Gold bugs still getting squished
By Paul E. Erdman, CBS MarketWatch
Last Update: 12:33 PM ET Jun 22, 1999 StockWatch
SAN FRANCISCO (CBS.MW) -- Gold.
One problem with discussing gold is that it seems to bring out the worst in people. Either they hate it - regard it as a "sterile" investment that does nothing to benefit society, or they see gold as a panacea which will solve all of mankind's problems provided we return to a "gold standard."
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It is left unsaid that a return to gold might have also solved a lot of the gold-bug's personal problems if, during the past decade, a new dollar link with gold had been established at, say, $500 an ounce, or even $300.
All one can say to them today is: Dream on. But it will never happen.
Last Friday at the gold fixing in London the price was set at $258.95 an ounce, down 10 percent in a matter of five weeks and at its lowest level since 1979.. Why? Because gold is being demonetized and the process is irreversible. The stark facts bear this out.
The Bank of England is going to sell 415 tons of gold, or more than half of its gold reserves. This means that England, which invented the gold standard in the 19th century, is now getting out of the gold business.
Switzerland, traditionally a nation of gold bugs, is doing the same. In April the Swiss voted to sever the official link between gold and the Swiss franc. The Swiss National Bank intends to dump 500 of its 1,300 tons of gold to finance its "Solidarity Fund.", with the rest to follow later. According to the President of Switzerland's central bank: "Gold is no longer of any monetary importance."
London closing gold fix for past three months.
The International Monetary Fund plans to sell between five and ten million ounces of gold to relieve the debt burdens of the world's poorest nations. In this it has the full support of France, Germany and Japan - the remaining key holders of gold as part of their monetary reserves.
So now gold is just another commodity. As is silver. Its price dropped below $5 an ounce last week, no doubt affected by what was happening to gold prices. From now on, the prices of these metals which used to be set by edicts of Britain's Chancellor of the Exchequer or the President of the United States will be set by traders in the pits of the futures markets in Chicago or New York.
How the mighty metals have fallen.
Economist and author Paul E. Erdman is a columnist for CBS MarketWatch.
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