Privately, high government officials agree that Treasury Secretary G. William Miller's unqualified assurance on Tuesday that the United State does not plan to resume gold sales while the market is so unsettled may have been a tactical error. That -- and a massing of Russian troops near the Iranian border -- helped put gold over $700 an ounce for the first time.
The Treasury, until Miller's remarks hit the financial news wires had been taking pains to keep the markets guessing -- neither saying that it would or that it would not attempt to deflate gold prices by making more of the metal available. The irregularity or the unpredictability of Treasury gold sales added an element of risk to taking a market position in gold.
But miller's apparent view that a gold sale at this time would do little good -- in terms of pushing gold prices down -- is supported within the government and by the chief policy-makers at the Federal Reserve System.
Miller could have added that the Treasury reserves the right to change its mind at any time, which he may have considered to have been implied in his statement. But neither he nor Federal Reserve Governor Henry Wallich, who made a similar statement Tuesday, expressed that in a positive way. Wallich said only that gold is a "sideshow" that does not require "any immediate action" by the United States or other nations.
Presumably this view was presented to America's principal economic partners at a regularly scheduled meeting of the Big Five deputy finance ministers here on Monday hosted by Anthony Solomon, Treasury undersecretary for Monetary affairs.
The major subject was not gold, but the "substitution account" in the International Monetary Fund, a proposal by which official holders of excess dollars could trade them into the IMF for an asset supported by a basket of currencies.
Speculators have been anxious to know whether the United States would pump additional gold supplies into the market. They already know that one source of gold -- annual sales of 5 million ounces by the International Monetary Fund -- is scheduled to end this spring, one factor in the market's strength.
New gold production last year was about 31 million ounces, which was supplemented by the IMF sales, Treasury sales of 11.75 million ounces, and sales by the Soviet Union estimated to be in excess of 10 million ounces.
The Miller-Wallich view is that the boom in gold prices has reached irrational levels as a result of worldwide political tensions, and that there is little point in trying to counter it, particularly since it hasn't had any noticeable effect on the dollar, the economy, interest rates -- or even the stock market.
Evidence from last year, when the United States sold 11.75 million ounces of gold, seems to support their view. Although that much gold added 20 percent to available supplies, it did not prevent a major upward movement in prices.
Economists say that without the Treasury sales, gold prices wouldn't have been much different. Says one highly regarded gold expert: "The gold market has an independent judgment of what the price should be. Sales by the monetary authorities can have only a limited effect."
On the other hand, officials are aware of the possibility that the spectacular rise in the price of gold reflects a lack of faith in paper money and in the ability or willingness of governments to control inflation. U.S. aofficals are quick to point out that despite the run-up in gold prices, the dollar has been relatively stable. In fact, the dollar has done better against gold them the Swiss franc, which used to be the alternate refuge for investors and speculators.
In September 1978, the price of gold in Swiss currency was 336 francs. Yesterday, it had moved up to more than 1,100.
Gold price developments since the takeover of the Iranian embassy appear to have been fueled by a speculation that bears no relation to underlying economic developments.
The massive nature of the speculation is indicated by a single statistic: Recent activity in the gold futures markets in New York and Chicago has exceeded 6.5 million ounces daily, which means that more gold is traded in a week than is actually produced in a year.
Daily price fluctuations of $50 and $60 an ounce that followed the combination of Iran's holding of American hostages, the doubling of the price of oil in a year, and the Russian invasion of Afghanistan reflected a demand for gold -- in the words of one analyst -- "as a financial bomb shelter."
The 1979 boom in gold -- prior to the explosion within Iran -- had a different character. That was fueled largely by Middle East oil producing nations and individual speculators from that area who preferred gold to Swiss francs as a way of diversifying out of dollars. They had no much cash that they cared little about normal price relationships.