Who Has the World's Gold?

When we conquer on a world scale, I think we shall use gold for the purpose of building public lavatories in the streets of large cities.

--Lenin

HALF a century after the prophet of Communism scorned the ultimate symbol of capitalism, gold continues to exert a glittering fascination. To many governments, gold signifies the most reliable unit of foreign exchange. To many individuals, gold means security--an immutable and indestructible form of wealth.

In France, for example, a century of wars, devaluations and inflations has left many people with an almost religious reverence for gold. An estimated $4.5 billion worth of the metal is secreted by French hoarders in socks, crockery, mattresses and vaults--more than is held by the Bank of France. Frenchmen buy gold jewelry, pile up gold ingots and collect gold coins--Louis d'or, English sovereigns, American eagles, Swiss Helvetias. They sew gold in their belts when they march off to war. "I invested my first wages in gold in 1949," says one 40-year-old divorcee, recounting a typical French experience. She has been a hoarder ever since, and when she goes on vacation her gold goes with her.

Critical Debate. Partly because governments are also strongly attached to gold, the metal is at the heart of the critical debate over realigning international currency values. The U.S. has demanded that its trading partners revalue their currencies upward, thus making U.S. goods cheaper in international markets. Foreign governments argue that any realignment should include a devaluation of U.S. currency. This would be accomplished by raising the official price of gold by 5% or 10% from its present $35 an ounce. But if gold rises and dollars decline in value, countries that hold more dollars than bullion stand to lose.

To slow the drain on its own gold store, the U.S. has for years pressed, argued and cajoled foreign nations into holding substantial sums of dollars in their reserve assets--the mixture of gold, foreign exchange and other credits governments use to finance international trade and investment. If the dollar is devalued, those countries that went along with the U.S. request would lose part of the value of their reserves--and thus some of their purchasing power in world markets.

High among the countries that would be hurt is Japan. At the end of September, Japan's reserve assets amounted to $13.4 billion, of which $12 billion was held in dollars and a puny $697 million in gold. West Germany would also stand to suffer. At latest count, its reserves totaled $18.1 billion, of which $12 billion was in foreign exchange, mostly dollars, and only $4.4 billion in gold. Switzerland, too, would come out somewhat behind. By latest count, it has $3 billion in gold and almost $4 billion in dollars.

Britain also would be clipped; at the end of June, its reserves stood at $3.6 billion, of which $2.3 billion was in foreign exchange, most of it in dollars, and a mere $800 million in gold. By the end of September, its reserves had risen to $5 billion and, though no breakdown is yet available, the dollar-to-gold ratio is estimated to be even larger. Another country that would be hurt by a dollar devaluation is Canada. In its $5 billion reserve it holds only $800 million in gold and $3.5 billion in currency, mostly U.S. dollars.

The countries that stand to lose least from a gold increase are those that put their faith in gold and were eager to cash in their American dollars to get it. France, for example, would be little touched. Since August it has been getting rid of its dollars by using them to pay its international debts, and at last count half of its $6.5 billion reserve was in gold. The Netherlands certainly would come out ahead, because it holds far more gold than dollars; Italy would about break even. The $10.2 billion worth of gold held by the U.S. would go up in terms of dollars, but U.S. currency would be worth less in relation to other currencies in world markets.

Soviet Hoard. Opponents of dollar devaluation assert that it would bring windfall profits to the largest producers of gold, South Africa and the Soviet Union. Lenin's remarks notwithstanding, the Soviets have been hoarding their gold in recent years and have sold little of it. Perhaps they have been betting on a gold price increase, or holding on to their bullion in order to go on a shopping spree in the West at some opportune time. Their stockpile has been roughly estimated to be worth $3 billion.

As for South Africa, this year it has sold 95% of its production. But all of it has been auctioned on the "free" markets of London, Paris and Zurich, at prices as high as $42 an ounce. These markets are maintained largely for speculators and industrial users, who have sent the "free" prices up in the expectation that there would ultimately have to be an increase in the "official" $35 price, which is used in exchanges between governments. Indeed, if the U.S. were to raise the official gold price, Washington might well persuade major non-Communist governments to join in a declaration that the problem of gold value was solved and to pledge that there would be no further increases. With that, the "free" price of gold would probably decline, and the large producers and hoarders of gold would stand not to gain but actually to lose.

In any event, a relatively modest increase in the price of gold would be a significant first step toward bringing world monetary stability. It would raise the value of foreign currencies in terms of the dollar and would ease the problem facing foreign politicians by enabling them to blame the U.S. for the relative price increases in their own industries' exports. Recognizing that, some of the governments that stand to lose the most by a gold price rise--notably Japan and West Germany--are calling for it.

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