FUTURE OF GOLD

Evening Post, Volume CXV, Issue 103, 4 May 1933, Page 7

FUTURE OF GOLD

RELATION' TO PRICES

ECONOMY IN USE URGED

The Match ihsue of "Cuncnt Piob-| Ions" pubhbhet) sin instructive aiticlo on the future of gold ami its relations to the commodity pike level. At a timo when there is a widespread un-' ccitamty as to tho function of gold in the economic recovery of the voild, and wlien so much money ib being invested in how gold mining ventures, the article possesses n direct interest. In tho leport of the Gold Commission oil the League of Kations> m 1900 the world was warned, not for the first time by any means, that unless it economised in the use of gold, and unless all available stocks of tho metal were put to their proper monetaiy uses, thcro would be such a shortage of monetary gold as would cause a heavy and prolonged fall in tho price of commodities, which would Iku c to be accompanied for irresistible reasons by cruel deflation. Mr. Joseph Kitchin, whoso death last summer was a sad loss to the world of higher economic research, had devoted tho greater part of his life to the study of the connection between gold and prices. Fortunately his demise did not occur until he had been able to present the most convincing evidence of the theories ho had originated and championed. Tho orthodox economists replied to the Kitchin aiguments with the assertion that a shortage of gold would provide its own remedy, a surplus of gold, because the higher price of tho metal would induce the exploitation of low-grade oies and would eneourago investment in gold-mining ventures. This answer was orthodox, and like so many of tho economists' remedies for those distressing times, futile. Tt is •like a doctor agreeing that the patient is at tho point of death, but tho disease had better be allowed to mn its comsc. If it nins off with tho patient, it will be unfortunate but at least orthodox. Where tho economists were wrong was in. being a few years behind the times. In normal years world commerce was expanding at 3 per cent, per annum. On a gold loscrvo basis of 33 per cent., gold supplies had to expand at 1 per cent., which they were not doing. But in addition there had been a notablo flow of gold to America, far iii excess of the efflux-'from that country, whilst every country which had ■Buffered from inflation was seeking to acquire gold beyond current monetary needs, as a basis of popular confidence. France, Germany, Italy, and Belgium were noticeable in this respect. GOLD CRISIS ANTICIPATED. It was clear to Kitchin, Niemcyer, Strakosch, Blackctt, Cassel, > Kisch, and a few others that a crisis on gold was appioaching, which was quite beyond the ordinary economist's ken, because it was based on politics. Further points which the economists failed to recognise ' -'S the time period required to expand gold supplies, and where they would be found, apart from low grade ores hiiherto passed over as not worth while. Tho orthodox remedy failed bocause pi ices had to fall so much in teims of gold befoie the remedy could begin to work. The commodity price level has^ fallen SO per cent, and more in teims of gold. After two years gold production began to increase. For 1932 the world output is estimated at 23,500,000 fine ounces, which was worth £100,000,000 at par. This compares with £93,000,000 in 1931, and the previous record of £96,400,000 in 1915. From 1919-1923 the average value was £70,000,000, and fiom 1924 to 1930, £83,000,000. 1 From past experience increased gold outputs have meant rising piiccs and the, end of crisis. This was tho case with California in 1845, with Australia in tho 'fifties, with the Transvaal, with Alaska, both at tho end of the last century. Experience during tho last two yeais has been dissimilar. During 1932 France absorbed £17,000,000 more ofi gold than world production during the year. Duiing tho last six months of 1932 America absorbed £31,500,000 moic' of gold than world pioduction duiing the year. In neither country did prices rise. On tho contrary, they- foil. In addition to new gold, India released £40,000,000 of hoarded gold to London, but prices have not risen. It may be that tho orthodox theory >s sound enough in normal times. But these times aio abnormal. Theio is only one currency in Europe, Holland's, that is not or has not been depreciated since the war. The result has been the hoaiding of gold by ' nations and individuals in the belief that gold is wealth. The ciash of securities has frightened the world oft investments, stopped indu->tiy, and showed up the velocity of circulation. MORE DESIRABLE THAN EVER. Gold has become more desirablo than ever, even though its possession may carry heavy penalties, as in America today. Gold has resumed its position as a commodity, and even though the price may again be controlled and fixed, tins generation is .unlikely ever to sec it again at 84s a fine ounce. The iutuie of gold, whiolipvcr way it is regarded, cannot be legaidec 1. rs dim. It is likely to become the chief hnestment counter ot the next few years and perhaps much longer than that. Gold mining as an industry, shouTci. see a sound revival in many counhies. Scientific opinion doubts whether thcie aic any, certainly not many, great fields like the Transvaal to bo opened up, except perhaps in Bu^sia. But there are moderate fields as in Western Australia, New Guinea, Kenya, and elsewhere, and many old, hitherto unpayable fields, which at present and iuturo prices of gold can be economically and profitably exploited.