WELLINGTON NEWS

Hokitika Guardian, 5 February 1932, Page 8

WELLINGTON NEWS

GOLD AND COMMODITY PRICES.

(Special Correspondent)

WELLINGTON, February 3

The artificial shortage of gold caused by the hoarding of gold by. the United States and France, lias been the immediate cause of the slump in commodity prices, but the fundamental- causes are reparations, war debts and tariffs. The shortage oj gold' :»

being overcome by ways that were not contemplated. When Britain abandoned the gold standard, it simply meant that the Bank of England is not bound by law to convert its notes into gold. Before the suspension of the standard the Bank was empowered to refuse gold for any less quantity than 400 fine ounces. Now the Bank need not even do that, and so Bank of England notes are legal tender in Britain, but to convert the pound sterling into dollars it is valued at about 14s with exchange at 3 dols 50 cents.

Going off tie gold standard and thus depreciating sterling, ifiore pounds have to lie paid for an ounce of gold than was the case prior to September last. The price of gold is now approaching £6 per fine ounce hut it varies a few pence almost each day. The international price of gold was £4 5s per ounce, and still is, but the higher price to be obtained for the metal in sterl-. ing has proved an economic blessing to the world, for it has stimulated the search for gold in all countries where gold is thought to exist, and it bas also brought out from hidden sources gold bars and gold- ornaments. India is drawing on its secret hoards to furnish the world with more'gold, and at once, being tempted thereto by the high price of the yellow metal. India’s absorption of gold has reached such important dimensions during recent years—for the past fifteen years the average has been £16.000,000 per annum— that the reversal of the flow is a, development of considerable potential importance. According to the reports of bullion dealers, ever since September 19 when owing to the suspension ot the gold standard, a premium in, gold was established in the London market gold articles of every description have been pouring into the local Indian banks for shipment and sale in London. The amount already shipped to London exceeds £30,000,000. It is computed that the amount of gold in hoard in India is over £350,000,000, so that the possible dimension of the present movement are limited.

This novel and unexpected flow of gold to London has already had several favourable results. India, ot course, has been the principal beneficiary. The Government- of India has been able to repay a maturing loan for £15,000,000 in cash, and what is of equal importance, there is every prospect of the coming Indian Budget balancing. This influx of gold has enabled the Bank of England to repay £55,000,000 to the Federal Reserve Bank of New York, and a n equal amount to the Bank of France, and that without drawing on its own stock of gold or increasing its fiduciary note issue.

Another thing, and it is of great importance, India has added a substantial amount to the world <ui.jpl.v »m monetary gold. The annua! .mil" < '•*

gold is about £80,000,000, which some economists maintain is insufficient to supply the arts and sciences and to support the credit structure due to expanding trade, India- in a few months lias furnished the world with an additional 37% and can supply considerably more. Tn addition to this there is an increasing quantity of gold from the mines, and even in New Zealand more gold is being won than for some time past, and there exists unusual activity in the work of prospecting. India’s action is likely to have another good effect. The Bank of England being clear of debt to the central banks in New York and Paris, and not having the necessity for protecting its gold reserve, since it can refuse to pay out gold bars, may think it expedient to reduce the bank rate which now stands at 65%. A year ago the rate was 4%, in February last year and two years ago it was 5%. Tf a reduction is decided upon the news should reach us on Friday, and the reduction which is usually 3% at a time, may on this occasion be 1%.