And if experts addressing one another behind the scenes had trouble settling the question of the government’s relationship to gold, among the general public it was downright peculiar. Ever since gold prohibition had begun in the 1930s, the public had been fascinated by the store of gold in Fort Knox, Kentucky. Although it was not the largest stockpile of government gold in the United States, the degree of military security around the gold developed into legendary proportions. Two men were needed to unlock combinations to the main vault, neither one knowing the other combination; if a blowtorch were to touch the main part of the vault, the chamber would be flooded with poisonous gas, supposedly stronger than any gas mask; etc. The mythologizing of Fort Knox probably climaxed with the 1964 James Bond movie Goldfinger, which featured an elaborate plot to penetrate Fort Knox’s security and irradiate its gold (this modified the plot of the Ian Fleming novel, in which Goldfinger and his gang attempt to steal all the gold). Goldfinger was the highest-grossing movie in the United States in 1964; some theaters stayed open around the clock to accommodate viewer demand.
Perhaps by coincidence, at around the same time that Congress was moving to allow individuals to buy and sell gold, rumors began to circulate that Fort Knox was missing all or some of its gold. Such theories had been pushed at least since the early 1960s by the John Birch Society and other fringe groups. But by 1974, at least part of the fringe had moved into the political mainstream. In 1973, a man named Peter David Beter published Conspiracy Against the Dollar, a book in many ways aligned with Harry Browne and other “hard money” titles of the time, but with a more conspiratorial edge and a particular animus against the Rockefeller family. In 1974, Beter charged that the government had drained Fort Knox of much of its gold and sold it to David Rockefeller. Victor Harkin, the civil servant in charge of Fort Knox’s gold, dismissed Beter’s charges as “the remarks of an idiot.”28
The vagueness of Beter’s accusations made them difficult to prove or disprove. It was true, for example, that hundreds of tons of gold were shipped out of Fort Knox to Great Britain in late 1967 and early 1968 (see chapter 8). But there’s no way of knowing if those shipments were what Beter was referring to; nor is there any reason to think that the shipments weren’t accounted for in Treasury’s books (though certainly Treasury did not try to draw attention to the sizable gold drain). While no mainstream media organizations gave the Fort Knox story noticeable attention, the tale spread through unorthodox channels, including the tabloid National Tattler and a popular Dallas radio host.
It was Congress that brought Beter’s loose charges into the official record. That summer, Crane directly confronted Treasury Secretary Simon with the idea that Fort Knox gold had been depleted. With Watergate secrecy dragging government credibility to a modern low, Simon responded with a dose of transparency, suggesting that a congressional visit and a government audit would be in order. In September, Crane and several conservative colleagues—including onetime John Birch Society officer John Rousselot—took an unprecedented tour through Fort Knox. US Mint Director Mary Brooks opened a vault door to “oohs” and “aahs,” while members of Congress sized up bullion bars with tape measures. Treasury insisted that no gold had left the facility in three years, and the members declared themselves satisfied that the rumors were baseless.
For a time, anyway. It is usually hard to know how such rumors get started, and harder still to know their motivations. Certainly in the waning months of gold prohibition, it appeared that some people perceived a financial advantage in fudging the facts. Even after the September inspection, for example, House conservatives would not let go of the idea that Fort Knox gold was not all it seemed. Three days before Treasury’s first scheduled gold sale in January 1975, Congressman John Conlan of California (who had been part of the September delegation) sent Simon an urgent telex message calling for “immediate postponement for 30 days of the U.S. government gold sale.” The reason, Conlan explained, was that “financial experts” were advising him that the Fort Knox audit “may show government holdings of pure-delivery gold are substantially below the 24-million ounces treasurer [sic] officials originally announced were among U.S. stocks.”29 (The audit, when released in February, showed nothing of the kind, although skepticism about Fort Knox’s holdings never fully disappeared.)30
In the end, President Ford and Treasury Secretary Simon rejected the idea of stalling, and the government also made a commitment to sell 2 million ounces of its gold holdings. The beginning of legal gold trading prompted President Ford to make perhaps his only public remark about gold ownership. On December 31, the day that the gold markets reopened in America, Ford was skiing in Vail, Colorado (he and his wife had bought a condominium there a few years earlier, during a time when Vail was not a common destination for those outside Colorado). The president, dressed in a blue ski parka and blue pants and carrying skis over his shoulder, was on his way to the chairlifts that morning when the press peppered him with a few light questions. “You gonna buy any gold, Mr. President?” a reporter asked. Ford’s brief reply: “No, I’m not a speculator.”31
And in the early days of legal gold ownership, many seemed to share Ford’s indifference. Despite all the buildup; despite all the assertion of gold ownership as a fundamental American right; and despite the tens of thousands of Americans who had snapped up Harry Browne’s books, the market for bullion and gold futures met with a lackluster reception. During the entire first day of trading, the Wall Street firm Merrill Lynch took exactly one gold order—for 20 ounces. Samuel Weiss, who’d arranged with the NYSE to trade gold even before the law had been signed, told the New York Times that first day: “There is no gold rush. It’s the biggest dud I’ve seen in my entire life.”32
One consequence of the convoluted way in which gold legalization came about is that Congress hadn’t bothered to address the tax question, and states reached different conclusions. California’s state tax code, for example, specifically exempted from taxation any sales of gold coins or bullion over $1,000. New York, New Jersey, and Pennsylvania all found ways to adopt the opposite view, while in Florida, it took years of litigation before the matter was settled.33 In the early days of gold trading, it was thus impossible for many Americans to get reliable advice on the tax consequences of a gold investment.
As 1975 wore on, the American demand for gold took on a form that few had anticipated. The appetite for buying and storing physical gold was modest; gold bullion in particular held little appeal for the American investor. But gold legalization did create a strong market for gold futures—that is, a contract to buy gold at some future date at an agreed-upon price. By late July, about 500 tons’ worth of gold, worth about $2.5 billion, had traded in futures contracts since the beginning of the year, making US gold futures the largest gold market in the world.34 (By 1977, the volume of gold futures contracts would soar to more than $15 billion.) It is plausible that Americans found this method of gold investing less risky or more convenient or both. However, if the goal was to hedge against inflation it was, by midyear, a disappointment for many investors; the price of gold had dropped about 10 percent since the first futures contracts began trading in January, while inflation continued to rise to dangerous levels. All the mystical and historic properties of gold as a storage of value could not change the fact that anything traded as a commodity will rise and fall in value.
Of course, it could also be argued that the gold market in 1975 was not exactly open and fair. The role of the federal government—and by extension, the role of Western central banks and the IMF—in the gold market was never resolved to universal satisfaction (and never will be). The law Ford signed did not stipulate what role, if any, Treasury or the Federal Reserve was to play in the gold market. Although in theory the government ought to have been agnostic on the price of gold, in practice there were powerful reasons to see its price remain stable at a relatively low level. In the broadest sense, the US government remained committed to reducing the global monetary role of gold, an
d a higher price could push other nations to deviate from that goal. Still, the logic of this position was elusive, even to some financial experts. In a December 1974 meeting in Martinique between high-level French and American officials, French president Valery Giscard d’Estaing, who had twice been his country’s finance minister, asked Ford and his aides: “Your people in Treasury are violently opposed to monetizing gold. Why? Five years ago it was protecting the dollar, but now it is floating.” William Simon’s response was less than illuminating: “The concern is that if everyone raised the price and kept it at the center of the system, it would make the system more vulnerable.”35
More concretely, a higher gold price would benefit the two largest producers—South Africa and the Soviet Union—each of which, the United States feared, could create market distortions that were best avoided.36 To keep the gold price low, then, the US government began to sell gold into the private market. (The gold sales also had the effect of easing the trade balance deficit, because gold sales to foreign entities counted as exports.) The administration committed in advance to selling 2 million ounces of gold once the US gold market began in January 1975; it could not, however, command the price it wanted (above $153 an ounce) and ended up selling less than half of the amount up for auction.37 The irony was deep and wrenching. For decades, the United States had vigilantly guarded its gold supply against any market development that would force it to ship the metal overseas. Now, at last, when it was ready to sell, the government couldn’t find enough buyers at the right price. Subsequent auctions, beginning in mid-1975, were for smaller piles of gold. But Arthur Burns’s prediction came true—having started out as a participant in the gold market, the US government found it impossible to get out.
In a tremendous coincidence of supply and demand, the market was about to explode for the perfect gold vehicle: the Krugerrand. The Krugerrand is the widest-circulating gold coin in human history; some 50 million have been minted as of this writing. It represents a world-class marketing triumph for the government and gold-mining industry of South Africa. The Krugerrand features on its face the likeness of Paul Kruger, a Boer nationalist who became a four-time president of the Republic of South Africa toward the end of the nineteenth century; on the reverse is a springbok, the national symbol of South Africa. Each coin contains exactly one troy ounce of fine gold (it is 11 parts gold to one part copper, which adds durability to the metal), making its value extremely simple to calculate at any time. Since production began in the late 1960s, the coin has always had legal-tender status in South Africa, but it has no monetary value stamped on it and was never intended for use in commercial trade.38 Rather, the legal-tender status allowed other countries to import the coins without paying the import duties that would be tacked onto a commemorative coin or medal.
When gold trading became legal in the United States, the Krugerrand was already the largest-circulating gold coin in the world, with the United Kingdom as its largest external market. But that was about to change, and quickly. In the fall of 1975, Intergold—the marketing arm of South Africa’s Chamber of Mines—hired the New York advertising agency Doyle Dane Bernbach to create a campaign to sell the Krugerrand to Americans. The ads focused on two basic ideas: gold is a smart thing to have as part of an overall investment portfolio; and the Krugerrand is the best way to own pure gold. The campaign began with an eleven-week test beginning in October, with newspaper ads in Los Angeles and Philadelphia, and newspaper ads plus television spots in Houston. The target audience was men between the ages of 25 and 54.39 The television spot featured a man walking toward a cube meant to represent all the gold that has ever been mined in the history of mankind—a mere 18 yards on each side. “It’s rare,” intones a voiceover. “It’s precious. And there’s less new gold to be mined each year. You can own one ounce of that precious gold with every South African Krugerrand.” To make action very simple, the spot provided a national, toll-free 800-number that viewers could call to get more information and be directed to a gold dealer in their area.
The results were startling. Prior to the ad campaign, American familiarity with the Krugerrand was at or close to zero. During the period that the ads were running, fully half of all Krugerrands sold in the United States were in those three markets. A single Houston bank reported selling 1,600 Krugerrands during the test period. In 1976 the campaign was extended to include $4 million of ads across twenty-five markets. In January 1978, South Africa sold 669,000 Krugerrands—more than triple the number sold the previous January, and the majority of these were sold in the United States. By the time 1978 came to a close, more than 6 million coins had sold for the year, nearly doubling the previous year’s sales. By this time, the US government had decided that it needed to get in on the one-ounce gold coin action. Jim Leach in the House and Jesse Helms in the Senate worked to get Treasury to mint and distribute one-ounce commemorative gold coins featuring American heroes like Mark Twain and Willa Cather. And with the market price of gold over $300 an ounce in early 1979, many of the earliest Krugerrand buyers in the United States had been handsomely rewarded.
The ease with which Americans could buy Krugerrands seemed to carry a potent cultural symbolism beyond a mere investment tool. In the 1981 novel Rabbit Is Rich, John Updike treated Krugerrands like a psychological aphrodisiac, a symbol of America’s newfound wealth and even virility. His hero Rabbit Angstrom buys a stack of Krugerrands and surprises his otherwise sexually estranged wife with them in the bedroom. He strews Krugerrands on the bedspread and places coins on her naked body as they carnally roll in gold like some X-rated version of Scrooge McDuck.
Increasing Americans’ awareness of South African gold, however, carried a darker side. South Africa since 1948 had been run as an apartheid regime, in which a white ruling minority denied voting and other basic rights to a large black majority. There was no country of comparable size with such a vast racial divide, and as far back as 1950, the United Nations had begun a series of increasingly harsh criticisms and attempts to isolate the South African government. In late 1968, for example, the UN General Assembly approved a resolution urging all states to suspend any cultural, educational, or sports ties to South Africa. And in the mid-1970s, the South African government’s oppression appeared to be worsening. Protests in the Soweto township in June 1976 turned violent, and the police shot and killed hundreds of protestors, nearly all of them high school students.
Although the sins of apartheid were probably not major concerns for Americans buying Krugerrands, South Africa’s gold industry was directly linked to its segregation practices.40 On a symbolic level, Soweto and other townships surrounding Johannesburg owed their very existence to the gold mines nearby. In the mid-1970s, the South African mining industry employed about 380,000 workers, of whom approximately 90 percent were black. Those workers were paid an average of $124 a month, about one-fifth of what white South Africans were paid. And gold exports were absolutely vital to the apartheid government’s operations: in 1976 gold exports earned the country more than $2.7 billion, representing 40 percent of its foreign trade total. Congress had concluded at least as far back as the late 1960s that without gold exports, the South African state would experience “massive deflation and domestic industrial dislocation.”41 Indeed, South Africa’s role as the world’s largest gold-mining state had raised political issues in the past. When, for example, the Nixon administration cut a deal in 1970 allowing the IMF to buy gold from South Africa, Congressman Henry Reuss of Wisconsin criticized the arrangement for “institutionalizing South Africa as a supplier of gold.”
Nonetheless, most American official criticisms of South Africa’s gold from the era when Americans couldn’t buy it focused more on potential abuse of South Africa’s gold market power than on its ties to a systematically racist state. The antiapartheid movement in the United States in 1977 was relatively small, but beginning to show considerable organizing power. Krugerrands made a highly visible target, and the more they sold, the bigger the target became. On
e obvious bit of activist ammunition was that Paul Kruger had written in his memoir: “The black man had to be taught that he came second and that he belongs to the inferior class that must obey.”
The largest local TV stations in the country—the three television channels in New York City that were owned and operated by the major networks, WABC-TV, WCBS-TV, and WNBC-TV—responded to local pressure by ceasing to broadcast the Krugerrand ads. On October 13, 1977, the Massachusetts State House of Representatives officially condemned the ads and the sale of Krugerrands. City councils in Chicago, Dayton, Denver, and San Antonio passed resolutions denouncing the ads. In several cities, activists used the TV spots’ 800-number against them—they would call the number to get a local gold dealer’s address, and then set up a protest outside. These protests had genuine impact: at the end of 1977, Merrill Lynch, the nation’s largest brokerage firm, announced that it would stop selling Krugerrands; it had been the target of well-organized protests in Los Angeles and elsewhere. In the eyes of millions, buying a Krugerrand had come to mean endorsing an unjust racist government that propped itself up by brutalizing its own citizens. An editorial in the Berkshire Eagle concluded harshly: “The security sought by the investor in South African gold—which might in any case be less secure than imagined due to the fluctuating world price of gold—is bought at the expense of a majority whose only security is the peace of the grave.”42
It seemed impossible that America’s Krugerrand party could go on forever. Just three years after Crane’s gold-ownership bill had become law in the most unlikely way, on the opposite side of the Capitol Hill aisle, several Democrats began introducing ambitious bills of their own, focused on trade with South Africa and the Krugerrand at the head of the line. As early as October 1977, Massachusetts congressman Edward Markey introduced the South African Trade Limitation Act, which would “prohibit the importation of articles manufactured or produced by labor whose wages are differentiated on the basis of race.” Congressman Stephen Solarz of Brooklyn, New York, said that prior to offering his specific ban on Krugerrand sales in the United States in 1980, he took seriously the idea that a ban might end up harming South African miners. Solarz wrote in a memoir that he consulted Cyril Ramaphosa, a prominent antiapartheid lawyer who created a miners’ union.43 According to Solarz, Ramaphosa “made it clear that exerting pressure on the South African government to abandon apartheid was essential, even if this meant that some of his union’s members would lose their jobs.”
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