Dateline: 4/21/99
The National Post didn't mention it. Neither did the Vancouver Sun. But there it was front and center in Monday's Report on Business from the Globe & Mail - Swiss to sever gold's link to franc. Alan Freeman of the Globe's European Bureau reported that the Swiss had voted in a referendum Sunday "to sever the metal's formal link to the franc".
With the fourth largest gold reserves in the world, this move is of great concern to the World Gold Council and goldbugs everywhere. This further demonetization poses a threat of more central bank gold sales. In fact, the International Monetary Fund has recommended selling five to ten million ounces of the yellow metal to help reduce the debt burden of poor debtor nations. U.S. President Clinton and French President Chirac have endorsed the proposal.
Would the Swiss join in such a plan? Actually, the Swiss finance ministry suggested selling up to half of their gold reserves for humanitarian aid in a report jointly issued with the Swiss National Bank in October 1997.
Canada has steadily sold off nearly all its gold since 1980. Australia, Belgium, Holland and other countries have joined the massive selling binge. Only the U.S., Germany and France have resisted this trend.
Central bank gold sales have been a sword of Damocles hanging over gold prices. While some gold analysts have predicted a turnaround this year (along with a major stock market crash), the thread holding the sword is getting thinner. Gold has been confined to a narrow trading range between $280 and $300 U.S. for the most part for well over a year. This Swiss move just exacerbates the situation.
Ideological goldbugs, of course, will be additionally dismayed by the Swiss move to demonetize gold as they have long upheld Switzerland as a shining example of fiscal probity. Gold is money. Paper is not. But their protestations notwithstanding, the fact is that gold will not budge in price as long as any gold continues to be held by central banks.
Although analysts such as Steven Jon Kaplan of Gold Mining Outlook preach a coming bull market in gold, do not expect it anytime soon. Only when all gold is privately held and governments cannot influence the gold price through massive liquidations of reserves will the price of gold be free to move.
Gold is, despite their protestations, a commodity like oil, copper and pork bellies. It is no longer money. Currency is no longer an actual store of value in the sense that it represents something tangible like gold. Rather, currency is a tool of measurement, much like a ruler or a thermometer. It measures one's relative contribution to society as judged by fellow participants in the marketplace.
The only problem with currency as a tool of measurement is that it is devoid of standardization. Whereas the meter is always the exact same length, and a degree Celsius is always the same amount of heat energy, the dollar, or franc or peso can, and usually is, debased and altered by its issuing government.
How to standardize the currency is another question. The goldbugs will tell you to tie it to gold. Personally, I don't agree. The best way to standardize currency is to take it out of the hands of government and privatize it. Let different currencies issued by banks or private companies compete for the loyalty of consumers. We could end up with many different currencies, or just a few. In the end, consumers will opt, as they always have, for stability.
Perhaps nothing spells the end of gold as money so much as the fact that neither the Southam papers nor the National Post reported on the Swiss referendum. These newspapers, like most people, simply sigh and shrug "So what?"
Personal Note: Although I don't expect any prolonged bull market in gold, I do expect a short term spike up in the gold price if and when we experience a serious market correction (which I believe may be imminent). For that reason I have a sizable portion of my portfolio invested in gold stocks and precious metals mutual funds.
International Monetary Fund Gold Policy - a short article on the IMF's view of gold.
The Privateer - an excellent newsletter and website on gold from a hard money perspective. Check out their weekly Gold Update.
Gold Newsletter - lots of free articles from James Blanchard's popular newsletter here at the Stockscape site.
Kitco Gold Prices - live gold prices from Kitco. This Montreal company hosts one of the most comprehensive gold bulletin boards on the Internet.
The Royal Canadian Mint - an excellent way to invest in gold for both its intrinsic value and its numismatic value is through coins from the Royal Canadian Mint.
Toronto Stock Exchange Gold-Silver Index - chart of the TSE's Gold-Silver Index
Gold, Precious Metals & Mining Links - my collection of gold and related links.
Disclaimer: As with all my columns here, I should re-iterate a precaution. I am not a professional financial advisor. I am a financial journalist and editorialist. The views in these columns are my personal opinions. The author may hold interests in investments mentioned in this article.
Investing (Canada) Notes:
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