GOLD: A Piece of the Auction

The gold in Fort Knox (and other U.S. Treasury stashes) has long been regarded as a sacrosanct symbol of national wealth. Once it was available for purchase only by foreign-government bankers who wanted to redeem dollars that the U.S. insisted were as good as gold; later the U.S. Government would not sell it to anyone. Last week, though, the Treasury announced plans more in line with its current belief that gold has become a mere commodity. On Jan. 6 it will sell 2 million ounces of the glittery stuff at public auction to any purchasers, American or foreign, who care to submit sealed bids. That is only a minor part of the Treasury’s total hoard of 276 million ounces but still nearly equals the amount now traded on all the world’s gold markets in any single week.

The auction will take place six days after individual American investors are freed by law to buy gold bullion for the first time in almost 41 years. (Federal Reserve Chairman Arthur Burns last week urged that permission be delayed six months, because he fears that people will pull money out of savings accounts and stocks to buy gold, but Congress probably will make no change.) Not many individuals are likely to bid at the Treasury auction: the gold will be sold only in the form of 400-oz. bars, worth at current free-market prices about $70,000 each. The big distributors who buy these bars will send many of them to refineries where they will be melted down and recast in smaller sizes for sale to the public.

The Treasury’s aim is to provide a supply for buyers who would otherwise send their money abroad for gold, thus worsening the U.S. trade deficit. Legal buying of gold for dental, artistic and industrial purposes (jewelry, photographic materials, space men’s visors) already far exceeds new production from U.S. mines, and some $1 billion worth of gold will be imported this year.

Thin Supply. Reaction to the Treasury’s announcement on the gold markets of London and Zurich illustrated some of the hazards of speculation in the metal. Traders earlier had hoped that no government would sell gold from its monetary hoard and that the pressure of new legal demand from individual American buyers on a thin supply available for trading would drive the free-market price above $200 per oz. (v. an official value of $42.22 in exchanges between governments). The price did hit a record $190.25 a few weeks ago. Last week, though, it dropped as low as $170.50, then closed at $180.

As an investment, gold has other severe drawbacks. It is costly to store, insure and assay, and it yields no interest. Nonetheless, dealers are gearing up for a big business with private American investors when ownership becomes legal. Americans already are avidly and legally buying gold coins, and some stores are selling as jewelry ⅛oz. bar-shaped pendants ($45 at Cartier’s in Manhattan or twice the value of the gold itself). Come Jan. 1, Americans will also be offered gold-warehouse receipts and shares in mutual funds that will buy bullion. They may even get a chance to buy some more gold from Uncle Sam. Treasury Secretary William Simon said last week that after the initial auction Jan. 6, the Government is considering later auctions of gold in bars smaller than 400 oz.