PERSPECTIVE: Rumour ignites feverish activity among gold bugs

Today's gold bugs might be more akin to lightning bugs - flitting here and there, flashing lights to draw atte...



Today's gold bugs might be more akin to lightning bugs - flitting here and there, flashing lights to draw attention one moment and invisible in the dark the next. The market is certainly volatile, if price is anything to go by. Since the beginning of May, the price has bounced up and down repeatedly between US$1,160 an ounce and a record-setting US$1,246.

The rise and fall of the gold price has been going on since the beginning of the year. Only in the last few weeks are the changes occurring at a more rapid rate. Is the activity a sign of speculation against the U.S. dollar? Is it driven by worries about European financial stability? Is it in reaction to the price of crude oil or British Petroleum's runaway deepwater oil well in the Gulf of Mexico? All of the above? I suspect it is a combination of events that has gold investors nervous.

Now from London, U.K., comes a rumour - and remember this is only a rumour - that the Obama administration might confiscate all gold holdings in the United States as part of the country's strategy to deal with its economic problems. The idea has a precedent. In 1933, President Franklin D. Roosevelt did exactly that.

Part of Roosevelt's decision was an attempt to control the price of gold, and that it did very well. When Americans were required to turn over their gold, the government paid them US$20.67 an ounce. The price of gold was later raised to US$30 an ounce, where it remained for 35 years.

Today's U.S. government might have trouble raising the cash to buy gold at current rates unless it simply printed more money. More paper, or the digital equivalent, in circulation could bump up the inflation rate to double-digit territory. (Not a desirable outcome).

So for now thoughts of the U.S. government again gathering up all that nation's gold remains a rumour, and not a very likely one at that.


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