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In cities throughout the U.S. and Europe, people by the thousands lined up at jewelry and coin shops, lured by newspaper headlines of eye-popping new prices for gold and silver, and even by hourly news broadcasts on the radio. Most sought to cash in on the price explosion by selling their sterling silver table settings, candlesticks, gold bracelets, rings, watch fobs, even cavity fillings.
Have the gold and silver markets lost touch with reality? The answer seems to be yes. At present prices, an ounce of gold is worth more than a quarter ton of hamburger. Seven pounds of the metal would pay for a typical American single-family home. A suitcase of bullion would buy an oil tanker of crude.
Of course, the rise reflects intensifying anxiety over the world situation, particularly the crises in Afghanistan and Iran. Unlike the gold rush of 1979, when fears over the U.S.'s soaring inflation sent investors scrambling for bullion, the panic of the past month or so shows that people have escalated their apprehensions. There is a whole new level of apocalyptic worry about the intentions of the Soviets, the stability of Saudi Arabia, the destinies of a dozen or more nations that are vital to Western security because of their strategic positions or natural resources.
In times of such grave concern people are moved to switch out of paper currencies and into objects that seem immune to political travail. Observes Alan Greenspan, former U.S. presidential economic adviser: "There is a real possibility that what we are witnessing is a flight from investments that require an intermediary, be it government, a bank or any other financial enterprise. In recent months a special premium has surfaced for protection and anonymity. Gold is a store of value that governments cannot seize, devalue or easily confiscate."
Gold fever is especially acute in the Persian Gulf, where petroleum profits are pouring into Arab bank accounts at a rate of $50 million a day. Says Henry Wallich, a governor of the Federal Reserve System: "The gold market now is running in good part on the disorganized state of the world. If I were living in the Middle East I might wonder where I'd be living a year from now, and I might want to have something to take with me." Adds New York Bullion Trader James Sinclair, long a fervent backer of gold and silver: "Under the present circumstances, gold has become an outright escape mechanism."
The immediate beneficiaries of the gold surge are some governments, particularly the U.S., which holds about 8,600 tons of the metal, by far the largest hoard on earth. Last week it was worth some $220 billion, or more than enough to cover the estimated $160 billion in total U.S. dollars held as official reserves by foreign central banks. Technically the U.S. could offer to buy back all those dollars in exchange for gold. Observes a top Zurich banker: "The U.S. Treasury is once again solvent, thanks to the high price of gold."
Still, the U.S. eventually may pay a high price if bullion keeps leaping. The daily jumps add to the inflationary psychology in the nation. If a dollar is worth only one eight-hundredth of an ounce of gold, then it seems to be worth almost nothing. Thinking that, many people are moved to spend their dollars instead of saving them, thereby forcing prices up even higher.