The Press. TUESDAY, APRIL 17, 1906. THE "FLOWING TIDE" OF GOLD.

Press, Volume LXII, Issue 12480, 17 April 1906, Page 6

The Press. TUESDAY, APRIL 17, 1906. THE "FLOWING TIDE" OF GOLD.

One of the most striking phenomena in the economic world during the last few years has been the great increase in the yearly output of gold. The annual production of the precious metal has risen from £24,000.000 in value in 1890 to about £75,000,000 last year. \n other words, it has trebled wii_.n the last fifteen years. This output seems likely to be maintained, and tho " Australasian Insurance "and Banking Record." in an interesting article on the subject, estimates that tho quinquennial period 1906-10 will witness a production of at least £375,000,000 without fresh sources of supply on any considerable scale of magnitude. In these circumstances it becomes a matter of great importance to the community to enquire what becomes of the increasing supplies, and what is their effect on prices. To take the second question first, one would naturally expect, on theoretical grounds, that there would bo a very considerable rise in tho prico of all other commodities. Take, for tho sako of illustration, the case of wheat: Ono would infer that if the annual production of gold had increased throefold during tho last ten years, without a corresponding increase in the production of wheat, thero would be a considerable rise in tho price of the latter commodity, expressed in terms of gold In other words, tho more plentiful gold becomes in comparison with other commodities the larger the quantity of gold will be paid in exchange for the latter. Thus we read of ten shillings having been paid for a cauliflower on a new alluvial goldfield, wuero vegetables wero ascarce, but where tho minors were able, with comparative easo. to earn very largo wages from their goldwashing. It is evident, however, that when we liave to deal with world supplies, both of the precious metal, and of other commodities, the operation of this law is by no means m> clearly viflible. Other influence!'-, not so

easily detected and followed, havo to be taken into account. For example, tho increased production of gold may not all bo available for purposes of exchange — e-ome of it may bo diverted to industrial or other purposes. On tho other hand, thero may be considerable fluctuations in tho supply of particular commodities which it is sought to measure in terms of gold, or a falling-off in the effective demand for these, either of which causes will check the upward rise in prices. These wero points that tho bimotallists were apt to lose sight of in the controversy which raged so furiously some ten years ago. As a matter of fact, when we oome to examine tho range of prices during the last decade, we shall find that they have certainly risen, but not to tho extent that one would have anticipated from the increased gold production Our Melbourno contemporary quotes the average index numbers of the price of forty-five commodities calculated by Mi* Sauerbeck, the average of the eleven years, 18G7-77, being taken as 100. The averages for the last eleven years are as follows:—1895, 62; 1806, 61; 1897, 62; 1898, 64; 1899, 68; 1900, 75; 1901, 70; 1902, 69; _903, 69; 1904, 70; 1905, 72. During the last ten years Mr Sauerbeck's index number has risen by 16 p;?r cent. Tho ' annual supply of gold has risen in the | samo interval by over 88 per cent. If | we tako particular commodities—even an article of such general consumption as wheat—we shall find it difficult to trace any connection between tho price of these and the increased supply of gold. The price of wheat- to-day is about the same as it was fifteen years ago (31s per quarter), when the annual gold production was only one-third of what it i.s now, and although it certainly rose to 37s one year, it afterwards fell to 22s lOd. It is clear therefore, that, Although it may be granted, in tho words of the "Record," that "a relationship cf some kind "exists between the rise in the index "number and the increase in the snp"ply of gold," yet in estimating tho probable effect of the latter factor in tho future it is necessary to give very considerable weight to the other crosscurrents of influence to which we have referred. In particular it is desirable to enquire carefully into the question as to what is done with the increased supply of gold. Interesting information on this subject is given in the reports of tho Director of the United States Mint, and in an article contributed by the tame official (Mr George E. Roberts) to tho American "Bankers' Magazine" for January. He shows that of £396,000,----000 worth of gold produced during the last ten years, about £'3.5.5.000.000 can be traced as having been placed in tho vaults of the leading banks and Government treasuries of the world. In other words, aliout two-thirds of the production has been added to the world's supplies of metallic money, tho remaining one-third being proltal.ly used for manufacturing and ornamentation purposes, while a small proportion is being hoarded. But a good deal of these additions to the currency have been taken up, not in the older countries, but in newer countries, where a process of development I' is going on, or where a silver or paper, or mixed, standard of value has been replaced by a gold standard. Further absorption of the gold supply in future is likely to tako place in China, Japan, South America, and possibly oven Russia. j«o soon *»« its internal trouble commence to settle down. Moreover, in forecasting the effect of the increased gold product icu on prices, we must not forget that gold is. after all, only a bads for the world's commercial transactions, and that a very considerable factor in the situation is the part played

by credit. Taking all theso considerations into account, we believe that our financial contemporary is right when it "says that "a rise in the index number "of prices and a corresponding decline "or 'depreciation' in gold will not ncces"sarily result from the present annual "productions being maintained.*'