Gold

A Russian Cargo of manufactured products destined for Singapore leaves Vladivostok. Unbeknown even to the highest officials, about one ton of gold granules is hidden somewhere aboard ship. Despite strict supervision at loading and unloading, the Russian gold will wind up in a Malaysian or Indonesian bank that will pay for it in hard currency (perhaps Deutsche marks or Swiss francs) at higher than the U. S. official price--probably as much as $50 an ounce.

In a major airport in Pakistan, a syndicate maintained about 20 of the existing 6O or 80 toilets. In those 20 toilets, there was no trap under the bowl. Whenever water was flushed, it flowed through a two-inch pipe directly to a wire-mesh receptacle located about 30 feet underground and serviced by turbaned attendants. In these 20 toilets, known to airline pilots and stewardesses, small gold bars--usually weighing one kilogram or less--were flushed into the mesh basket. Gold, as an attendant told this writer, cannot be damaged by human refuse. The metal fetched about $45 an ounce in Hong Kong, Bangkok or Beirut, but sold for $58 an ounce in India or Pakistan.

A Red Chinese sampan, carrying fruit and meat to Hong Kong, very often returns with products of the crown colony's industries or Western machinery urgently needed in Mao's empire. Gold coins, especially American double eagles ($20 pieces) bearing the symbolic head of liberty, which resembles an old Chinese goddess, are in considerable demand in southeast Chinese provinces. In Hong Kong, they sell for about $72 U.S.; and in Peking, they command even higher prices. Despite Mao's cultural revolution, double eagles are still placed in the coffins of departed Chinese males.

In France, governed since November 1968 by foreign-exchange controls that prohibit the import or export of gold, experienced French and Swiss passeurs smuggle gold coins and bars into the country. This lucrative business first flourished as far back as 1936, when Paris decreed a gold embargo and devalued the franc.

And from a rural landing strip outside Toronto, a small two-motored airplane takes off at sundown. It flies low, only a few hundred feet off the ground, just skimming the treetops, to avoid radar detection. Within half an hour, it will reach the suburbs of a Midwestern city in the United States. On the grounds of a sprawling, landscaped estate, a bluish light blinks on and off. The plane slows down and three heavy bags are dropped toward the blue blinker. In a matter of minutes, the bags are carried into the mansion and the plane disappears. Another shipment of 3000 U. S. double-eagle gold coins, worth about $68 each, has thus reached its American distributor, who, in turn, will retail it through his network of clients at a markup of about $24,000, getting a minimum of $76 a coin. The ravages of the airplane drop will not scratch the coins, as each is enclosed in a small cellophane envelope. As much as $80 to $85 per coin will be paid by their final buyers, those Americans who hoard gold. (At this point, we must distinguish between hoarders of gold coins and bonafide collectors. The latter collect coins not for their gold content but for the quality condition of the coin's surfaces and the year in which the coin was minted--the lower the mintage, the higher its value. A double eagle can fetch as much as $20,000 in proof condition.)

The illegal gold business in far-eastern Russia, Pakistan, southeast China, France and the American Midwest is only a fraction of the world-wide dealings in gold. These activities reflect a growing distrust of paper money that has led to international hoarding of the yellow metal. Private hoards totaled about ten billion dollars in 1950 but had grown to more than 23 billion dollars at the beginning of 1969. Individuals or corporations who feared losing what they had in paper money thus deprived governments of billions of dollars' worth of gold. The more than 350 currency devaluations that have taken place since the end of World War Two, in addition to continuing inflation--which has acted to reduce the purchasing power of already devalued currencies--have fanned the auri sancta fames, or holy hunger for gold, to wild proportions.

Regardless of all official statements, those who want to own gold are not to blame. The responsible parties are governments, which by bad monetary administration have created a climate in which gold hoarding is seen as the only alternative to disaster. People do not want to lose what they have. They naturally seek to conserve their assets or savings. As long as currencies are reduced in buying value--call it inflation--people will look for protection in something more solid than paper. When continuing losses of currency purchasing power finally force a government to acknowledge its own monetary failure and realign the value of its currency to the black-market level, the result is usually called devaluation. Some people, myself included, prefer to call it fraudulent state bankruptcy. Whatever the name, it can be accomplished only by reducing the gold content of the national currency, thereby making it more expensive to buy gold with local money. To devalue a currency in terms of peanuts, onions or paper is simply not possible. And yet, despite all monetary miscarriages or panics, this is what governments still try unsuccessfully to do--because they do not want to admit their own mistakes.

In the United States, the world's most powerful economy and the globe's leading financial organization, people did not pay much attention to gold during the years between the two World Wars. As a result of the financial and economic Depression of 1929 to 1933, the general interest was centered on jobs and on economic survival. President Roosevelt closed the banks in March 1933, declared a gold embargo and, two months later, was authorized by Congress to devalue the dollar by 50 percent, thereby doubling the price of gold. A devaluation of 40.94 percent finally took place on January 31, 1934, and the official price of gold was increased from $20.67 to $35 an ounce. Gold ownership thus became a Government monopoly and Americans had to surrender gold bars (as well as gold coins held within the U. S.) at the old gold price of $20.67--not at $35. This highly dubious measure of punishing the gold holder was the start of "free" or black-market gold transactions in America. Such dealings were modest at the beginning. Wealthy people could still hold as many gold bars as they wished, as long as they kept them outside the U. S. The majority of such holdings were in Britain, Canada and Mexico. With economic improvement and with the rising menace of the Hitler regime in Germany, some small increase in gold-coin dealing, but nothing of real importance, was noted in large U. S. cities. During World War Two, as an Allied victory became increasingly evident, there was no great demand for gold in America. After the War, the sale of gold coins to collectors became hardly more than a department-store activity.

The good old dollar, in the meantime, had shrunk in value. It had lost about 18 percent of its purchasing power during the War, and by 1951 it was worth not more than 54 cents, in terms of its pre War value. By 1960, it had dwindled to about 47 cents. It was at this stage of currency expropriation that the first mild wave of gold hoarding became noticeable in America. Domestic purchases of double eagles, as well as of Mexican 50-peso pieces, increased, but they did not reach sensational proportions. Only a few hundred coins per working day were sold throughout the country. The price of the $20 coin fluctuated around $42 during this period. But in October 1960, the first sharp gold panic swept the world's monetary trading centers. Under pressure from a sudden and widespread demand for gold, the free-market price jumped in London from $35 to $42 an ounce. The crisis was finally mastered with the transfer to London of about 120 tons of U. S. Treasury gold worth $135,000,000 and the establishment of a defense organization called the Gold Pool to protect not the London gold market as much as the dollar itself. Eight countries participated in the Pool, with Washington contributing 50 percent of the assets, Germany 11.19 percent, France, Italy and the United Kingdom 9.26 percent each, and Belgium, the Netherlands and Switzerland 3.7 percent each. After the 1960 crisis, which revealed the vulnerability of virtually all global paper-money systems, private hoarding increased, and it has not diminished since. Formal assurances from Government officials were simply no longer believed by the devotees of gold ownership. The race for a big increase in the gold price had begun.

Some Americans, ignoring pleas for monetary patriotism, were now investigating foreign gold markets. They did not trust Washington or the Gold Pool. At this time, holding gold abroad was still legal for Americans. Purchases of bars in London and in Zurich could be made openly. But as transactions grew in volume and as the U. S. Treasury continued to lose gold--1.69 billion dollars in 1960--President Eisenhower, on January 14, 1961, by simple decree, outlawed the ownership of gold in any form outside the continental United States. Within the U. S., it was already illegal to own gold except in coin collections. American residents and/or citizens living abroad had to liquidate their gold holdings by June 1, 1961. Needless to say, the decision did not help. By midyear, gold hoarding by Americans had increased, and it has yet to abate. The bitter irony of the Eisenhower decree (which was tacitly endorsed by President Kennedy) was that American hoarders buying gold illegally in European trading centers actually received half of their purchases from the U. S. gold stock, since the United States contributed 50 percent of all the metal sold through the gold pool. Little mention of this detail was made in the American press.

From 1961 to 1965, the Treasury's gold stock dwindled from 16.9 billion dollars to 13.7 billion. A substantial portion of the 3.2-billion-dollar loss went into hoarders' hands abroad. American residents had a small but growing participation in these dealings. However, the losses suffered by the average American through a cost-of-living rise of about three and a half percent every year and through colossal waste, graft and corruption in Vietnam further increased Americans' demand for gold. Domestic budgetary deficits, negative balances of payments and wholesale printing of bank notes further aggravated many Americans--and further reduced their willingness to obey monetary restrictions.

These complications multiplied in 1967, when, largely as a result of improper planning, U. S. silver policy capsized and Washington had to free the white metal's price, which until then had been stabilized at about $1.29 an ounce. More than any other negative event, the sudden jump in the price of silver brought the currency problem to the little people--to the housewives, the children and all the others who started hoarding silver coins. Silver finally rose to over two dollars an ounce, despite Washington's prior assurances to the contrary. Silver ownership was still legal, and the middle classes were suddenly gambling in silver on the New York and London markets. No doubt this whetted their appetite for gold speculation. The U. S. Treasury, managed largely by political appointees, (continued on page 146) Gold (continued from page 92) had no power to stop these dealings and had trouble preventing investors from switching their silver holdings into illegal gold.

During the summer of 1967, the dollar weakened and the price of silver rose further. At the same time, the British pound was on the brink of collapse. The certainty of a pound devaluation--which would affect the pound's protector, the dollar--was another precursor of major illegal American gold purchases. The stormy 14.3 percent devaluation of the pound on November 18, 1967, was immediately followed by 34 other devaluations around the world. These events again proved gold the victor--and rewarded all those who did not believe the Right Honorable James Callaghan, Britain's Chancellor of the Exchequer, who until the last minute assured the world that sterling would not be devalued. Illegal American purchases of gold, having been made with pounds at about ten percent margin, had generated spectacular profits. Such transactions were well publicized and created great interest. The most attractive aspect of these speculations was that the price of gold could not drop below $35 per ounce. In other words, the speculators couldn't lose. According to various reports, American individuals, corporations and corporate subsidiaries abroad were increasingly engaged in gold activities, often under the cloak of Caribbean or Central American addresses. From July 1967 to June 1968, approximately 9.71 billion dollars' worth of gold changed hands. Direct and/or indirect participation by the American public can be conservatively estimated at about 15 percent of this amount. This means that Americans, during that one-year period, illegally purchased about one and a half billion dollars in foreign-held gold. Some European bankers put the sum as high as two billion dollars.

The considerable gold losses incurred by the gold pool, by the U. S. Treasury individually and by the British Exchequer led to a major gold crisis in March 1968. Under the impact of a gold panic, with daily turnovers of up to 300 tons (worth about $340,000,000), U.S. gold policy capitulated. The closing of London's gold market on March 14 was followed by an emergency meeting of the seven leading central-bank presidents (representing the financial leadership of the free world) in Washington. The gold price in free markets had already risen to $44 per ounce and trading in Switzerland and in Paris continued against U. S. advice--enabling Americans to buy yet more gold, though admittedly at higher prices. In the Washington meeting. Governor Guido Carli of the Banca d'Italia saved the day by proposing that central banks stop all sales as well as purchases of gold, hold the $35-per-ounce price for dealings among central banks only and leave all other transactions to free-market forces. The system was called the two-tier market.

The most important gold crisis of the post-War era lasted about 20 weeks, from November 1967 to the end of March 1968. Governments or their central banks lost nearly 3.4 billion dollars in gold with little or no chance of getting any of it back. Of the total gold drain, about 1000 tons went to industrial users; a few hundred tons were purchased by central banks of Iron Curtain countries; approximately 1100 tons were salted away by Americans as a long-term investment; and the remaining tonnage was acquired by various short-term gamblers or American corporate subsidiaries the world over. This last amount, in relatively weak or speculative hands, could eventually put sales pressure on the gold market.

Nevertheless, gold purchases continued throughout 1968. The plan of the American and British governments--to force South Africa to sell gold on the free market, hoping to push the price below $35 per ounce--remained a comic-book dream, badly illustrated by childish propagandists. Last fall, rumors of new devaluations of sterling and the French franc, as well as forecasts of an imminent upvaluation of the German mark, dominated most monetary discussions, and another strong wave of gold purchases swept most trading centers. The price slowly but steadily advanced to $42 an ounce. Between mid-March and mid-December, South Africa, taking advantage of the higher price, sold not less than 500 tons of gold, mostly via Zurich, and raked in about $660,000,000 in relatively hard currency, mainly from the ranks of hoarders, which included numerous Americans.

By mid-1969, only three major currencies out of 126 remained completely free of control. This means that their owners can transfer their assets whenever and wherever they want and can own as much gold as they can pay for. These three currencies are the Canadian dollar, the German mark and the Swiss franc. In addition, some minor currencies, such as the Argentine peso, the Lebanese pound and the Saudi Arabian riyal, can be included in this dwindling nobility. The U. S. dollar and the British pound, so called key currencies and pillars of the world monetary system, do not qualify.

Only seven monetary units have not been legally devalued since 1934. but even these have substantially shrunk in buying value. The evidence of the past indicates that all currencies have but one destiny: shrinkage of purchasing power and finally devaluation. This includes the United States dollar. When and by how much its present official gold value will be cut remains open to conjecture. And this overlooks the recent de facto devaluation of not only the U. S. dollar but of all other currencies. The gold price, having risen from the official $35 per ounce to at least $42 per ounce at the end of 1968, was 20 percent higher. This means that in terms of gold, currencies were worth approximately that much less. Nobody other than the central banks, which developed a rather limping clearing system of interbank payments among themselves, can buy gold in 999 fine monetary bars for less than $42 or S42.50 an ounce. But the Treasury continues to ignore such facts and considers the $35 price of gold as the only basis for U. S. monetary policy. So a fragile stability in trade relations remains and, despite the shrinkage of the dollar's purchasing power, American currency remains exchangeable, in terms of gold, with other central banks at the official $35 level. This purely artificial relationship between gold and the paper dollar facilitates world trade and financial dealings in a rather uneasy equilibrium. But the two-tier system is tottering and hoarders everywhere have already won. The belief that gold should be good only for jewelry or dentalwork, or should be owned exclusively by governments, has ended in the ash cans of historical nonsense. Most hoarders had substantial paper profits at the end of 1968. Many of them were not willing to sell but were waiting for even higher prices. Some are expecting $50 an ounce in 1969, some are even betting on $70 an ounce this year and some, basing their calculations on the 67 percent decline in the value of the dollar since the last legal dollar devaluation, firmly believe that gold will be worth at least $105 an ounce within the next two years. Small wonder that many U.S. citizens are increasingly interested in the yellow metal.

• • •

John Doe, an otherwise law-abiding citizen, has seen his assets eaten away by creeping inflation and near-confiscatory taxes. Wanting to turn to the forbidden fruit for protection, the must first find a method to transfer his funds to a bank or a lawyer in one of the foreign gold-trading centers; or he must find a way to carry money out of the U.S. in the form of traveler's checks, cash or U.S. Government bearer bonds. Since any check written in this country is subject to micro-photography, and since any withdrawal of $2500 or more in cash from a personal bank account is reported to the Internal Revenue Service, various techniques have evolved that do not leave a trace in the United States.

Remittances to Canada, the Bahamas or Bermuda can be effected without any (continual on page 164) Gold (continued from page 146) illegal implications and can be easily disguised as purchases of real estate in those nations. In fact, most of such sums are immediately retransferred to London, Geneva or Basel. This method is very cheap, costing a transfer fee of seldom more than one or one and a half percent. Remittances to U.S. accounts in British, German, Hong Kong or Swiss banks are also not objected to by U.S. authorities and can be transacted by check, without drawing special attention, if each amount is under $10,000. Another transfer system that does not encounter any hurdles and is not prohibited by law is cash deposits in Canadian banks, made in person. Of course, this means a trip to Vancouver, Toronto, Montreal or Quebec. Yet another method is the deposit of widely traded American, Canadian or British common stocks or U.S. bearer bonds. All these can be deposited in American banks for the account of foreign banks and/or bullion dealers. Then they serve as collateral for the acquisition of gold or other precious metals abroad. Finally, there is the Hand-payments Switzerland method, defined as the deposit of cash with a special trader or commercial firm in the United States that already has an account in Switzerland. Against payment of a small commission, an equivalent sum is then transferred from the firm's Swiss account and credited to the speculator's Swiss bank account or to his Swiss attorney, without leaving any trace of the transaction in the United States. The amount deposited in America and credited in Switzerland is resold by a currency dealer in Switzerland to a non-American buyer who, for various reasons, wants to send money to the United States. Theoretically, this technique does not seem to violate currency regulations, as the amount involved actually never leaves America, though the effect is to create an additional credit in the speculator's Swiss account.

After the various problems of monetary transfer are mastered, Mr. Doe, now in a position to become an illegal buyer of gold, has to choose the best modus operandi for his purpose. Gold is available in Canada, Mexico, England (for nonresidents of the sterling area only), France, Belgium, Luxembourg, the Netherlands, Switzerland, Lebanon, the Trucial sheikdoms (such as Abu Dhabi, Dibai and Ras al Khaima), Kuwait, Hong Kong, Macao and even Vietnam. It can also be bought in South Africa and Australia, but in large quantities only. The American buyer, however, is eager to protect his acquisitions by discretion and anonymity, and looks for administrative disguises. Many John Does are people of means, able to gamble the yellow metal abroad in units varying from $14,000 to $1,400,000 or even more, and they can afford to take technical precautions. A well-publicized and popular gold receptacle is the numbered or anonymous account in Switzerland, Mexico or Lebanon. It is practical for our fictitious Mr. Doc to choose a small- or medium-sized Swiss bank of good reputation, thus bypassing the Helvetic banking giants, which will not accept accounts of less than $100,000. Furthermore, in order to avoid messy liquidations in case of the owner's demise, a local lawyer has to be given the power of attorney over the account, and this power has to be vested beyond the death of the owner. This apparently unimportant detail saves endless estate complications in the event of an untimely death.

Such problems do not exist if a corporate firm is established to hold gold abroad. These companies cannot function without being managed by local directors and local lawyers. In Switzerland, the corporation is subject to Federal and local taxes, payable when the corporation is set up, as well as when profits are realized. But companies established by nonresidents in the Bahamas, Bermuda. Panama or Curacao--all of which are practically free of income taxes--can open accounts in other countries and operate therein without any fiscal or other control by their homeland. They are thus beyond the reach of any inspection. The factual owner, whether French, British or American, simply disappears behind the anonymous "bearer" shares of his corporation. The latter are closeted in the vault of a local attorney who generally presides over the company. The cost of establishing such an organization seldom exceeds $750, and most of the recent large gold purchases, for private or corporate American ownership, were accomplished this way. Central American or Swiss corporations would buy gold in London, where the metal could be stored at very nominal rates--about one sixteenth of one percent a year. Bahamian corporations, ideal from the point of view of taxes, which are almost nonexistent, are occasionally surrounded by unwelcome casino influences--with all their drawbacks. Bermuda companies are fair but handicapped by sterling-area regulations. Curacao organizations are excellent and Panamanian corporations also handle gold dealings with skill.

The Liechtenstein Anstalt (foundation or establishment) is a rather unusual organization that is neither fully corporate nor fully individual. Costing about $500 to establish and about $300 a year to operate, it is considered the best of all gold shelters. Free of practically all taxes, completely handled by a Swiss or Liechtenstein lawyer, it can own not only gold but other precious metals or currencies; and it does not pose inheritance problems, since the names of the eventual heirs or beneficiaries are spelled out in a special letter, kept in a sealed envelope and attached to the charter of the institution. This corporate format seems to rank very high in international popularity. As far as can be known, it has never caused any trouble for its owners.

Safe-deposit boxes, on the other hand, are not ideal places to store illegal gold, though thousands of Americans still put their faith in them. Above all, one cannot visit a safe-deposit box between Friday afternoon and Monday morning. Devaluations generally occur after the banks close on Friday. In many countries, owners of safe-deposited gold have found, on the Monday after a devaluation, that their boxes were sealed, to be opened only under the noses of the authorities.

Mr. Doe, now illegally gorging himself on forbidden gold, can be classified according to his method of purchase. Domestic hedgers, who are more common than most of us would suspect, are usually anxious to salt away some gold coins in their bureau drawer or in a special safe built into their apartment wall, usually behind a picture. Domestic hedgers are generally inexperienced and know very little about gold prices and less about the premiums they pay for the coins they buy. Domestic trading of U.S. gold coins is practically free of hurdles, as long as it is disguised as coin collecting. Department stores are actively trading in gold coins and advertise them extensively, even though serious gold-coin collectors usually buy only from dealer-specialists or at public auction. Since not enough merchandise is available at the department-store level within the U.S. (because most hoarders do not sell what they have but persist in buying more), a substantial import activity has developed in the past few years. Coin smuggling is still a fairly big business, despite recent revision in import regulations, which now permit, without license, imports of gold coins minted prior to 1934. For purposes of smuggling gold coins, the continental United States is divided into eight wholesale regions. The goods enter the country at various points and by different methods. California and the East Coast harbors are some of the important transit centers. Canadian and Mexican exports are delivered by small, low-flying aircraft, already described. Another popular penetration is made via the Great Lakes and inland waterways. The rather lucrative margin of between $8 and $20 per coin easily explains the attractiveness of these smuggling operations. Unfortunately, about three years ago, a private mint in Beirut began to manufacture all types of gold coins, including those minted throughout the history of the United States. Because each $20 gold piece costs only $44 to produce and can easily be sold for $55 or more, the mint has created a thriving export business--which includes deliveries to American distributors. Since it is difficult for noncollectors to distinguish the Beirut copies from the originals, many domestic coin hoards doubtless contain Beirut pieces. Nevertheless, the charm of gold-coin ownership seems to be growing. In addition to its rather expensive protection against monetary debasement, fiscal considerations make it a major attraction. There never have been, and there never will be, taxes paid on profits from the sale of such holdings--nor from their inheritance. And since there are at least 6000 to 7000 tons of gold coins (nine to ten billion dollars at free-market prices) in existence in the world, of which American hoarders may own as much as 25 percent within the borders of this country, the scope of the accompanying tax evasion seems considerable. An interesting aspect of coin hoarding is that the hoarders, abroad or in America, have not lost money. Quite the contrary.

Unlike the domestic hedger, the international buyer of gold, living in the United States, is a man of means. He probably makes a good living and has at his disposal funds that exceed $250,000. He does not buy gold coins, since their premium makes them too expensive. Instead, he buys 400-ounce gold bars in Toronto, London, Geneva or Zurich. He will not acquire the metal in his own name but will work through a numbered account in Switzerland or via one of London's reliable bullion dealers. If the international buyer is farsighted, he will establish a Caribbean company. The dummy firm in turn will open a neutral bank account in England for which the buyer has sole signature. His account then can operate under the adopted Latin-American nationality. He also has the choice of establishing a Liechtenstein Anstalt. He then sits on his bars until the metal reaches $70 to $100 an ounce. It is immaterial whether the bars were purchased via Panama or Geneva, in London or in Zurich and, as noted, no taxes whatsoever can be levied on the Caribbean company or the Liechtenstein Anstalt. Such holdings will remain immune to virtually any fiscal menace.

The careful gambler is perhaps younger than, and usually not as wealthy as, the international buyer. The careful gambler probably has no more than $100,000. He wants to make his paper dollars go as far as possible. Therefore, he buys gold on margin. His operations are based on the same technique as those of the international buyer--via a Latin-American base, a Liechtenstein Anstalt or a numbered account. However, only about 25 or 30 percent of his purchase is in cash. The unpaid balance is financed by, or borrowed from, the bank or the bullion dealer--at a cost of nine to nine and a half percent per year. This enables the buyer to acquire three or four times the amount of gold that he could purchase outright. Except for the interest payments, there are no real risks involved in this type of transaction. Should there be no rise in the gold price for about three years, the gambler will have lost his original cash payment; it will have been gobbled up by the interest charges. And since the transaction cannot be considered legal in this country, he will not be able to take a tax loss. But should the price of gold double within a year, he will make a profit of about 400 percent. His only worry then would be how to get the profits back into the U. S.

The resourceful operator gambles with larger amounts and with various precious metals. He tries to borrow as much as he can, either in the United States or abroad. His system is based on leverage. He owns open accounts, as well as numbered ones, and often operates a "garage account"--bought or rented from a foreign national who, in turn, gives him single signature over it. He may use Central American companies or Liechtenstein Anstalts and, as he is a man of considerable assets, worth generally much more than a few million dollars, he is also accustomed to taking large risks. His foreign last will and testament is on file in a Swiss law office, in order to avoid any complications resulting from his demise. The operational details of his transactions can be summed up in the word escalation. The technique works as follows: In October 1967, when he could still acquire gold (at $35 per ounce) with only a ten percent deposit, he might have purchased ten 400-ounce bars outright and used these as margin to buy 100 more.

At the end of 1968, just 14 months later, the price of gold had risen to $42 per ounce, so the net profit after interest would have been $177.023 on an investment of $141,400. If he holds his gold until October 1969 and the price rises to $70 per ounce, his holding will be worth $3,048,640!

This escalation method is popular with experienced speculators who can risk two or three years of interest payments without losing their cool. And as the gold price in the spring of 1969 hit over $43 an ounce, the escalators, as they are called, were already sailing fast before the wind.

An even more refined transaction is the platinum-gold deal. The acquisition of platinum is legal in America and, therefore, its purchase can serve as an excellent mask for illegal gold buying. People who acquired platinum, let us say in August 1965, when it sold at $165 an ounce, could have shipped the bars to London or to Switzerland. This platinum then could have been used as collateral for the acquisition of gold, which at that time still sold at $35.25 an ounce. Ten 50-ounce bars of platinum, valued at $82,500, could have been used as collateral for about 14,000 ounces (35 400-ounce bars) of gold, worth $493,500. By January 1969, the value of platinum had risen to about $270 per ounce. Gold, at this same time, found eager buyers at $42. The gross profit on such a transaction, based on a down payment of $82,500, would be $147,000--about 78 percent in a period of 42 months. If the position were not liquidated, there is the possibility of more appreciation in 1969, though the price of platinum has since declined sharply.

To describe all the other techniques used as alibis to circumvent currency laws would fill volumes. In the United States, as in at least 122 other monetary areas, all legislation has been insufficient to stop the man or the corporation who distrusts currency and seeks shelter in gold. One can compare anti-gold legislation with the irony of the Prohibition law that dominated America between 1919 and 1933. Both of these laws, unpopular with the public, led to gigantic black markets and ridiculed the legislators who conceived them. The bitter lesson--that gold regulations cannot be enforced by any government, not even by the secret police in the Communist countries--will not be learned in Washington. And yet there is a way to cope with the problem.

Let us suppose the United States wanted to get back all the gold that has left Fort Knox and the vaults of the Federal Reserve Bank in New York. Such a voluntary return of ten to twelve billion dollars in gold could be staged in less than a year. It would not be the result of coercion or menacing jail sentences. It would have to be on a purely free-will basis--people bringing their gold back voluntarily. And it would culminate in the supreme glory of the presently decrepit paper currency of America. The technique needed to gain the return of flight capital and gold is not new. It was invented some 18 years ago by Antoine Pinay, the owner of a tannery in southeastern France, who was French minister of finance in 1951. Within a short period of time, it recouped a substantial portion of French flight capital that had been resting in Switzerland.

In the U. S., the idea could work in the following manner. The U.S. Treasury would float a two-and-a-hall-percent, 450-billion-dollar loan for 25 years--in the form of bearer certificates in $1000, $5000 and $10,000 denominations, free of all present and future income taxes and inheritance duties. The principal and interest would be linked to the official cost-of living index of the U.S. Bureau of Labor Statistics. No questions would be asked at the purchase or sale or redemption of these debt certificates. To make it an even bigger success, all present Federal, state and municipal bonds would be made exchangeable into the new indexed loan. And, finally, an amnesty would have to be granted to all U.S. residents and citizens who, in the past, have committed the crime of owning gold.

Everyone from the oil princes of the Middle East to the kingpins of the American underworld would sell their gold to purchase these inflation-proof U.S. public-debt certificates. Even Russian or Chinese politicians with numbered accounts in Switzerland would become eager owners of these capitalistic vehicles. The American balance of payments, instead of needing constant bookkeeping embellishment, would grow to gigantic opulence. And within a short time, these bonds could not only replace gold to some degree but become the international reserve currency that has been eagerly sought for so long. If this new type of money--or something similar--is not created, gold hoarders will continue to be victorious and anti-gold legislation will eventually suffer the same neglect as the Prohibition law. If this type of money is created, we will enter a new era of responsible Government financial policies, and the paper dollar will once again be good as gold.