The Press WEDNESDAY, APRIL 17, 1968. New Threat To World Trade

Press, Volume CVIII, Issue 31656, 17 April 1968, Page 10

The Press WEDNESDAY, APRIL 17, 1968. New Threat To World Trade

The South African decision not to sell gold “ in the im- “ mediate future ” poses a new threat to international payments and world trade. South Africa supplies about three-quarters of the gold produced throughout the world each year; and any prolonged withdrawal of South African supplies would cause a shortage for both monetary and industrial purposes. The purposes of the South African move are obvious: to lift prices on the free market, to prevent the United States from replenishing its stocks at $35 an ounce, and, eventually, to force the Americans to raise the official price of gold.

Although gold is South Africa’s principal export —worth SUSIOOO million a year in recent years—the country’s strong balance of payments would enable South Africa to stockpile gold (as New Zealand has stockpiled wool) for many months. Excluding gold sales, South Africa’s export receipts in recent years have totalled $l5OO million to $l7OO million; and import payments have been running at less than $lOOO million above exports. Reserves at the end of March stood at a record $855 million, of which $736 million was held in gold. Foreign investors continue to invest hundreds of millions of dollars a year in the country, providing a steady inflow of foreign currencies. Further overseas borrowing would be needed if South Africa were to suspend all gold sales for more than a month or two: and mounting stocks of gold would be a most acceptable security—more easily pledged than stocks of wool. Moreover, if South Africa chose to borrow United States dollars for settling international debts, this would add to the pressure on the American currency.

The decline in the price of gold on the free market has undoubtedly influenced the South African Government in its latest decision. From a peak of nearly $45 an ounce four weeks ago. gold fell to less than $37 on the eve of the announcement, on March 24, by the South African Government that it was prepared to sell on the free market. Between that announcement and the April 8 announcement that South Africa was suspending all gold sales the free price has remained about $2 an ounce above the United States Federal Reserve Board’s buying price of $35, although—as far as is known—no newlymined South African gold reached the free markets in London. Zurich, and Paris. The comparatively small volume of trading was mainly in gold released by hoarders and speculators, many of them forced out of gold by the need for cash.

The latest South African announcement must give the free market a lift. Industrial users will need to rebuild their deplenished stocks, and speculators have been given new hope of a rise in the official price. The longer South Africa “ starves ” the market, other things being equal, the better its chances of achieving its aim of a higher price for its gold. But other things may not remain equal. France, threatened with balance-of-payments difficulties, may have to use some of its $5OOO million worth of gold to meet its current debts before long: and by mid-1969, or perhaps sooner, the special drawing rights agreed to by the members of the International Monetary Fund should ease the liquidity problems of the world’s trading nations.

This is South Africa’s last chance for several years, at least, to get the world price of gold increased. Its monopolist tactics, if successful, will benefit Russia and please France. If the bid fails, the rest of the world’s trading nations might use the I.M.F.’s special drawing rights as the first step towards demonetising gold.