EDITORIAL PAGE (August 26, 1991)

The failure of gold to react to the crisis in Moscow is clear evidence that gold is just another commodity on the world’s trading markets. But then the world has become blase about political crises altogether. When one of these crises escalates out of control — whether it be this one or some other — gold will prove again that it is the only safe haven for investors.

Despite an early runup in precious metals prices the day news of the Soviet coup broke, gold gained a paltry half dollar on the futures markets by the end of the day. Traders, it seems, feared political turmoil in Moscow would force Soviet gold on to the market more than they feared a return to the Cold War’s nuclear brinkmanship.

Perhaps that should come as no surprise. The Gulf War made it clear to all that gold was not going to react to political crises the way it had in the past. Since the Second World War, international tensions have consistently increased demand for gold. Each crisis carried the implication that civilization as we know it could quickly crumble and that gold would be the only storehouse of value. Perhaps it was because the atrocities committed during the Second World War showed how fragile and how easily discarded are those norms of civility. After that, any political crisis was feared to have the same potential for disaster.

The crises of the postwar decades all seemed to threaten the end of the world. Call it the Chicken Little syndrome, but whether it was the Cuban missile crisis, a civil war in Nicaragua or a Mideast kidnapping by some little known faction of religious zealots, all seemed capable of triggering hostilities that could quickly escalate and spin out of control. Investors turned to gold because, like the cartoon character, they believed the sky was falling and the only safe place for their money was gold.

Some of those crises did portend widespread disaster, but many were little more than local incidents inflated beyond their true significance. The Vietnamese civil war would probably have meant nothing to the rest of world if it had not become a symbol of communist aggression and an example for proponents of the domino theory.

But the pendulum has swung the other way. Believing that all political crises can be resolved with a minimum of fuss by shuttle diplomacy, economic sanctions or, in the worst of cases, by an overwhelming use of America’s high-tech armed forces, the financial powers-that-be, now comprised largely of a generation too young to remember Hitler, shrug off each crisis as simply another factor to be considered during a day’s trading.

As a result, war in the Mideast and the ouster-restoration of Mikhail Gorbachev — perhaps one of the most unsettling events in Europe — have caused barely a ripple in capital markets.

It is an uncertain time for people in the Soviet Union, but activity in the world’s financial capitals is ample evidence that the world doesn’t believe what happens in Moscow will have any great impact on free-market economies.

“Endowed with resources too abundant for her own needs, and denied by climate and geography the ability to produce many of the goods freely available in other countries, Canada has a particularly high level of trade dependence.

“Canada ranked as the world’s eight largest exporting nation in 1990, with merchandise exports of $141 billion. On a per-capita basis, however, Canada ranks even higher amongst OECD countries, and a clear indication of the contribution of exports to the economy is reflected in Canada’s traditional healthy surplus on the merchandise trading account.”

From the September-October, 1991, issue of Canadian Banker.