Gold's Deepening Gloom

Precious metals investors took another beating last week. The price of gold plummeted $29.10, to $412.10 per oz. Since it reached a peak of $850 in January of 1980, gold has steadily lost more than half of its value. Silver's slide, from a 1980 record of $50.35 per oz., has been even more precipitous. Its price plunged 9% last week to $8.40 per oz.

The continuing drop reflected the strength of the dollar, which last week reached its highest level against the British pound in three years and bought more French francs than at any time since the end of World War II. Towering U.S. interest rates have tempted Europeans to shift huge sums into American dollar deposits. High rates have also made it painfully expensive to hold gold and silver, which pay no interest at all.

Many investors originally bought gold and silver because they feared that worldwide inflation was out of control. But slow growth and tough monetary restraint by governments have eased inflationary pressures both in the U.S. and Europe. Thus gold and silver are losing some of their luster as hedges against rising prices.

The gold trader's traditional tonic has been a good dose of bad news. Now the markets are so numb that current crises no longer shock. The Israeli attack on Iraq's nuclear reactor, the bomb blast that killed high Iranian officials and the presence of Communists in the French Cabinet have all created hardly a stir among precious metals dealers.

Prices may keep on sinking. The Reagan Administration has proposed the sale of all the 139.5 million oz. in the U.S. silver stockpile to raise money to buy metals of greater strategic importance like cobalt and titanium. That action could depress silver prices still more. Gold dealers fear that South Africa may sharply boost sales of that metal to cover its growing balance of payments deficits. James Sinclair, who heads his own New York trading firm, predicts that gold could go as low as $250 before buyers begin to return to it.

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