Ingot We Trust

Gold rush of '79 heats up

The famous 17-year cicada has nothing on the perennial goldbug. Quick-buck speculators, long-haul investors and just plain inflation-scared savers have put so much money into gold that last week it ballooned to a record $277.15 an ounce. Other precious metals have been piggybacking on the yellow stuff. Lately silver and platinum have risen even faster than gold. Predictions that gold could hit $300 an ounce by midsummer--and that other metals could rise in tandem --are becoming self-fulfilling as speculators rush to buy in anticipation of higher prices.

Europeans, who traditionally seek refuge in gold during days of crisis, are buying enthusiastically because the Continent has been hit by energy-induced inflation. During the first quarter, prices rose at an annual rate of 9% in Switzerland and 9.6% in West Germany, weakening their strong currencies. So far this year, gold has risen even more sharply against the Swiss franc and the German mark than against the dollar.

Much of the recent buying comes from beyond Europe. Speculators in Turkey have made fabulous profits by hoarding gold as a hedge against their own sharply declining currency. The Arabs remain major buyers, and they like to get gold in 400-ounce bars (now worth about $110,000 each). Germany's Dresdner Bank is rumored to be holding 50 tons of gold for Arab accounts. It was presumably for those customers that the bank scooped up 652,000 of the 750,000 ounces auctioned off last month by the U.S. Treasury.

In the past two years, a new band of buyers has flocked to the market: American institutional investors. Some U.S. pension funds, mutual funds and bank trust departments are putting a portion of their assets into bullion. Meanwhile, U.S. individuals, professional hedgers and a number of the larger multinational corporations are in the gold futures market. As a result, contracts representing 312 million ounces were written in the first four months of this year, and the level of futures trading in the U.S. dwarfs gold markets abroad. Individual Americans last year also bought at least 3.7 million ounces of gold coins, a greater amount than was sold in any other country.

The rise in precious metals is also powered by a lack of supply. The U.S. Government sells gold to support the dollar; but since the greenback has strengthened this year, traders figure that Washington might call off its gold auctions. Last month the Treasury cut its monthly offerings in half to 750,000 ounces, and the International Monetary Fund has reduced its monthly sales slightly, to 444,000 ounces. "Combine those two, and you take out almost 20% of supply," says a U.S. gold analyst.Soviets, who earned $2.6 billion the sale of 13.8 million ounces of gold through the Wozchod Bank in rich last year, have been selling at only half that rate so far this year, perhaps wait ing for higher prices. South Africa, which supplies a steady 22.5 million ounces to the market each year, stands t earn $6.2 billion at current prices.

Strong economies in many countries have also put the squeeze on th supply of those precious metals that are used in industry. Platinum, which is needed for pollution-fighting catalytic converters in cars, has risen an eye-popping 173%, to well over $400 an ounce, since the Soviet Union, a big supplier of the metal, started throttling back exports two years ago. Some market watchers expect it soon to hit $500. The demand last year for silver, used for coinage, camera film and tableware, was about 17 million ounces greater than the supplies of 433 million ounces from regular channels, and the remainder had to be made up by dipping into private stockpiles. A slowing of the world economy might cause prices to decline. But until that happens, precious metals will remain an expensive security blanket for nervous investors.

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