Gold Panic

In a small, carpeted, oak-paneled room in the offices of N. M. Rothschild & Sons on London's St. Swithin's Lane, six immaculate gentlemen gather every morning except Sundays and bank holidays to fix the world price of gold. These six men, the so-called Gold Committee, represent six great British bullion brokers: N. M. Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co., Pixley & Abell, Sharps & Wilkins, Johnson, Matthey & Co. Before each member is a telephone directly connected with twelve telephones in his home office. There attentive clerks are connected with the firm's customers--other bullion brokers, mining companies, banks and banking houses, speculators, arbitragers. On Saturdays the meetings open at 10:30 a. m. but otherwise the chairman, currently Rothschild's bullion expert and mathematical wizard, Arthur Kimpton, announces crisply: "Gentlemen, it is eleven o'clock. We begin."

Immediately each member asks his office for accumulated orders, notes them on a slip of paper, which is passed to the chairman. There may be 500 bars of gold for sale, orders for only 300, a "position" which would indicate a buyer's market.* After the chairman names the starting price--now the buying price of the Bank of France in terms of the latest quotation for pound sterling--the members make bids & offers, buying order being matched against selling order until supply & demand meet. The price at that point is the gold price for the day. The whole session usually lasts about ten minutes.

Last week the dignified bullion brokers put in some of the worst days of their lives. On a fresh crop of rumors that the U. S. Treasury was about to cut its buying price, an avalanche of hoarded gold hit the market. Day after day the morning offerings swelled until they reached an all-time one-day high of 1,493 bars-- about $21,000,000 worth. By week's end $65,000,000 worth of the precious metal had passed over the table in Rothschild's. Most of it was bought by the British Stabilization Fund, for although the price dropped steadily few private buyers cared to risk a sudden cut in the U. S. buying rate. At one time gold could be bought in London at $34.61 per oz., which even after shipping costs to the U. S., where the Treasury buys all metal offered at $35, would yield profits of 16-c- per oz.

As much of a mystery as the scare last April were last week's gold-cut rumors. According to the New York World-Telegram the report originated inadvertently with a big Manhattan bank, which had bought $5,000,000 in gold to resell at a profit to the Treasury. Feeling that the price of sterling was high, the bank borrowed instead of buying the exchange with which to pay for the London gold. Meanwhile sterling went up, not down, and having been caught short, the bank hastily covered by dumping the gold. The fact that a U. S. bank was selling gold in London at a time when the metal could be shipped at a profit to New York seemed to indicate that the bank must have been tipped off on a coming cut. Secretary of the Treasury Morgenthau did not help matters by denying that a cut was "imminent." The Secretary had used the word "imminent" before in similar denials, and London fastened on it to the exclusion of the rest of the statement.

Hard for U. S. citizens to appreciate is the complete confusion that overtakes The City (London's financial district) during a good gold scare. The British Empire is the world's greatest gold producer, the world's biggest investor in gold mining stocks. London, moreover, is a world commodity centre, and lower gold means lower commodities. Also, London is the world's leading free gold market. Hundreds of millions in bullion were stored in London during Depression when paper money was slipping its gold moorings.

Today paper money looks better than gold, and hoarded gold is coming out to swell the record flood of newly-mined metal. Virtually all the gold that came on the market last week was disgorged by frightened hoarders. When the hoarders get really panicky only one thing will calm them: a word from President Roosevelt. At his Friday press conference, the President emphatically declared that there was nothing to worry about.

Story is that the Treasury officials did actually sound out British authorities early this spring on the possibilities of cutting gold prices but the news leaked out in London, causing such uproar that the idea was dropped like a hot brick. Whatever the value of that story, a quick glance at gold figures is enough to convince anyone that the U. S. is holding the bag. During the past year the Treasury has bought $800,000,000 worth of gold, none of which it needed. Imports last week pushed total U. S. gold stocks above the staggering figure of $12,000,000,000.

At the present time the U. S. is absorbing the equivalent of the world's entire output of new gold. Rising mining costs in a recovery period normally act as an automatic check on gold production, probably will eventually in this recovery. Today, however, gold is abnormally high. And Russia, where costs are meaningless, has jumped into second place as the leading producer, may this year even exceed South Africa.

Meantime, in effect, every dollar of gold produced is another dollar added to the U. S. national debt, for in its sterilization program the Treasury has to borrow the money to buy the gold it puts in cold storage. Since last December when the sterilization program was inaugurated to keep gold imports from inflating the credit structure any further, more than $800,000,000 worth of dead metal has been bought and locked up.*

Whether or not the Treasury price is ever cut, the threat of a cut would be a potent bargaining point in negotiations for a U. S.-British trade pact or in hastening an international stabilization agreement. Either a world economic conference or a restriction scheme for gold mining is more likely as a method of meeting the gold problem than a deflationary revision in gold prices.

*A bar of gold weighs 400 oz., is worth $14,000 at the going price of about $35 per oz.

*So depleted by outlays for gold are the Treasury's cash balances that Secretary Morgen thau had to announce a June financing program that will hike the national debt above a record $36,000,000,000. Of the $800,000,000 proceeds of two note issues, $300,000,000 will be used to refund maturing obligations. The half billion of new money is approximately equal to the amount spent for gold since the last quarterly financing ($541,000,000). On the fact that the general rise in money rates necessitated higher coupons than on note issues last December. Mr. Morgenthau's only comment was: "A lot of things have happened since then."

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