Panel poring over gold with new monetary use in mind

In the National Geographic Society lobby here, visitors can reach into a display case and heft a five-pound treasure bar of gold. It is heavy for its size, and warm, as if it had a kind of inner life.

Gold's immutable appeal has made it a medium of exchange for centuries, as jewelry, in coins, and in ingots stockpiled to back up paper currency. The United States officially freed itself from the gold standard in 1971 -- but now a federal Gold Commission is studying the possible monetary uses of gold more seriously than many observers expected.

It is unlikely to recommend a return to the gold standard, and it probably won't issue a report by its Oct. 6 deadline.

"It looks like they're going to have ask for a postponement," a Treasury official says.

But neither will they just go through the motions of meeting their congressional mandate.

"I don't think the commission will just say 'gold is silly,'" says an expert who attended the first meeting.

Many economists view gold as a relic, fit for earrings and filling teeth and unsuited to anchoring the currency of a modern economy.

But as high interest rates threaten to torpedo President Reagan's economic recovery program, gold bugs like Rep. Ronald E. Paul (R) of Texas and Jude Wanniski, former editorial writer for the Wall Street Journal, have redoubled their calls for a return to the gold standard.

Their reasoning is based in gold's mysterious appeal, which causes tourists to break into smiles when lifting National Geographic's ingot, and prompted King Ferdinand II of Spain to tell 16th-century explorers, "Get gold, humanely if possible, but at all costs get gold."

Thus the real value of gold is something to government can tinker with, proponents of the gold standard say. If the US hooked its money supply to its shores of bullion, the dollar would be firmly anchored. The amount of money in circulation can grow only as the government stockpile grows. No more sudden surges when the Federal Reserve Board loses its grip. No more political pressure to pay for the national debt by simply starting th e printing presses. The money supply will be out of the government's hands, and the dollar will be good as gold once again.

Those who take this argument the furthest, such as Representative Paul, would just as soon take the Federal Reserve, sail it out to sea, and scuttle it.

"The elimination of the Fed is as important as making notes redeemable in gold," says an economist who works with Mr. Paul.

Others would prefer a more flexible link between the dollar and gold, leaving the Fed some leeway to tinker with the money supply. Dollars might be only partly convertible to gold, for instance. Or, in a back-door version of the same move, the government could be required to back only a slice of the money supply with gold -- say 50 percent.

"There are lots of wrinkles you can introduce to employ gold in some way," says an aide to a commissioner member.

The 17-member Gold Commission was formed by a provision in 1980 legislation dealing with International Monetary Fund quotas. Treasury Secretary Donald Regan is the chairman, with the body of membership a mix of administration officials, governors of the Fed, congressmen, and a few businessmen. The group is split between "gold bugs" and "paper bugs," which will make coming to a decision difficult. The commission met once in July, and has only one more meeting scheduled before its deadline. Sources close to the group say it is still deciding on procedure and will inevitably require an extension into next year.

At first, it was thought the commission would simply wave its hands and dismiss any type of return to gold.

"Very few people at the Fed now, and policymakers in the administration, really believe the gold standard is the way to go," says the commission staff member.

But independent members of the group have reportedly been able to push for a more thorough examination of the issue. Commission sources predict the final report won't call for the days of gold to return, but will produce two results:

1. If the US doesn't go back to the gold standard, the commission may recommend what to do with the piles of gold now sitting in Fort Knox and other federal depositories.

2. It may also try to produce a way to link gold and the dollar without making money directly convertible into the precious metal.

Despite the new support for gold, there are still plenty of people willing to list why the gold standard belongs in a museum, next to the salvaged doubloons and rapiers.

"I don't see it as a possible solution," says William Fellner, an economist with the American Enterprise Institute.

A principal objection is that it would be difficult to peg the correct price for gold convertibility. Britain, when it returned to the gold standard after World War I, picked an unrealistic figure -- and suffered through a self-made recession caused by the resulting shrinkage in the money supply.

And gold might not be such a stable anchor, after all.

"The gold market itself is unpredictable," a congressional economist says.

As metal prices fluctuate, the money supply would have to follow along behind.

A gold standard might also make the US vulnerable to political pressure from South Africa and the Soviet Union, the world's two principal producers of the metal. And some economists say the gold supply simply doesn't grow fast enough -- and that a gold standard would permanently ground US economic growth.