FUTURE OF GOLD

Wanganui Chronicle, Volume 76, Issue 105, 6 May 1933, Page 11

FUTURE OF GOLD

RELATION TO PRICES ECONOMY IN USE URGED. The March issue of “Current Problems” published an instructive article on the future of gold and its relations to tho commodity price level. At a time when there is a widespread uncertainty as to the function of gold in the economic recovery of the world, and when so much money is being invested in new gold mining ventures, the article possesses a direct interest. In the report of the Gold Commission of the League of Nations in 1930 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 the metal were put to their proper monetary uses, there would be such a shortage of monetary gold as would cause a heavv and prolonged fall in the price of commodities, which would have to be accompanied for irresistible reasons by cruel deflation.

Mr. Joseph Kitchiu, whose death last summer was a sad loss to the world of higher economic research, had devoted the greater part of his life to tho study of tho connection between gold and prices. Fortunately his demise did not occur until he had been able to present tho most convincing evidence of the theories he had originated and championed.

The orthodox economists replied to the Kitchin arguments with the assertion that a shortage of gold would provide its own remedy, a surplus of gold, because the higher price of the metal would induce the exploitation of low-grade ores and would encourage investment in gold-mining ventures. This answer was orthodox, and like so many of tho economists’ remedies for these- distressing times, futile. It is like a doctor agreeing that the patient is at the point of death, but the disease had better be allowed to run its course. If it runs off with the patient, it will be unfortunate but at least orthodox.

Where the 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 reserve 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 notable flow of gold to America, far in excess of the efflux from that country, whilst every country which had suffered 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 reispect. Gold Crisis Anticipated. It was clear to Kitchin, Niemeyer, Strakosch, Blackett, Cassell, Kisch, and a few others that a crisis on gold was approaching, which was quite beyond the ordinary economist’s ken, because it was based on politics. Further points which the economists failed to recognise was the time period required to expand gold supplies, and where they would be found, apart from low grade orcs hitherto passed over as not worth while.

Tho orthdox remedy failed because prices had to fall so much in terms of gold before the remedy could begin to work. The commodity price level has fallen 50 per cent, and more iu terms 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 19.15. From 1919-1923 tho average value was £70,000,000, and from 1921 to 1930, £83,000,000.

From past experience increased gold outputs have meant rising prices and the end of crisis. This was the case with California in 1545, with Australia in the fifties, with the Transvaal, with Alaska, both at the end of tho last centurv.

Experience during the last two years has been dissimilar. During 1932 Franco absorbed £17,000,000 more of gold than world production during the year. In neither country did prices rise. On the contrary, they fell. In addition to new gold, India released £40,000,000 of hoarded gold to London, but prices have not risen. It may be that the orthodox theory »s sound enough in normal times. But these times are abnormal. There is only one currency in Europe. Holland’s, that is not or ha v s not been depreciated since the war. The result has been the hoarding of gold by nations and individuals in the belief that gold is wealth. The crash of securities has frightened the world off in-

vestments, stopped industry, arid showed up the velocity of circulation. More Desirable Than Ever. Gold has become more desirable than ever, even though its possession may carry heavy penalties, as in America to-day. Gold has resumed its position as a commodity, and even though the price may again be controlled and fixed, this generation is unlikely ever to sec it again at 84s a fine ounce. The future of gold, whichever way it is regarded, cannot bo regarded as dim. It i,s likely to become the. chief investment counter of tho next few years and perhaps much longer than that. Gold mining as an industry, should see a sound revival in many countries. Scientific opinion doubts whether there are any, certainly not many, great fields like tho Transvaal to be opened up, except perhaps in Russia. But there are moderate fields as in Western Australia, New Guinea, Kenya, and elsewhere, and many old, hitherto unpayable fields, which at present and future prices of gold can be economically and profitably exploited.