Trying to control the price of metals

I read recently the Soviet government had raised the ruble price of all gold jewelry by 50% in order to discourage speculation against the ruble. Apparently the more prosperous, hard-working Soviet citizens are finding fewer and fewer articles to spend their paper rubles on, even after more than five years of glasnost and perestroika.

The purchase of non-jewelry gold is still forbidden. The official rate of exchange for the U.S. dollar was drastically changed last November to 63 cents from $1.60 per ruble, as a first measure.

Nevertheless, I believe that gold hoarding in the USSR, legal or illegal, particularly if the present widespread unrest persists or expands, will continue to increase. Already foreign tourists in the USSR can routinely get seven rubles for one U.S. dollar on the black market, 4 1/2 times the official rate.

Now that the buzz is getting around there that one should get into physical gold, an increasing number of Soviet citizens in that population of more than 270 million will quickly become involved.

Such a development can move very large quantities of gold into private hands — highly undesirable in that sort of regime with a weak economy and rebelling language and religious communities.

In the long run, only a totally repressive regime can control the internal price of a commodity.

If you think such regimes are the only ones to want to get into the metal price control game effort, think again. I have known many government cabinet ministers and I learned they have all been through the frustration of getting no answer to the question, “Where’s the power to control things?”

In the late 1960s, Washington thought it had the power to control the domestic price of silver, mistakenly believing it could be separated from the world price and misunderstanding the importance of the U.S. domestic mine output.

Well, heavy Washington against poor little silver. Simple? Not quite. Yes, metal price control worked during the Second World War when the U.S., Canada and the then British Empire strictly controlled the output, allocation and prices of all major metals, plus the control of all shipping.

The world of the 1960s saw no such picture and the U.S. alone was not powerful enough. The Washington edict hung on for many weeks but eventually it had to concede defeat and allow free trading in silver again.

By the late 1970s and early 1980, another group emerged to try to control the silver price, aiming at wonderful profits — not a government this time but a few international financiers led by the Hunt brothers of Texas, who were convicted and lost the bulk of their billion-dollar fortunes. The sister stayed out and now she is the richest woman in the U.S.

Any eminent metals trader could have explained the mathematics and the special factors in the mix that would pinch off the blood supply of the realization of their objective.

It has been said that what we learn from history is that we learn nothing from history. Of course, there are always the few who have learned, but they usually do not advertise.

Just before the First World War, a well-placed man emerged who dreamed of controlling silver supplies and therefore the price in the world market. He was named Suraya and was chairman of the India Specie Bank. Specie had been used in English since 1615 and means money in the form of minted pieces of metal, called coins.

In those days, a dollar was a silver dollar and a rupee was a silver rupee. Silver is too expensive for that use today, of course. The Indian government’s agents set a trap for him and he ended up with 800 tons of silver and no buyers. Suraya went bankrupt and committed suicide.

It was a sad ending to an ignoble dream. However, I would wager that in a few years’ time, another government or group or individual will try again to control the silver price or that of some other metal and I forecast confidently it will fail, too.006 T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986.