As the U.S. dollar slides in value and world stock markets continue to head bumpily downward, the market price of gold, a traditional haven in times of economic and political crisis, has risen to levels unseen for half a decade.

Although it no longer plays anything like the central commercial role it performed in precapitalist times as a means of exchange, gold retains an appeal because of its traditional role as a store of wealth and savings. Unlike paper money or shares, the metal is a commodity possessing an intrinsic exchange value, derived from the labor power involved in mining and processing it.

"There’s just too many things wrong with the world at the minute for gold to trade much lower," said British financial commentator James Moore in a January interview with CBS.MarketWatch.com. The U.S. military buildup in the Gulf and the diplomatic confrontation between Washington and the north Korean workers state are making investors nervous, he said.

Erik Gebhard, another commentator, cited a number of "obvious reasons" that "gold remains well supported." They include "looming war, poor equity performance, [and the] sluggish economy," he said.

The precious metal has surged back in the last couple of years. On January 8 gold reached $356 an ounce, up from $343 in December. The level was only 60 cents below the six-year high of March 1997.

The metal rose 25 percent in value through 2002, a rate of increase that has continued in January.

Gold has prospered alongside the steady decline of the stock markets in the United States, which in 2002 turned in their third consecutive year of losses. The Dow Jones Industrial Average, which groups the major industrial companies, suffered its worst year since 1977, falling by almost 17 percent. The high-tech Nasdaq index fared even worse.

Stock markets in the European capitalist powers have also recorded several years of negative returns. The market in Germany, the continent’s largest power, fell by 44 percent.

U.S. Treasury bonds, which are at the present time more secure than company stocks because of their backing by the government, and agricultural commodities, both rose in 2002. "Mideast, Argentine unrest, crop failures, stock jitters" fueled increases in the value of cocoa, crude oil, gold, and other commodities, reported the January 2 Wall Street Journal in an article entitled, "Bad News Was Good News for Commodities."  
 
Precarious times for stock markets
The Journal noted that last year investors’ "jitters made gold one of the commodity markets’ stars, as the metal reclaimed its traditional role as a financial haven during precarious times."

Speaking on January 2, Frank Holmes, chairman of U.S. Global Investments, predicted that the price would top $375 an ounce before mining companies could increase output.

Just as striking as the stock market slide has been the decline of the U.S. dollar--up till now regarded by many as a haven in its own right. In 2002 the currency of the world’s dominant imperialist power fell by almost 10 percent against a basket of currencies, the steepest drop since 1987.

Among the factors behind the trend is the retreat by foreign investors from the U.S. economy. Net foreign direct investment collapsed from $308 billion in 2000 to $14 billion two years later--a decline only partially offset by an increase in investment by foreign governments.

"Instead of using the dollar for protection, investors are fleeing to other refuges like the Swiss franc and gold," wrote Peter McKay in the December 31 Journal.

"You hear people talking more about Iraq driving gold, but I almost think that’s a sideshow compared to the currency market," said Joseph Foster of the International Investor Gold Fund. "People are looking for some place, anyplace else, to put their money."

In times of economic crisis, it’s not just investors that begin to shift to gold. In many parts of the world farmers, small merchants, and others often take what savings they have out of currencies and start buying gold, silver, and other jewelry and pieces of valuable metal--whatever they might be able to sell some day--and stash it away. This is especially true in the many countries of the world where the majority of people do not have bank accounts, keeping their modest savings in a chest or under the mattress.

The movement toward gold is dramatic in imperialist Japan, where the economy has been stagnant for almost a decade, and where many major banks are teetering on the edge of collapse, weighed down by unpayable loans to bankrupt businesses. "You do not see many smiles in Tokyo’s financial district these days, but in gold shops the staff can hardly contain their glee," reported the BBC in February of last year.

"People come in here with paper bags full of money," said Masahiro Arai, the manager of the Tokuriki Honten gold shop. "They’re buying large quantities, up to 30 million yen [US$250,000]."

One elderly woman told the reporter, "Something disastrous could happen to the economy.... That’s why I’m buying gold for the family."

Several governments in Asia and in the Middle East have begun to hedge their futures by buying up gold or using it to back their currencies.  
 
Gold-based currency in Malaysia
The Malaysian government of Mahathir Muhammad has taken the lead in promoting the gold-based Islamic dinar as a medium of exchange among a number of majority-Muslim countries. Arguing for the move, Abdalhasib Castineira, credited with initiating the scheme, said, "Give someone a piece of gold, and you give him a real asset whose worth has endured throughout millennia." By contrast, he said, the U.S. dollar "is just a [government] promise."

Commenting on the market performance of valuable metals in the very early stages of this development, in 2001, the online edition of the Silver Investor took note of the trend. "The Russians now have a gold coin as currency, the Chevronet, and are building their gold reserves....The Muslims are beginning to run with a gold coin called the Islamic dinar, while Arabs are loading up on gold via purchases out of Turkey and Switzerland. Meanwhile, the Chinese have been quietly buying physical gold. And come January [2002] the Chinese officially open up their gold market to the public."  
 
 
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