The very general confusion of mind regarding these operations in gold comes perhaps from the fact that they are constantly referred to as being a result of high exchange on London, at New York. Which is true, but a most misleading way of expressing the fact that low exchange on New York, at London, is the reason of the shipments. High sterling exchange at New York and low dollar-exchange at London are, of course, one and the same thing. But in this case, what counts is that dollar-exchange can be cheaply bought in London.
No attempt is made in this little work to cover the whole field of operations in gold, infinite in scope as they are and of every conceivable variety. But from the examples given above it ought to be possible to work out a fairly clear idea as to why gold exports and imports take place and as to what the conditions are which bring them about.
While not failing to realize the importance to the markets of the movement back and forth of great amounts of gold, it may nevertheless be said that from the standpoint of the foreign exchange business the importance of transactions in gold is very generally overestimated. Most dealers in foreign exchange steer clear of exporting or importing gold whenever they can, the business being practically all done by half-a-dozen firms and banks. As has been seen, the profit to be made is miserably small as a rule, while the trouble and risk are very considerable. Import operations, especially, tie up large amounts of ready capital and often throw the regular working of a foreign department out of gear for days and even weeks. There is considerable newspaper advertising to be had by being always among the first to ship or bring in gold, but there are a good many houses who do not want or need that kind of advertising. Some of the best and strongest banking houses in New York, indeed, make it a rule to have nothing to do with operations in gold one way or the other. Should they need drafts on the other side at a time when there are no drafts to be had, such houses prefer to let some one else do the gold-shipping and are willing to let the shipping house make its one-sixteenth of one per cent. or one-thirty-second of one per cent. in the rate of exchange it charges for the bills drawn against the gold.
Particular attention has been paid all through the foregoing chapter to the gold movement in its relation to the New York markets, the movement between foreign points being too big a subject to describe in a work of this kind. In general, however, it can be said that of the three great gold markets abroad, London is the only one which can in any sense be called "free." In Paris, the ability of the Bank of France to pay its notes in silver instead of gold makes it possible for the Bank of France to control the gold movement absolutely, while in Germany the paternalistic attitude of the government is so insistent that gold exports are rarely undertaken by bankers except with the full sanction of the governors of the Reichsbank.
It is a question, even, whether London makes good its boast of maintaining Europe's only "free" gold market. The new gold coming from the mines does, it is true, find its way to London, for the purpose of being auctioned off to the highest bidder, but as the kind of bids which can be made are governed so largely by arbitrary action on the part of the Bank of England, it is a question whether the gold auction can be said to be "free." Suppose, for instance, that the "Old Lady of Threadneedle Street" decides that enough gold has been taken by foreign bidders and that exports had better be checked. Instantly the bank rate goes up, making it harder for the representatives of the foreign banks to bid. Should the rise in the rate not be sufficient to affect the outside exchange on London, the Bank will probably resort to the further expedient of entering the auction for its own account and outbidding all others. Not having any shipping charges to pay on this gold it buys, the Bank is usually able to secure all the gold it wants—or, rather, to keep anybody else from securing it. The auction is open to all, it is true, but being at times conducted under such circumstances, is hardly a market which can be called "free."
If there is any "free" gold market in the world, indeed, it is to be found in the United States. All anybody who wants gold, in this country, has to do, is to go around to the nearest sub-treasury and get it. If the supply of bars is exhausted, the buyer may be disappointed, but that has nothing to do with any restriction on the market. The market for gold bars in the United States is at the Treasury and the various sub-treasuries, and as long as the prospective buyer has the legal tender to offer, he can buy the gold bars which may be on hand. And at a fixed price, regardless of how urgent the demand may be, who he is, or who else may be bidding. First come first served is the rule, and a rule which is observed as long as the bars hold out. After that, whoever still wants gold can take it in the form of coin.
How such conditions have worked out, so far as our gaining or losing gold is concerned, can be seen from the following table, introduced here for the purpose of giving a clear idea as to just where the United States has stood in the international movement of gold during the five-year period given below:
|
Exports of Gold from U.S. | Imports |
Excess of Imports | |
|---|---|---|---|
| 1913 | $77,762,622 | $69,194,025 | [ 1]$8,568,597 |
| 1912 | 57,328,348 | 48,936,500 | [ 1]8,391,848 |
| 1911 | 22,509,653 | 73,607,013 | 51,097,360 |
| 1910 | 118,563,215 | 43,339,905 | [ 1]75,223,310 |
| 1909 | 91,531,818 | 44,003,989 | [ 1]47,527,829 |