Gold & Grief

Opened last week by the arrival of the season's first boat was a rip-snorting gold rush into the Goodnews area of southwestern Alaska. In three days no less than 50 airplane flights were made from Anchorage, bearing prospectors to the sands of Kuskokwim Bay, where gold, platinum and palladium strikes had been reported. Overnight a tent city sprang up on the beach with all the trimmings of Klondike days, including a gaming brawl which required the attention of a Federal marshal and the ministrations of one Alice Forsgreen. "the lady barber" of nearby Bethel, who doubles as a nurse.

At the opposite end of the earth, the Union of South Africa, whose stake in gold is the world's heaviest, was agitated not by excited prospectors but by the prospect of a gold collapse. The Johannesburg stockmarket has already had one panicQ+ast month when rumors flew that the U. S. was about to reduce the price of gold from $35 to $25 per oz. So bad was the break in gold shares that an investigation was loudly demanded in the House of Assembly with the big mining companies accused of manipulating their own stocks. "Absolutely absurd and fantastic," cried old General Jan Christiaan Smuts last week, speaking as Deputy Prime Minister and Minister of Justice. "The trouble we have to deal with here is not manipulation but much more serious. It is about the future of gold."

Informing the worried Assembly that the South African Finance Minister had been dispatched to London to "probe the question and see what can be done in order to render the position of gold more safe than it is today," General Smuts continued gloomily: "The question arises whether the time is not coming to review the new dangers emerging for gold and for the whole economic system of the world. . . . The position now is that gold hoards in the U. S. are increasing rapidly. This gold is simply locked away and is not taken into the credit system at all."

Since last December when the U. S. Government inaugurated its policy of "sterilizing" gold purchases, the Treasury has bought and put in cold storage more than $600,000,000 worth of yellow metal. The Treasury not only receives no return on this huge deadweight investment; it has to borrow the money to carry it. What has been happening, in effect, is that the U. S. has been buying most of the world's output of newly-mined gold. And this fact is the nub of logic in recurring reports about the U. S. dropping its gold buying price. Having about $11,700,000,000 worth of gold, one-half the world's supply, the U. S. cannot use the metal it already possesses. Yet the U. S. is virtually supporting the gold market singlehanded. Only recently, realizing that a lone peg for the world's gold price was not precisely an inspiration for international confidence, have Britain and The Netherlands resumed buying the metal.

Who is to buy the world's mounting gold output disturbed even the august assembly of the Bank for International Settlements meeting last week in Basle, Switzerland. On hand were such central banking potentates as Britain's Montagu Norman, Germany's Hjalmar Schacht, France's Emile Labeyrie. Representing the U. S. was Vice President Samuel A. Welldon of Manhattan's First National Bank.

Originally set up to handle German Reparations, the B.I.S. is now in somewhat the same category as the League of Nations--a noble relic. It makes a little money out of various banking operations, including the settlement of international postal balances, serves as a sounding board for collective European banking thought, issues astonishingly good reports, largely written by its Swedish economic adviser, Per Jacobsson. In last week's report Per Jacobsson was disturbed not only by gold but by armaments.

Pointing out that world armament ex penditures, even in terms of pre-War money, were running three times as high as in 1913, twice as high as in the 19205, the report observed: "Whatever may be said for the policy of public works in times of Depression, there can be no question about the undesirability of increased government outlay once the expansion of business is in full swing, for then there is the danger that extra stimulus may produce an unhealthy boom. . . . Considering the phase that has been reached in the business cycle, this increase comes at a wrong time and tends to stimulate wrong trades-- namely, those that already are benefiting most from general recovery of business."*

From the potential economic grief Rearmament, the report passed on to the dark future of gold. Last year's world gold production (35,000,000 oz.) was the highest on record, and output was soon expected to touch 40,000,000 oz., twice the 1929 figure. Industrial use of gold in the meantime has dropped from 20% of totalproduction to about 5%. Blamed by the B.I.S. for this decline was "a distitinct change in the jewelry fashions for women in that gold objects are less in favor and are being replaced on the one hand bycheap jewelry, which can be changed often and on the other hand by platinum for more expensive taste."

Stopping its fashion studies just short of an autumn forecast, the B.I.S. dolefully predicted that gold-laden lands like the U. S. and Britain "will presumably continue to be faced with the task of absobing large and increasing amounts of new gold, and the continuation of the policy of sterilization will involve them in ever increasing expenses."

Gingerly the report took up the idea of a cut in gold prices, all but obscuring in the verbiage so dear to bankers this simple statement: "It can hardly doubted that, at present, lowering the of price of gold would help cope with the serious problems resulting from overabundant production." Obvious though this solution for gold overproduction may seem, the chief objection, aside from those offered by interested people like General Smuts, is that tinkering with the price of gold is tinkering with currency. The European bankers, well aware that New Deal has been known to tinker with its currency, departed from Basle last week unconvinced that Washington's denials could be taken at face value.

*Noted laconically in the B.I.S. report was the fact that recovery periods rarely exceed five years.

In the so-called "sterling area" (chiefly Britain and Scandinavia) the five years are about up, but the B.I.S.

dates U.S. recovery from 1934, giving the U.S.

two years to go, as does Charles Gates Dawes.

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