GOLD AND STERLING

New Zealand Herald, Volume LXXV, Issue 23208, 30 November 1938, Page 12

GOLD AND STERLING

Within the past few days reports from London have recorded the highest quotation for gold—£7 10s an ounce —ever offered, and at the same time a pronounced weakness of sterling in terms of the dollar. The two things are closely related, since the most direct link between the pound sterling and gold is through the dollar. Actually the downward trend of the pound compared with the dollar* has been a feature of the money market in recent weeks. During the September crisis a flight of investment funds to the United States in search of safety was an inevitable movement, and the result was to depress the sterling-dollar rate. Though the Munich Agreement was the signal for recovery, it has not been maintained. At the end of last week a fall to 4.63g dollars to the pound brought the level to tire lowest in five years, with the exception of 4.60 during the September crisis. The latest quotation available shows a modest rise to The possibility of such a situation was seen and ' discussed in London some weeks ago. One factor is a normal autumn demand for dollars which always affects sterling at this season. But beyond that, a feeling of uncertainty about the international situation, and doubts concerning the ultimate effect of the British armament campaign are said to be a marked influence. "Hot money," to use the American term for migratory funds which move about freely for temporary investment, at present prefers New York to London. In addition, foreign money which has long been retained by London is reported to be moving increasingly to the United States. With . such conditions there is naturally a much heavier pressure on sterling than the usual autumn influence would create. Nobody is able to predict how long this will continue, but it is likely to persist while European affairs remain unstable and foreign investors are afraid that the financing of the armament programme will have an l inflationary effect,.