GOLD AND PRICES.

Hawke's Bay Herald-Tribune, Issue 72, 12 April 1937, Page 6

GOLD AND PRICES.

How sensitive theu world 's markets are to any currency manipulation on the jyarfc of any of the big financial countries has been well illustrated by the panie created in even so strong a market as London by a mere rumour that the American dollair was to experience some further change in gold valne. How the rmnour originated and gained so ready credence has not yet been explained, but no douht New York operators will get the credit of having set it afloat, with a i view to making quick profits on exchainge transactions. On the other hand, it would almost seem as if President Rooseveit had not been as prompt as was possible in contradicting it. In any event, during the couple of days or so for which it was acted upon in the London exchanges some little fortunes will have bene made and lost. However, confidenee is now restored and transactions will no doubt quicldy resume their customary range, though there is some suggestion that the exchange value of the French franc in terms of Americau dollars and English sterling will suf fer some further more ov. less permanent depreciation. The fact that all the pother has arisen from the announc*--ment, now proved to he baseless, that the gold content of the American dollar was to be further altered shows how greatly the world is still dependent upon the yellow metal as a measure of international currency exchange values, notwithstanding its abandonment as an official standard by so many countries. It is some three years or more since the American gold dollar was devalued, or in plain words debased, by bringing its actual gold content down very substantially — to sueh an extent that it had the effect of fixing the value oi gold itself at 35 dollars a fine ounce. At the time this resulted in creating violent disturbances in both the home and international markets, oue result being a rapid acceleration of the rise in commodity prices as expressed in dollars. This, of course, was a deliberate purpose of the movement as part of the National Recovery plan. Since then the dollar has remained stable in its relation to gold, but under the laws then passed it was made competent for the President, within certain defined limits, either to increase or decrease the gold proportion in the dollar as the exigencies of the time might dictate. It was the unauthorised report that he intended fo'r the first time to exercise this power that led to the panic on the London Stock Exchange. The reason that was assigned, was a desire to check the continued inflow of gold to the United States, which has long been suffering from a plethora of supply in this respect. Despite this, there has been a steady movement of further shipments in that direction, especially from Russia. where the oulput from the mines has gone np immensely during the- last f ew years. In fact, Russia's production of gold now takes second place to that of South Africa alone. The high price of gold in terms of all the big currencies has, in truth, stiinulated production wherever it is to be found. Not only have new fields been opened up, but immense quantities of low-grade ores that previously could not be worked to profit are now highly payable. As has been said, although the gold standard may have been widely disclaimed, it is still gold that stands in the background as a monetary base. This being the case, the fact that there is such a greatly augmented supply of it upon which to found credit cannot but have had its influence in assisting to the maxked rise in commodity prices that has taken place and in still going on. This, too, is in spite of the fact that, in order to check this tendency from going too far, the United States Government has virtually sterilised a large proportion of the gold hoards now lying in its vaults. Not only this, but it has at the same time imposed practical checks upon the issue of the immense volume of accumulated credit which the hanks have at command.