Gold no longer glitters

Currency reserve: British sale of half of Treasury's gold reserve severs link of the metal to money.

May 17, 1999

GOLD MAY have great value in industrial uses, but it has lost its luster with the world's governments.

Last week, Great Britain announced it would sell 415 tons of its 715-ton stockpile of the precious metal and invest the proceeds in other financial instruments. If the signs were not already clear, Britain's move certainly means the end of gold's role in the global economy.

Its decline began more than a quarter-century ago. In 1972, the United States cut the link between gold and its currency. At the time, gold was seen as a hedge against the inflation hampering most of the world's economies. With its perceived intrinsic stability and value, gold's value increased as the world's major currencies declined. In 1980, when U.S. inflation was at its peak, gold was worth $873 an ounce.

Within the past decade, as inflation has declined in the United States, gold's value has eroded. That ounce of gold is now worth about $275. The dollar, the world's most widely circulated currency, has taken its place as the standard measure of value in the global economy.

Britain's central bank is not the first to sell off some of its gold stockpile. The United States has been selling off its stores for some time. Switzerland, whose voters last month approved cutting the links between the Swiss franc and gold reserves, is planning to sell up to half of its 2,600-ton gold stockpile. The International Monetary Fund has announced it will sell about 10 percent of its gold holdings to finance debt relief for developing countries.

For the gold bugs who believe a global economic catastrophe is around the corner, the flood of gold onto the world market presents a buying opportunity.

At present, they represent the minority view in the marketplace.

Pub Date: 5/15/99

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