Of Dollars and Gold - Brief Article

Washington Monthly, Jan, 2001

The Story of Gold One of a Series

Over the past year, demand for the U.S. Mint's new "golden dollar" coin exceeded all expectations. Yet many Americans still have not seen it. How come? According to the Mint, people are holding on to the new coins as collector's items instead of using them.

One reason is that this is a particularly interesting coin. It features the young Shoshone Indian heroine, Sacajawea, who acted as guide and translator for the Lewis and Clark expedition to Oregon in the early 1800s.

The new coin has been heavily promoted as the "golden dollar," which may increase its appeal to many who do not realize that "golden" refers only to its color, not its content. It is actually made of a copper alloy.

But the "golden" name and the instant popularity of the new coin serve as a reminder of the valuable role that real gold has played throughout the centuries -- and still plays today -- in providing a stable foundation for national currencies.

This role may become even more important in the new millennium, according to leading monetary economist Robert A. Mundell of Columbia University in New York. Professor Mundell was awarded the 1999 Nobel Prize in Economic Sciences for his pioneering research and analyses, including his "almost prophetic accuracy" in predicting future monetary developments.

In accepting the Nobel award, Mundell noted that since Roman times gold has provided the standard for national currencies. It reduced the risk that inflation would decrease a currency's value and "provided a link between values in one generation and century to those in others." Since going off the gold standard, he pointed out, most national currencies have lost purchasing power.

Looking into the future, Mundell predicts that the value of gold -- the only commodity still held as a reserve asset by central banks -- is likely to rise from around $270 a troy ounce today to approximately $500 an ounce over the next decade.

With around one billion ounces of gold still in central bank reserves, "gold is going to remain an important and increasingly valuable reserve asset for a long time to come."

Which brings us back to the U.S. Mint and its "golden dollars." With inflation, these bright new coins could lose not only their luster, but up to 20 to 25 percent of their purchasing power over the next ten years.

Yet if the Mint's new dollar coins were really made of gold, their value could increase approximately 100 percent over the same period, according to Professor Mundell. A sizeable difference.

Gold: a proven asset in times of uncertain policies and volatile markets.

The Gold Institute * 1112 Sixteenth Street NW * Washington DC 20036 www.goldinstute.com