Gold and the UK election

If Michael Howard becomes prime minister of Great Britain, he will have to compare 1936 with 2005. In 1940, Winston Churchill promised blood, toil, tears and sweat; today the head of the Conservative Party must explain monetary uncertainty to the British people.

The vagaries of the worldwide economy — the prices of oil, steel and copper, the deficits, and so on — constitute the Gathering Storm of 2005, and it is a storm that very much affects Europe. In the monetary field, it is already showing its ugly face: a $650-billion deficit in America, a $500-billion surplus in China, the accumulating monetary power in small countries in the Far East.

In 1938, we were talking about the re-alignments of borders in Europe. In 2005, we are concerned about declining monetary stability and the weakness of Europe. The Far East can actually determine worldwide interest rates, inflation, and monetary stability in European countries. England has not been crucified yet, but the underlying monetary factors affect the United Kingdom as seriously as any other European power.

It is inconceivable that the huge deficit in the U.S. is not going to have an effect in Europe. The uncertainties, higher interest rates, higher inflation, and lack of currency reserves are, at the moment, hidden by global economic recovery. Economic recovery, however, creates higher prices, brings about higher interest rates, and can be a tragedy if the inflationary crisis begins. When a country doesn’t have enough reserves, when a country does business even with giants who have monetary problems of their own, when the currency of a country is in the hands of international bankers who are directed by small countries in the Far East, then it is time for a change.

In the 1930s, Britain was lucky that a sixty-year-old man in Chartwell spent all his time on what he called the “Gathering Storm.” In 2005, there aren’t too many monetary giants who think of the false stability of England and propagate their views.

Can Michael Howard be prime minister? He can if he points out that we are heading towards a Gathering Storm of monetary forces. Britain can survive without Syria, Britain can survive almost any military crisis in other parts of the world, but Britain cannot survive without a sound monetary policy.

I have a friend. His name is Robert McEwen, chairman of Goldcorp. The company is a less than fifteen years old and already the fourth-largest gold producer in North America. It has $700 million in cash, $100 million in gold, and soon will be mining one million ounces of gold at the lowest possible price — less than US$60 per ounce. Goldcorp is setting an example by contributing to the creation of a prosperous and monetarily stable country based on gold.

If we go into a new world of monetary stability, it will undoubtedly include gold. Robert and I have had many discussions about the proper diversification of portfolios between dollars, euros, gold, and secondary currencies. He would probably be able to explain to the British people the importance of deposits in gold and diversified currencies, even yen and Swiss francs. With a properly diversified portfolio, Britain’s currency reserves can withstand the economic ups and downs of all its trading partners.

An aspiring prime minister has to ascertain what is important and what isn’t. In 1936, Britain needed a strong aviation industry, which it didn’t have; it needed dollar reserves, which it didn’t have; and it needed a good relationship with the U.S., which it had. In the year 2005, what Britain needs is an economic policy that creates surpluses, a currency portfolio that adjusts to the strongest nations in the world, and a trade policy that creates foreign currency reserves. But first and foremost, it needs experts who know how to create surpluses and growth, and who understand currency needs in the next fifteen years.

Seventy years have passed between 1936 and 2005. Robert McEwen is not a political leader, but he may be a monetary leader. He has the knowledge, foresight and courage to create a monetarily strong company, and he can explain the requirements of a monetarily powerful Britain. He understands that gold will play a vital role in the 21st century and that hundred-billion-dollar budget deficits have to go. After all, when we look at the whole of Europe today, it is almost as weak monetarily as it was militarily in the late 1930s. Britain needs a Conservative prime minister and it needs a monetary expert, and it can have one by giving a platform to Robert McEwen.

In 1938, Britain had no weapons and no military strategy. In 2005, England has very little oil, a much larger population, and a larger middle class demanding a better life. And it is living in a monetary dream world.

Michael Howard can manage international finance. He will strive to make the pound a stable currency, backed by gold or growing gold reserves.

In terms of money, a new prime minister has to turn to the best monetary brains of the world. If England, in five years, wants to enjoy the same prosperity it has today, then the 2005 election must be the country’s finest hour.

— The author is a financial commentator based in New York, N.Y.