THE FUTURE OF GOLD
FINANCE
QUITE recently, as readers of this column are aware, there has been something like a panicky fall in South African Gold shares occasioned by the circulation of rumours that the authorities in America were about to reduce their buying price for gold, which for some time past has stood at 35 dollars per ounce and has represented a fixed price for the metal, so far as America was concerned, though, of course, in other countries, including Great Britain, the local price has varied according to the relation of their ex- changes to the U.S. dollar. These reports have frequently been contradicted, but confidence has not been completely restored, and it is not altogether surprising, perhaps, that the recent disturbance has revived the desire in many quarters for a stabilisation of currencies such as is likely to prevent any violent fluctua- tions in the price of the precious metal.
RISE IN THE PRICE OF GOLD.
For the reasons I will mention later, I think it very doubtful whether the desire will be gratified in the very near future. Sooner or later, however, if financial and commercial relations between the nations of the world are to resume a normal course and international trade activity is to revive, stabilisa- tion of currencies and exchanges will become a necessity, and because there are certain fundamental considerations which will have to be taken into account, I propose to refer to some of those in as simple language as may be possible. For I fancy that there are not a few people who may have been puzzled why the price of gold should have risen so greatly during the past few years.
Before our own departure from gold in 1931 the Bank of England's statutory buying price for the metal was, of course, 77s. ii Id. per ounce, while at that time the quotation in the market here for fine gold, as it is usually called, was about 84s. per ounce. How comes it, then, that because we happened to go off gold the price of the metal in sterling should immediately have risen so that in the intervening years it has at one time been over 1495. per ounce ?
As a matter of fact, it would be more correct to say that our own exchange has depreciated. Thus, although imme- diately we departed from gold in 1931 the sterling price for the metal began to rise, no such similar movement took place in the United States and France as regards their own local price for the metal because those countries were still on the gold standard and had their fixed buying and selling prices. Therefore, the measure, roughly, of the rise in the sterling price of gold varied in proportion to the fall in the sterling exchange in terms of the franc and the dollar. Later, how- ever, America went off gold, and still later devalued her own currency, while at a much later date France did the same, so that in those countries there would then occur a rise in the price of gold in terms of their currencies, or, in other words, their currencies would then depreciate in terms of gold.
EMPIRE AS GOLD PRODUCER.
Contemporaneously and logically, the price of gold shares has risen in consequence of the rise in the price of the metal, and South Africa and other gold-producing countries have had an enormous stimulus given to their mining activities. In the case of the Transvaal the revenues of the country have so increased that the Union Government has been able to repay many millions of her outstanding sterling loan, and in Canada and Australia the improved price of gold has been of great assistance to the financial position of those countries. It is not surprising, therefore, that the Governments and peoples of the gold-producing countries of the Empire should be exhibiting a keen desire that the nations of the world should be stabilising their currencies not far from the present level of the price of gold, so that there need be no fear of any material reaction. Indeed, it is generally believed that this subject of stabilisation will receive very careful consideration at the forthcoming Imperial Economic Conference in London, ;where one of the strongest arguments to be employed will be that of currency stabilisation preparing the way for greater activity in international trade.
FUNDAMENTAL CONSIDERATIONS. _ While, however, it is true that a general stabilisation of world currencies would make for that permanent general revival in international trade activity which will become the more necessary to this country when the special stimulus of rearmament expenditure has been removed, it may be doubted whether the time is ripe for the carrying out successfully of a general scheme of stabilisation, for it must be clear tIrt to achieve the desired end, the arrangements would have to he of a nature to ensure confidence in their permanence. Thc scheme, in fact, would have to be based upon the prepared- ness of those taking part in it to keep their exchanges steady by sales and purchases of gold at fixed rates.
And at this stage of the enquiry, one naturally asks how it was that, in the days preceding the War, comparative stability of exchanges was maintained for so. many years. The main answer of course is to be found in the fact that in those years there was a sufficient equilibrium in international trade to en- able all countries to settle any temporary adverse balance which might exist by exports of gold, the effect of such exports being to bring about conditions calculated to correct an adverse balance. Moreover, owing to the international confidence which then existed, it was possible to supplement these arrangements from time to time by the granting of credit facilities sufficient to tide over any particular moment when the exchanges of any particular country might be suffering from an unusually adverse exchange.
WAR DEBTS.
Today the trade equilibrium has been rudely disturbed, while, as a result both of an overwhelmingly favourable trade balance and a great flow of liquid capital to the United States, that country has obtained command over the supplies of gold to an extent which has also greatly disturbed the equilibrium of international gold holdings. Moreover, the matter is further complicated by the fact that Europe, and notably Great Britain and France, still have a huge unsettled War Debt to the United States which, if interest payments were resumed, would still further increase the disequilibrium of international trade balances which, in the long run, must be the governing influence determining the stability of inter- national currencies as expressed in the exchanges.
It will be seen therefore that, however great the desire to bring about an international agreement in the direction of a return to gold standards and of a general stabilisation of currencies, the obstacles are truly formidable, and I believe they can only be successfully surmounted when the leading nations have come to realise that the interests of prosperity and even peace itself depend upon the removal of trade barriers and the restoration of stable currencies.
ARTHUR W. KIDDY.
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