Writing on the Wall...Street
Charles IL Stahl
When the Committee of Twenty was launched in September 1973, few thought that it would have achieved any constructive results by July 31 of this year. However, the very bumpy road from Nairobi to Washington proved to be beneficial to the C-20 deliberations. Whether the co-operation among the twenty materialised despite, or because of, higher oil prices and the continuous inflation around the globe, is a moot question. The fact is that some elements of the new monetary system have now emerged; we have an agreement on managed floating; gold was kissed goodbye as a numeraire, and SDRs backed by a basket of sixteen currencies will become the pivot of the new international monetary order. The link between SDRs and gold will be cut; gold will be retained as a reserve asset used for the purpose of collateral if needed, but its role in the system will be dramatically diminished.
Simultaneously with the good news from the C-20, it was announced that Congress and the Administration are ready to legalise gold ownership in the United States. Contrary to the commonly held belief that permitting Americans to buy gold will bring the price of gold bullion higher, it is our opinion that this year's high of $184 per ounce of gold reached on February 26 will not be matched for many years.
Furthermore, we expect a reflow of dollars into the United States because those Americans who believe in gold as the ultimate protection against all economic evils will be able to buy gold and gold futures at home, rather than keeping their assets abroad in German marks, Swiss francs, or whatever. Those are of course the decent AmeriCans who did not want to violate the law on gold ownership and therefore were purchasing foreign currencies instead. The notso-decent Americans who bought gold abroad illegally may now be inclined to sell it and to purchase gold futures in the United States. Four commodities exchanges, two in New York and two in Chicago, stand ready for the green light to start trading in the yellow metal.
The reflow of funds into the US will not only contribute to the lowering of the price of gold bullion, but will also fuel one of the greatest bull markets that Wall Street has ever seen. For the first quarter of this year, the US balance of payments showed a surplus of more than $2 billion; that too should make the dollar more attractive than other currencies, and enhance the value of equities denominated in dollars. The Cassandras of Wall Street may soon be losing their jobs. The stock market is readying itself for a major assault on this year's highs.
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