Evening star., 1939-07-16
Soaring Gold Hoard
May Be Potential
Trouble Source
Export Trade Balance
Only Small Factor
In Huge Inflow
BY EDWARD ]. DONAHUE,

In Huge Inflow
BY EDWARD ]. DONAHUE,
Associate Editor Standard Statistics Co
NEW YORK, July 15.-Just al
present gold is not moving into the
United States at the rate it did
during the Munich crisis last fall
or early this year, when the re-
mainder of Czecho-Slovakia was
seized. despite the fact that another
so-called crisis appears imminent
Nevertheless, basic factors con-
tinue to favor the movement of gold
to the United States. European
political issues are not likely to be
settled for some time ahead, thus
the tendency will be for mobile cap
ital to come here. The extensive
armament programs abroad will
to result in demand for
raw materials and sup
plies, the payments for which will
tend to sustain the demand for
dollars. Furthermore, any recovery
IN business here would, as in the
past, result In increased foreign pur-
chases of our securities. And final
ly our almost perennial export trade
balance will exert pull on foreign
gold.
Our mounting gold stocks are
for trouble. both here and
abroad. The danger to the United
States is that there may be a credit
expansion based on the huge gold
stocks, hence a later outflow OF the
metal could weaken the very foun-
dation of the credit structure. The
psychological effect Of gold loss or
any nation is also unfavorable. As
for the foreign nations the loss OF
gold is constantly weakening their
credit bases and thinning the metal
lie cover of their currencies.
Psychology Involved.
1t is rather easy for a nation to
Withstand. gold imports, but gold ex-
ports can be quite disturbing, even
to nation like ours, with surfeit
of the metal. Just what effect q
sustained gold drain would have in
this country is impossible to deter
mine, for 1t Is question of psychol-
ogy.
A heavy gold loss over an ex-
tended period would certainly be
unsettling. If it should come be-
fore the gold had formed the base
for a large credit expansion, the
effect would not be so great as if
1t should come at a time when the
loss would create a credit strain
But sustained gold loss at any
time has dampening influence
on sentiment and 1t tends to dis
turb confidence.
1t is not likely, however, that
Europe's troubles will soon be set
tied, and until they are. it is not
likely that the United States will
encounter any significant loss of
gold. Thus, while gold exports may
prove unsettling at some future date,
this Is not a factor in the near
term outlook for business in this
country.
Trade Balance Overstressed.
The vast movement of gold to the
United States since 1888 is attributa-
BILE to number of influences: %
The repatriation of American funds
sent abroad prior to devaluation of
the dollar, ca funds sent here in
1884, 1885. 1885 and early 1887 to
capitalize on our recovery: 90 fight
capital seeking safety initially from
foreign currency uncertainties and
later from war scarces. and a. pay
ments made in settlement of trade
balances.
With respect to the factor of ex-
port trade balances, q there is a
constant tendency to overstress the
Of these payments in
relation to the gold movement. The
claim is forever made that the
United States must import more
Cor else export less) in order to
stop the flow Of gold to this coun-
try. Failing in this Git is claimed)
we will eventually drain the world
of all its gold, with the result that
the metal will be demonetized and
be OF little more value than any
other metal used in industry.
Proof that our excess of exports
has been only small influence in
the gold imports of recent years is
shown by the fact that our mer-
chandise export trade balance for
the four years 1934-37 was only
81 0l2 100000. And after this is ad-
justed for the net balance of serv-
ice items, it becomes only $685.
1000.
When it is considered that we i'm
ported net total of $500, ,O0O,-
900 in gold during those years, it is
clear that the net merchandise and
service balance of s506 900 900 was
a distinctly secondary factor. 1t
Is the flow of capital to this coun-
try that has dominated the move
ment OF gold to our shores.
Movement Unprecedented.
The unprecedented flow of gold
which has dominated the balance of
international payments in the past
five years shows marked correla-
ton with the capital movement.
This is readily understandable in
view of the causes behind the capi-
tai shift. European funds were sent
for safety or investment, rather than
to pay for larger imports from the
United States. Moreover, since the
and service balances
are relatively slow to change, the
sudden capital shifts could be met
only by gold shipments.
The largest gold transfer on record
for a full year was recorded during
1885 as a result of the currency
problems in France and Belgium
and the fears of a European war
caused by the Ethiopian invasion.
A net of $1,739, 900 900 in gold was
acquired by the United States in
that year., allowing for earmarking
operations.
Even more spectacular, however
was the gold movement last year
During the Sudetenland disturbance
in INn @,,1xv g.