WORLD ROLE OF GOLD

Waikato Times, Volume 125, Issue 20989, 16 December 1939, Page 13 (Supplement)

WORLD ROLE OF GOLD

Metal and Money

BURIED IN a VAULT at Fort Knox, in Kentucky, guarded by a regiment, and bullet-proof sentry boxes, is 40,000 tons of gold. It is earning nothing, and might as well lie undug in the mines. Uncle Sam, who owns it, does not know what to do with it. And every year the hoard is increasing. Figures for the first half of 1939 indicate that all records in gold production are likely to be broken in the current year. But the astonishing statistics of the gold flow to the United States from Europe, including Britain, already show that none of this new gold will fulfil its normal economic function of expanding the real wealth of the world through increasing the monetary base and the purchasing power of the peoples. The whole vast treasure, between 37,000,000 and 38,000,000 ounces, around £260,000000’s worth at current sterling price of the yellow metal, will merely go from many holes in the grbund to one hole in the ground—from the mines of South and East Africa, Canada, India, Australia, America, Panama, the Philippines, New Guinea, Russia, Korea, to the steel and concrete vaults deep under the ground at Fort Knox, Kentucky, where a regiment of the United States Army guards the surplus gold that Uncle Sam Does Not Knew What To Do With. Most of the world stock to-day is new gold, a little is as old, maybe, as the Caesars of Rome and the Pharaohs of the pyramids. For gold, most malleable and ductile of all metals, unalterable by heat, moisture, or corrosive agents, is practically indestructible. But the Old World never had the gold stocks that we know. Their gold was alluvial gold; they did not know how to extract gold from the rocks. Our supply has increased eightfold since 1850, when the gold stock was estimated at 5000 tons. In the half autumn, 1850-1900, the world stock doubled. Now the annual rate of increase is more than 1140 tons, and it looks as if this huge output would continue, or even increase, for the next five years at least. The reason for the tremendous upturn in the production of the yellow metal, the only acceptable world money (since men and Governments will not trust one another’s promises, and have only a limited use for one another’s national paper money), is, of course, the profit margin created since 1931 by the collapse 6f the old gold standard. By international agreement, six years after the war, the chief nations, led by Britain and America—whose Governments took the advice of their respective banking chiefs—relinked their national currencies to gold at an exchange rate which ultimately proved to have put too high a value on money for the health of the nations—thirty of them—which had shot away in the four years of the Great War the accumulated wealth of a century. Britain started the break with gold three years after the great slump. She unharnessed the pound sterling from its link with gold at a fixed value of 85s for one ounce of gold. The British pound was left to find its true value in terms of gold and other national currencies ift the money markets of the world. The value fluctuated between 120 s and 135 san ounce. Then the American “New Dealers” under Roosevelt saw the trade Advantage of a Depreciated Currency, and developed a theory of their own about gold in relation to the price level of things which money buys, which caused the New American Administration to clip the gold value of the dollar. An ounce of gold would exchange henceforth for 35 dollars. That put the sterling price of gold at 140 s an ounce, and, later, as the sterling-dollar exchange moved in favour of the dollar, to 148s-149s an ounce. America from that time became the final buyer of gold. She still is. If America stopped paying 35 dollars an ounce for gold, heaven knows what would happen to the metal; and if America stopped buying gold altogether, the stuff probably would go beg-

(C. Patrick Thompson in Adelaide Chronicle.)

A Magic Material

ging—no one else has the money to absorb over a thousand tons of gold a year. Since the dollar was devalued five years ago, the United States has imported approximately 8,000,000,000 dollars’ worth (£1,600,000,000) of gold. Some of this inflow represents repatriation of American capital previously sent abroad, and some has been sent to pay for American securities. But the main flow lately has been caused by war scares. No less than onefourth of that £1,160,000,000’s worth of gold was sent to America during the first six months of the current year. European countries were preparing for war, and shipped gold over for safe-keeping, and to build up dollar balances. It is the profit on gold mining which causes production to break all records. Costs of mining gold vary greatly, but, taking an average, one can say that the world’s gold mines are working at a profit of 100 per cent. This is equivalent to saying that the average costs of extracting gold run out at 17£ dollars, or 74s an ounce, against a fixed American price offered of 35 dollars an ounce, or a free-market sterling price of 148 sto 1495. There is only one free market for gold. That is in London. In the United States, where the world price is fixed by law, the Treasury is the only buyer, and it is illegal for the private citizen to own gold. In England, the Government keeps out. You can buy or sell gold as you like. The Price is Made Daily in the Rothschild office in St. Swithin’s Lane, in the heart of the business quarter. Six men meet there at 10.45 a.m. sharp. They represent the six great old firms (the oldest established in 1684, a year before the Bank of England itself; the youngest a mere century old) of bullion brokers. The American fixed rate is the basis, plus the additional factors of the dollar-sterling exchange rate, and the demand that day measured against the supply. This little group has opened its morning mail, read its telegrams, received its phone calls; and it knows what demand there is, and how much gold is available. Telephone and cable and radio flash the price to the world centres. On the London price, dealings take place and prices are fixed the world over. You can buy gold from the bullion broker, or through your bank, and carry it away under your arm or on your shoulder if you like. You will get it in nice, short, thick burnished bars, stamped and valued down to the last halfpenny. But if you ask your bullion broker where it comes from, he will not be able to tell you. It has been processed, melted down, and cast to standard fineness, in one of the two old-established London refineries, or the central refinery through which the yellow metal passes from the Rand mines to the South African Reserve Bank. But the metal that went into the melting pots may come from North Dakota’s single mine, or a river in China. It may have been won from an outcrop in Western Australia, or brought up the 8000foot brick-lined shaft of one of the five big mines of the Kolar in Mysore. It may have been charmed from an Indian Rajah’s ancient hoard by the boom price, or it may have emerged from the rock breakers, stamp batteries, tube mills, and cyanide tanks of the 80-mile long, 10,000-foot deep Witwatersrand reef, which yields about 43 per cent of the world supply of new gold. But, wherever it comes from, and however it reached the great market on Thamesside, the refining plant, the. bullion room, and your safe or bank vault, it is gold— Magic Stuff, Which Has Survived the collapse of great businesses, the ruin of currencies, the destruction of national organisms, and the passing of whole civilisations. Oroesus, King of Lydia, struck his lion-and-bull crest on the first gold coins. It may be that after the present world crisis has passed, gold coins will be struck again, if only to put to use a vast mass of metal which cannot be digested in horde, or to provide people with tangible metal money in place of paper which represents only a Government promise, and which is not universal tender.