THE OTAGO DAILY TIMES TUESDAY, June 22, 1937. THE FUTURE OF GOLD

Otago Daily Times, Issue 23223, 22 June 1937, Page 8

THE OTAGO DAILY TIMES TUESDAY, June 22, 1937. THE FUTURE OF GOLD

The improved tone of the London stock markets noted in yesterday’s cable commercial summary is doubtless due in part to the easing of fears regarding the future of gold. It is likely that the positive statements recently made by the British Chancellor of the Exchequer and the President of the United States, to the effect that no change in monetary policy was contemplated by either Government, have gone far towards restoring confidence and exposing the absurdity of the “ scare ” rumours which had caused a drop in the price of gold shares and a mild form of panic among investors. The trouble began over two months ago, when reports from New York suggesting that the United States Government intended to reduce its purchase price of gold below 35 dollars an ounce —the price fixed |n January, 1934 —had the effect of shaking markets throughout the world. It was pointed out at the time by the Economist that the falsity of such reports should have been patent, for the reason that no reduction in the American gold price was possible without either a proportionate reduction in Paris and certain other Continental centres, or the abandonment of the monetary agreement between Great Britain, the United States and France. All three Governments, as the Economist has emphasised, are at present large holders of gold, and would consequently be unwilling to initiate a downward price movement that would automatically depreciate their holdings and threaten, because of its deflationary tenor, to precipitate an economic crisis. Similarly, Sir Henry Strakosch, writing in The Times, has uttered the warning that any downward revaluation of gold at this juncture “ would not merely retard enterprise, but probably kill it altogether by bringing down the whole price structure so carefully built up in the last few years.” Nevertheless, for nearly three months market operators refused to be reassured, with the result that the loss of confidence had reached serious proportions before official intervention made it plain that the gold price was to be maintained at approximately the current level. South Africa has a particular interest in the maintenance of a high and relatively stable price for gold, on account of her enormous production, and there was a great deal of nervousness in that country while share values were showing a tendency to slide. The Rand has taken advantage of the high price to mine ore of a grade which could not have been profitably worked when the lower price level prevailed. The output of the Rand mines last year was very little more than the 1929 total, but the increased profit was about 25 per cent., and low-grade mines are being more and more brought into profitable production. It was General Smuts who hazarded the opinion that the recent slump in shares was deliberately engineered by interests that hoped to profit from subsequent share purchases, and he was one of the first to warn shareholders that they should hold on, regardless of rumours of the alleged insecurity of the gold position. Experience has shown often enough that such market manipulation is practised, but in the case of a key commodity like gold the consequences are apt to be very serious indeed if remedial action is delayed unduly. The price of gold, in terms of currency, is of vital importance in determining the level of world commodity values. There is thus a logical connection between a decision to maintain gold at its present price level and the principle that economic prosperity demands the maintenance of commodity prices on a correspondingly high plane.