug knows, booms are born of gloom. That was certainly the case in 1977, as slumping stock markets and the slide of the U.S. dollar sent some seared investors around the world fleeing to that traditional haven of professional pessimists, No. 79 on the periodic table of the elements. From $103 per oz. in August 1976, gold has steadily risen on the world's money markets, and last week reached $176.63 in Zurich. There is an excellent chance that during 1978 the price for gold will surpass the record $197.50 achieved in 1974.

One important reason for gold's renewed luster is that Americans are now shining up to gold. At the end of 1974, Washington lifted a 41-year ban on private American ownership of gold bullion, bars and coins. Anticipating heavy American purchases, foreign speculators bid up the price of gold during 1974. Initially, U.S. investors yawned at the idea of buying gold, and the price collapsed. But during 1977 the long-awaited demand from American investors finally began to emerge.

But not in the purchase of bars; most Americans who want to fondle their gold still buy jewelry or such coins as the South African Krugerrand. Many, many other Americans prefer to trade in gold at one remove, through commodities markets. There goldbugs can buy or sell contracts for the future delivery of gold without ever seeing the metal. During 1977 the theoretical value of gold futures traded on the Commodity Exchange (Comex) in Manhattan soared to $15.1 billion, more than doubling the previous year's total arid dwarfing the $7.6 billion value of the gold that physically changed hands on all the world's markets.

As always, most bargains for actual delivery of metal are struck in Zurich, where the legendary gnomes (a name the secretive currency traders of the major Swiss banks have come to relish) telephone one another every day to set a price for the metal. In times past, their decisions reflected only the demand in Switzerland and, to a lesser extent, in London, Europe's other principal gold-trading center. Now they must keep an eye on the psychological effect of gold prices on the futures market as well.

Though Americans are feverish futures traders, the biggest source of individual demand for actual gold, not surprisingly, is the petro-belt of the Middle East. Awash in dollars that during 1977 lost far more in foreign exchange value than they earned in bank interest, oil sheiks have been swapping greenbacks for gold bricks and shipping out ingots from Zurich to the Middle East in chartered planes. Middle Easterners who cannot afford to buy ingots are, like Americans, developing a pronounced taste for gold jewelry. In the main bazaar of Tehran, more than 100 jewelry shops now choke a neighborhood that three years ago had only a handful of jewelry stores clustered on a single street; they sell jewelry manufactured by Italian and Greek artisans from ingots bought in Zurich.

The collapse of the Bretton Woods international monetary system in 1971 means that the value of a nation's currency has almost totally been divorced from the quantity of gold that the country keeps in its vaults. As a result, the world's central banks now buy gold only rarely. Yet hard as several successive U.S. Administrations have tried to break the link between gold and the dollar, it still seems to exist, although in a reversed way; on certain days last month, the price of gold went up almost exactly as much as the price of the dollar, in terms of other currencies, declined.

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