The Press SATURDAY, JANUARY 9, 1937. Russian Gold

Press, Volume LXXIII, Issue 21986, 9 January 1937, Page 12

The Press SATURDAY, JANUARY 9, 1937. Russian Gold

A cable, message from Moscow says that Russia’s gold production in 1936 was valued at £80,000,000 and goes on to add that a huge reserve is being piled up “ for use in war “time.” Since no official statistics of Russian gold production or reserves have been issued for some years, the figure given can only be an estimate. And it is almost certainly an over-generous estimate. The Economic Intelligence Service of the League of Nations gives the following approximate figures for Russian gold production in the seven years ending in 1935: Output in

At the present price of gold on the London market, an output worth £ 80,000,000 would represent 11,000,000 fine ounces, or about 350,000 kilogrammes. At this figure Russia would probably be producing as much gold as South Africa, the output of the Rand mines in 1935 being 335,110 ounces. Moreover, the only official statement made about Russia’s gold production has been that production is likely to reach 10,000,000 ounces in 1940; it is therefore unlikely, unless the Russian Government is trying to conceal the true position, that the estimate for 1940 was exceeded in 1936. The interest which economists and bankers are beginning to show in the Russian gold mining industry is, it should be added, prompted by something more than idle curiosity. The monetary policy of almost all countries is based on the assumption that ultimately there will be a return to some form of international gold standard. That being so, the increase in gold production brought about by devaluation, which is most noticeable in Russia but which has taken place in all gold mining countries, has an important bearing on the world monetary situation. The bare facts are that between 1929 and 1935 the annual world production of gold has increased by 50 per cent., if measured by weight, and by 150 per cent., if measured in terms of the depreciated sterling. As Dr. J. B. Condliffe points out in the latest issue of the “ World Economic Survey,” produced for the. League of Nations, the situation may have far-reaching consequences. If gold continues to be used as in the past, not only as a means, of international payments, but also as a basis for credit issues, the result will probably be a substantial cheapening of the national units of accoupt or, in other words, a prolonged and considerable rise in the average levels of, commodity prices. Such a rise occurred after the Californian and Australian gold discoveries in the middle of the last century, and again after the opening up of the Rand in the ’nineties. In neither of these cases, however, was the stimulating effect of lowered mining ’ costs reinforced by substantial depreciation of the principal units of account, as well as by marked economies in the use of gold, such as the withdrawal of gold coin from general circulation and'the release of large hoards in India and China. It‘ may well be asked why, if this is the case," prices generally have not already responded-in any marked degree to the increased gold production of the last few years. The answer is that, owing to disturbed political conditions, a large part of the gold being produced does not become a basis for credit issues. In 1935 world gold production was 30,000,000 ounces, and of this amount, according to Dr. Condliffe, about half has “ disappeared,” partly into secret bank reserves, partly into the various exchange equalisation * funds, and / partly into private hoards. Thus, in the event of a restoration of the international gold standard and of public confidence in the stability of currencies, it is not merely the increased production of gold which would have to be reckoned with as a factor making for credit expansion and higher prices. The probability is that immense amounts cf gold would be released from- hoards and secret reserves; Moreover, it has to be remembered that much of the gold now held by banks is substantially undervalued. For instance, the gold holding of the Bank of England is valued, by law, at 84s lid a fine ounce, and on this basis is worth £250,000,000. If, however, revaluation were to take place at 144 s an ounce (a probable figure) the holding would be worth nearer £425,000,000. It is somewhat curious to reflect that most of those who oppose a" return to the gold standard usually do so on the grounds that it would exercise an immediately deflationary effect.

Year. Kilogrammes. 1929 25,000 — 33,000 1930 33,000 — 44,000 1931 .. 32.000 — 52,000 1932 38,000 — 59,000 1933 .. 77,000 — 85,000 1934 .. 110,000 — 130,000 1935 .. 150,000 —170,000