More Americans than ever now appear to agree with Christopher Columbus' statement that "gold is the most exquisite of all thing . . . Whoever possesses gold can acquire all that he desires in this world. Truly, for gold he can gain entrance for his soul inn paradise."
London and Zurich traditionally have been the centers of the international gold market, but this is no longer the case. In just four years, the U.S. market has soared into a dominating global position. The speed with which America has grabbed the gold ball and run away with it is stunning. The reasons behind this development rest essentially on changes in U.S. law, Treasury actions and attitudes, mounting speculative interest in bullion and marketing genius.
Each week now seems to witness yet another event that underlines the prominent position of the American market. Last Monday, for example, the volume of 100-ounce gold contracts to be traded on the Commodity Exchange in New York set a record at 54,876, which represented a face value of approximately $1.28 billion. On Tuesday, the U.S. Trsasury staged one of the largest-if not the largest-gold auctions in history, when it placed 1.5 million ounces on sale.
There used to be a time when gold was the sun of the monetary solar systemaround which all national currencies orbited. But for a host of reasons, the international monetary system slid into confusion, and as it did, the Treasury, foreign governments and the Internation Monetary Fund sought to place gold on a par with such unglamorous metals as zinc andd copper. Central banks were left with gold stocks and, in the currency chaos, they were not quite sure what to do. In June 1973, the Bank for International Settlements in Switzerland summed up the situation by noting that "down in the vaults, gold remains unused-but not unloved."
The toppling of gold from its monetary pedestal produced unexpected results, notably the development of a large and rapidly expanding American market. The first giant stride toward htis was a change in U.S. law at the end of 1974 allowing Americans to own bullion for the first time since 1933. The Treasury then started to sell some of the reserves held in Fort Knox, and in the fall of 1975 it supported the International Monetary Fund plan to dispose of fully 50 million fine ounces of gold through the transfer of some of its stock directly to its member countries and through a long series of auctions that tentatively are scheduled to end in 1980.
The Treasury and IMF auctions attracted the largest gold dealing houses in the world, the bankers from London, Zurich and Frankfurt, and the international bullion traders from these financial centers and from New York. But the most significant move all was taken by smart brokers in New York and Chicago, who swiftly set about launching futures markets for bullion. Such a market enables an investor to bet on where the price og gold will be some time in the future without having to take actual possession of the yellow metal, and it permits the investor to lay off, or hedge, risks he may have taken in other markets.
At first, the futures markets at the New York Commodity Exchange and on the Chicago Mercantile Exchange's International Money Market were dominated by the big professional institutions, says Maury Kravitz, president for monetary affairs at the Chicago brokerage house of Rufenacht, Bromagen and Hertz Inc. In due course, more brokers became involved and dealt among each other. By this year, the private investor had come to dominate activity.
Kravitz should know. He is giant bear of a man, with a weighty gold bar hanging from a neck chain and a list of clients that reads like a Who's Who of the bullion business. Kravitz says "I think of I have bought and sold more gold in recent times than anyone else in the Western Hemisphere," and this is a claim that few people, in Chicago at least, dispute.
As the futures markets developed, and additional stimulus to America's central position was provided this year by the Treasury's decision to launch a fresh series of auctions. The aim behind these is to reduce the volume of gold imports into this country to aid the nation's balance of payments. The list of bidders at Tuesday's auction, for example, illustrates the truly international character of the sales and of America's current gold market, with most of the leading British, German and Swiss trading houses in evidence.
The single greatest spur to the futures markets- and indeed to interest in the public auctions here-however, has been inflation and currency instability. For centuries, going right back to Byzantine days, gold, which cannot be destroyed like paper money, has been viewed as prime store of value. Gold over the ages has tended to be quite a good very long-term hedge against inflation, and as inflation has shot ahead in the last few years, so public interest in gold has increased.
At the same time, the collapse of the monetary system that ended the post-World War II era of relatively stable exchange rates gave rise to widespread speculation and volatility in currencies, and for many investors-including some central banks-gold came to represent a long-term bet on stability.
The combination of all these factors has lifted the U.S. to the position today where Dr. Henry Jarecki, the chairman of Mocatta Metals, can assert unequivocally that the U.S. now is the center of the global market. Some bankers in London and Zurich assert that this is not the case and suggest that the futures markets are really of only peripheral significance. Jarecki points out, however, that "the futures markets are now an integral part of the world market . . . it is nonsense to say these markets are only dealing in paper gold, as behind the paper in the futures dealing is real gold."
James Sinclair, who heads James Sinclair and Co., stressed that the shift in the center of the global market to the U.S. rests primarily upon the sheer efficiency of the markets here, their speed at trading and handling large volumes.
Kravitz noted that the London price fixings each morning and each afternoon- under and arcane ritual involving they key London morining fixing price is a reference point for the first dealings on this side of the Atlantic, but no more than, and once trading really gets crackig here, the European prices tend to be largely irrelevant.
A further boost to the popularity of gold in this country-and probably to speculation as well-will result from a law just passed that will lead to the U.S. Treasury issuing one-ounce and one-half-ounce gold medallions starting in the spring of 1980.