A Future in Gold

In much of the world, gold bars and coins are still hoarded as a favored form of wealth--the kind that printing presses can never turn out. Indeed, despite the view of most economists that gold --or any other scarce but durable natural commodity--cannot reliably serve as the basis for complex modern monetary systems, recent devaluations and exchange problems have increased the number of gold worshipers. Apparently they are about to get a new temple.

This week in Canada the 350 members of the Winnipeg Grain Exchange are expected to approve the opening of the world's first market in gold futures. (They also plan to rename their organization the Winnipeg Commodities Exchange.) The buyers--both speculators and the big industrial users--would be people who expect the price of gold to rise. Working through a broker, they would put up 10% of the purchase price and get a contract for delivery at a future date up to 18 months away. Sellers would be people who expect the price to fall.

Many investors might be attracted to this cut-rate gold trading. Since 1968 the price of "free-market" gold--that is, the bullion not held in monetary reserves but used for industrial purposes and speculation--has shot to historic highs. It is now $67.10 an ounce, v. the "official" price of $38 for the gold held by nations in their reserves. Last week Treasury Under Secretary Paul Volcker reiterated U.S. determination to keep the official rate steady, despite the desire of France and South Africa to raise it once again.

Piece of Paper. In the U.S., where the ownership of gold (except in jewelry, dental fillings and a few other nonmonetary forms) has been illegal since 1933, Winnipeg's plans may foreshadow a new tiff between the Treasury and investors. Some investors claim that the technicalities of futures trading make that particular form of gold dealing perfectly legal. After all, most speculators in futures dispose of the commodity without ever taking delivery. The holder of a gold futures contract would merely keep, and eventually sell, a piece of paper--in much the same manner that investors in gold-mining companies are permitted by the Treasury to handle their stock certificates. Winnipeg Exchange Chairman Robert Purves says that he "definitely expects" U.S. investors to trade in gold futures.

The U.S. Treasury Department remains magnificently unimpressed by that logic. "We have determined that the purchase of a gold futures contract is the same as a purchase of gold itself," says Thomas W. Wolfe, director of the Office of Domestic Gold and Silver Operations. "It would certainly be an illegal activity for the 99.9% of us who have no Government authorization to deal in gold." Traditionally, the Government has feared that any form of U.S. ownership of monetary gold might lead to an alternative--and possibly preferred--form of tender, thus weakening the dollar. The threatened gold war between investors and the Treasury may eventually have to be settled in the courts.

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