Good As Gold
The Metal That Put California and South Africa on the Map Is Still a Hot Commodity Around the World
From the Print Edition:
Danny DeVito, Winter 96
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It all fell apart with the Great Depression of the 1930s; in March 1933, the United States went off the gold standard. The price of gold to the dollar was fixed in January 1934, at $35 an ounce, and at the same time, all gold was withdrawn from circulation. It became illegal for Americans to own gold, other than in the form of jewelry or the fillings in their teeth. People who used gold professionally, such as jewelers, had to have licenses to buy gold. The fixed price had the effect of making gold jewelry affordable to nearly everyone. Why buy fragile flowers or fattening chocolates when a gold brooch would last forever, at almost the same price? While the prices of those flowers and chocolates rose with inflation, gold remained fixed at $35 for 37 years.
Finally, with U.S. gold holdings sinking to an alarming level, in 1971 the tethers on the gold price were loosened. The price rose, tentatively at first, and then with a rush that rattled fillings throughout the jewelry industry, peaking at $850 in 1980. The gold rush then was in melting down granny's jewelry; people descended upon refiners' offices, rushing to take advantage of the hysteria. And yet the world supply was at a peak, increased by a rash of open pit mines that had been put into production quickly once the price of gold started to float.
Throughout this nervous period, as well as before and after it, an agreed-upon value for an ounce of gold was needed; the London Gold Fix was the answer. Twice a day, in the morning and afternoon, bankers representing five of the world's most prestigious banking institutions meet in the offices of N.M. Rothschild & Sons in London to establish the gold price. They negotiate a price that reflects the supply and demand requirements at that moment. Once announced, the price floats around the world as currency markets open. The market is open somewhere around the world at any given time, and so the process is ongoing. The process started in 1919, and probably gave rise to the expression "The fix is in."
Gold has always been relied upon in times of war and natural catastrophes. Whether in the form of coins, plaques or ingots, its anonymity and absolute convertibility has made it a steady companion for people in times of trouble. In modern times, gold has acquired another more nefarious function--smuggling. On Aug. 27, 1996, four women from Kazakhstan were detained at the airport in New Delhi, India. Among them, they were carrying nearly 70 pounds of undeclared gold, secreted in cloth belts they wore around their waists. The gold was valued at $461,668. These women were said to be carriers for a Russian syndicate.
India is a particularly suitable target for smuggled gold and is the world's largest consumer of gold by far. Of the 3,257 tons of gold used throughout the world in 1995, jewelry use accounted for 2,749 tons. India consumed 477 tons of that amount, at least officially, and is heading in 1996 for more than 500 tons. The actual figure for 1995 is even higher, since the Bombay Bullion Association of India acknowledges that an additional 134 tons (or more) of gold was smuggled into the country. Like many consumers in the East, Asian Indians demand pure gold, 24 karat gold, for their jewelry.
Gold also has been used as money for 4,000 years, while currency coins have been with us for at least 2,600 years. The first coins were struck during the reign of King Croesus of Lydia (560-546 b.c.), giving rise to the expression, "As rich as Croesus." By the fifteenth century, coins had acquired serrated or milled edges, to discourage "clipping," the removal of tiny bits of metal. The artistry of one of the world's most renowned goldsmiths, Benvenuto Cellini, was employed in striking coins for the princes of Italy in the early sixteenth century.
In our time, coin collecting, coupled with the desire to own and hold gold, gave rise to a series of popular gold coins, minted by gold-producing countries.
The granddaddy of them all is the South African Krugerrand, named for Paul Kruger, the first Afrikaner leader, and the country's currency, the rand. This coin, first minted in 1967, to date has consumed 1,250 tons of gold (not all coins are one ounce; the Krugerrand, like other countries' coins, is made in several weights, ranging downward from one ounce to 1/10th of an ounce). It was introduced in the United States in 1978, three years after it became legal for Americans to own gold again. But during the period of U.S. sanctions against South Africa, it was illegal to bring in new Krugerrands, although it was still legal to own and trade those already in the country. The odium attached to the coin, however, made it unpopular. But other coins were waiting to take its place, including the beautiful American Eagle, first minted in 1986 and the most popular bullion coin in the United States.
Competition also came from the Canadian Maple Leaf, the Austrian Philharmonic, the Australian Kangaroo-Nugget, the British Britannia and the Chinese Panda. These coins divide sharply into two types. The Krugerrand and the American Eagle contain one ounce of gold in an alloy of 22 karat gold, while the Maple Leaf, the Kangaroo and the Philharmonic are four nines fine; that is, they are pure gold. These ratios remain true in the smaller sizes as well: most coins are minted in half-ounce, quarter-ounce, 1/10-ounce and even smaller sizes. In the Far East, 1/20th-ounce coins are popular. At the other end of the scale, the Australian Kangaroo-Nugget comes in a kilogram size (just over two pounds), more in the nature of a doorstop than a coin.
In spite of the patriotic echoes these coins have in their countries of origin, the most popular coin in the world, according to coin expert Alvaro Meneses-Diaz of New York City's MTB Bank, is the Cat coin from the Isle of Man (a tiny Irish Sea island governed by Great Britain). The inspiration came from the island's Manx cats; subsequent issues depict cats from around the world. The Cat, first minted in 1988, is a four nines fine coin, but is intended for use in jewelry, unlike bullion coins where mint condition is crucial. Of the bullion coins, the Austrian Philharmonic racked up the most sales last year.
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