Gold's gyrations are the Dow Jones index of anxiety
For all practical purposes, the world has been off the gold-exchange standard for nearly eight years. When it comes to transactions among central banks, mankind's most treasured possession is supposed to have no more relevance than the Mongolian tughrik. So much for the official view of gold's value. Out there in the real world, the metal that Economist John Maynard Keynes once Wrote off as a "barbarous relic" has never shone more brightly.
From Bangkok to Bangor, investors are buying up gold−and paying record prices for it. Scarcely a week goes by without a fresh blast of bad news to push up the value of the mystic metal that thrives on crisis. Viet Nam's invasion of Cambodia, which began late in December, was one such event, but gold's biggest boost lately has been the winter-long turmoil in Iran. As investors have grown fearful of another energy crunch, the price has surged from under $200 per oz. in mid-autumn to a record $254 two weeks ago.
The climb has been helped by reports that South Africa, until recently a major consumer of Iranian oil, has negotiated a long-term deal to buy alternative supplies from Saudi Arabia in return for gold. Since South Africa is the world's largest gold producer and Saudi Arabia is the world's largest oil exporter, such a deal would divert much gold away from world commerce and into Saudi vaults, forcing up the price of the metal still more.
With the bullion markets boiling since before Christmas, a cooling-off period has long been overdue, and investors have been cashing in on their eye-popping profits. Last week prices closed at $247, but few believed that the run-up was over. Traders were even talking of gold's next new plateau, and gold enthusiasts were hoping that it would crack $300.
In fact, the 1970s have already seen one of the most spectacular gold rushes ever. This reflects a panicky flight away from paper assets−stocks, bonds, money itself−and back to the enduring luster of one commodity that neither corrodes nor tarnishes but seems in a sense to be the embodiment of immortality.
The allure is undeniable. In all of history, only about 80,000 tons of gold have been mined, no more than could be easily loaded into the holds of four C-5A Air Force transports. Current production adds a mere 1,430 tons annually, less than a 2% increase.
Gold glitters not just because it is scarce but also because the future of many other investments seems so chancy. Inflation in the U.S., revolutions and coups around the world−the litany of upheavals has ceaselessly eaten away at people's faith in the abilities of their governments to deal effectively with the multiplying threats to global stability. The result has been a worldwide boom in doom, and in the marketplace of despair gold stands out like a beacon of security.
In the words of James Sinclair, a leading New York gold broker, the price of the metal "has become a kind of Dow Jones index of investor anxieties." A worldwide subculture of goldbugs is thriving on the doubts. Gold has its bankers and boosters, its brokers and dealers, its lecturers and analysts. Each of them can quote Robert Browning: "Leave the fire ashes, what survives is gold."