Frontlines

The gold rush of '79

William Lowther September 24 1979
Frontlines

The gold rush of '79

William Lowther September 24 1979

The gold rush of '79

Frontlines

Investors these days seem to believe that Christopher Columbus was spouting gospel when he called gold

“the most exquisite of all things,” and seem to refuse to even consider the dire warnings of that other gospel, that gold “hath been the ruin of many.”* Not since the crazed days of the Klondike rush of the 1890s has gold captured the fancy of North Americans as it has this year. Today, however, Shakespeare’s “yellow slave” does not hold out the same lure of easy wealth to be plucked from a northern hillside. The new panhandlers buy it across the counter from gold merchants—as easily as they would purchase tomatoes. But in a time of political unrest and economic uncertainty it is still the same solid, secure investment that entranced the skipper of the Santa Maria.

“Gold is the mirror of international anxiety,” says James Sinclair, head of a Wall Street investment firm which

bears his name. “When things look bad, the price goes up. It falls at times of plenty and peace.” The energy crisis is upon us, a forecast of American recession and roaring inflation ahead—as well as tinderbox tension in the Middle East, Iran and the Far East. And to nobody’s surprise, the reflection in the mirror shows a retreat to that most secure of investments.

Quoted at $140 (U.S.) an ounce at the end of 1975, the price of gold is now around $340 ($400 Canadian) an ounce and still rising. In the U.S. 8.86 million ounces of gold coins and bars were bought in 1978, a colossal jump from the 1.92 million ounces bought the year before—a trend that was reflected in Canadian buying as well.

But as of this month, the slogan “buy Canadian” can be applied to gold. Capitalizing on the world buying rush, and on the fact that South Africa’s and the Soviet Union’s gold bullion coins are politically unpopular, Canada, as of Sept. 6, stepped into the market with a oneounce Maple Leaf coin. The first in North America, the coin is expected to sell well on markets in Canada, the United States and Europe.

While its face value is $50, the Maple Leaf’s true worth will be set daily by the London Gold Market, with a nominal six-per-cent minting and handling charge added to the price. For the Canadian gold mining industry, the five million coins they will be asked to produce over the next three years will mean a change from lethargy to full-capacity production.

The Maple Leaf coin was the 1977 brainstorm of the Mining Association of Canada, which must now drive on its members to produce the five million ounces needed for the first three years of the issue—an amount that equals the total Canadian gold output of the past three years. But even if Canada were to sell all five million coins this year, the program would still be a step below South Africa’s league—with its sales of six million krugerrand bullion coins a year.

Among gold investors there is a fringe coterie that treats gold as a religion, as a way of life, as being valuable above all else. They are the “gold bugs,” and part and parcel of their monomaniacal acquisitiveness is the dogma that the world’s economic system is destined to collapse into anarchy—but soon. Only people holding gold bullion or coin, so the story goes, will be left to carry on commerce, and the “bugs” are determined to be counted in their number. Their determination is more than a state of mind; it runs to private arsenals and fortified dwellings stocked with

* Ecclesiasticus XXI, 6.

provisions against the inevitable chaos to come.

There is a story told by Jim Blanchard, a 35-year-old New Orleans, Louisiana, “alternative investments” specialist, that gold bugs pass on, almost, it seems to outsiders, as if to frighten themselves: a certain anonymous Canadian businessman decided to put his stash of gold krugerrand coins into a 55gallon drum full of manure (the bugs distrust banks) and hide it in his barn. The gold remained hidden, sure enough, but when the manure began to sour and stink a farmhand hauled the barrel away to the county dump. “Of course, only the businessman knew the coins were there. He hadn’t told his wife or nobody,” says Blanchard, who pauses to let the full horror sink in. And then he adds: “The story has a happy ending, though. After about a month of searching in the dump, he found his drum. And right there under the manure were his coins, good as gold.”

The practice of burying gold is so prevalent that one American company actually sells a strong metal tube specially designed for this very purpose. Rustproof and watertight, it retails under the name “the Midnight Gardener.”

The gold bugs, who believe the price of gold will rise to about $450 U.S. an ounce in the next 18 months, are by nature full of gloom and pessimism for the future. They have a vested interest in hard times. And who is to say their predictions are wrong? Inflation in Canada jumped 0.8 per cent in July, and in the U.S. by 1.1 per cent—proving the Carter administration wrong in its optimistic forecast that inflation would decline during the summer. Gold shot to $300 an ounce on the New York Exchange, up $10 in 48 hours. From April to June of this year, as people slowly began to realize that the gas shortage was real and that North America was indeed in difficulties with its fuel supplies, gold prices rose almost 20 per cent on the London market.

So the gold bugs, with a new Canadian coin to rhapsodize over, busily prepare for the coming siege. “Some of the bugs think that real serious trouble is coming,” says Blanchard. “Riots in the streets, that kind of thing. They think that when this crunch comes there will be a total breakdown of food deliveries and so forth. So these people will buy six months’ supply of freeze-dried food to have on hand. That’s pretty extreme, you know.” Doubtless, Christopher Columbus would not agree, for he goes the gold bugs one better: “Truly, for gold [anybody] can gain entrance for his soul in paradise.” William Lowther