The Gold Slump

From the major banking houses and money dealers in Europe last week, cables went out to England checking a rumor. The rumor: Russia is dumping 1,000,000 oz. of gold on the market, and the Bank of England has bought some of it in a private deal. The bank in line with its usual policy, refused either to confirm or deny buying gold. But there was no doubt that Russia has been selling gold in European markets. Bars stamped with the Soviet hammer & sickle showed up in Amsterdam, apparently shipped there from Czechoslovakia. Bankers estimated that Russia had sold about 250,000 oz. (worth almost $9,000,000).

Ornaments & Questions. Although this is a small amount, the news of Russian selling was enough to drive gold down to $35.55 an oz., the lowest price since the war, and only a shade above the official price of $35 an ounce. South Africa, which has sold gold under the guise of ornaments, found the subterfuge no longer worth it; the cost of fabricating the ornaments dissipated the profit. South Africa announced that it would sell production openly on the world market, something that its sister dominions, Canada and Australia, have been doing since 1952.

To the big question why Russia had sold gold, the best answer was that it had run short of both sterling and European currencies to pay for its normal trade across the Iron Curtain. In trade with continental Europe alone, the Soviet bloc has run a $15 million deficit in the first seven months of the year v. a $13 million surplus last year.

Hoarders & Health. Actually, the Russian sales only accelerated a decline in gold prices that has been going on for months. Partly, the decline was caused by the fall in commodity prices generally. For example, tightfisted French farmers are getting less for their wheat and wine, thus are able to buy less gold to hoard away in secret hiding places. The decline in gold prices was a heartening sign of European economic health. With inflation no longer a serious problem, hoarders were not only less eager to convert their currencies into gold but they were actually releasing considerable amounts of it. In the first half of this year, the non-Communist world's legal gold stocks increased by $800 million although only $425 million worth of new gold was produced.

Only in France, Europe's greatest hoarding nation, was the drop in gold prices a serious worry to the government. There, so many distrustful citizens have gold coins tucked away in tissue-paper wrappings that the government cannot afford to let prices fall too far. As gold Napoleons fell last week to 3,480 francs ($9), the lowest price since June 1950, the Bank of France quietly began buying coins to help support the market.

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