The Great Gold Riddle
We dig gold out of one hole in the ground and bury it in another. Why? The rule of gold was never so criticized and yet we still worship this King of Metals. Why?
IN AN Ontario hospital for the mentally unfit, one of the tasks assigned the patients is to remove a pile of rocks from one end of the exercise ground to the other. When the pile is removed, the same patients are told to carry the rocks back again. This goes on, day after day.
When a patient wants to know why they are laboring at this seemingly futile job, he is believed to be on the road to recovery, and is placed in a higher mental grouping.
Meanwhile, far removed from the walls of any institution, some 50,000 Canadians are engaged in digging a metal calk'd gold out of the ground, knowing full well that nearly all of it will promptly be put back underground again. But this is a big industry. When you add to these 50,000 persons the families they support, the mining brokers, the men and women working for mining-equipment manufacturers, mining engineers and geologists, you can see that this business of taking gold out of the ground here, and putting it back into the ground there is a very big industry indeed. You would certainly hesitate to compare these people with those unfortunates laboring in the mental hospital.
Yet a visitor from Mars might be excused for seeing little physical difference between the two jobs, except in scale and in the amount of work involved.
This Martian visitor would have to learn that gold is a metal of paradoxes. For the most part it is not consumed, the way oil or hxx)ts or foodstuffs are consumed. Nor does it disintegrate, like radium. Almost all the gold produced just goes on piling up and piling up.
In a physical sense, it. is not nearly as useful as, say, coal. Yet you pay only about $10 for a ton of coal, but more than $1,000,000 for a ton of gold.
And yet the world is so hungry for gold that if you have it to sell you need employ no salesmen, need never advertise it, and no matter how many competitors you have, your sales will suffer no diminution.
Let’s take a closer look at this metal, of which Canada is one of the largest producers in the world. First of all, what actually happens to gold from the time it leaves Hole No. 1, until it is laid gently away in Hole No. 2.
Bought by Canadian Mint
TJTURDLING at one jump the tremendous amount of work involved in finding a gold mine, financing it to production, hoisting the ore to surface, and passing it through the mill, we can take as a start that point, many years after the prospector, when gold is poured, in a molten state, and ax)led into bricks. These bricks are poured at the mine and are about the same size as the bricks in your house, two inches deep, four inches wide, and eight inches long. They weigh about sixty-eight pounds avoirdupois, and are worth between $30,000 and $35.(XX) apiece.
Some of the bigger mines place their own individual stamp on each brick for identification purposes. You may recall the newspaper story of the man who, a few years ago, managed to steal a brick from a big Porcupine producer. He fled to Italy, but was apprehended when he sought to sell his loot, because the dealer recognized the stamp of this great Canadian mine.
The gold in the mine-poured bricks is not absolutely pure. With it. intimately mixed, are other metals. Gold shipped from the mines of Northern Ontario, for example, usually runs about eighty-five per cent pure gold and fifteen per cent silver, with sometimes a 8jx>t of copjier thrown in for variety. In other words, of 1,000 parts of it, only 850 are pure gold. But world gold buyers insist on their yellow metal being absolutely pure, or 1,000 parts fine, as they call it. This final step is a costly and highly skilled job, so that the mines get their gold as pure as they can, and leave the final refining to the Royal Canadian Mint at Ottawa.
Placed in a steel strong box, the rough gold is expressed in the ordinary manner, and shipjx-d to the Mint by train.
While it is on its way, let's find out something about the Royal Canadian Mint.
The Mint is the agent for the Treasury Department of the Dominion Government, and as such acts as purchaser of the gold, signing the cheque which the mining company will receive in due course.
Before the Great War, the Mint's principal job was the coinage of nickel, copper, silver, and infrequently gold coins. None of the latter, however, have been struck since 1919, and it seems extremely unlikely that any more ever will be struck. Reasons for this are that people have grown to like the paper currency, and also that the law now prohibits the private ownership of gold, even in the form of currency.
In addition to making metal currency, the Mint, before the War, refined a small amount of gold.
During the War, Ottawa came to the aid of the hardpressed British Government, and refined at its Mint nearly 20,000,000 ounces of gold from the great fields of South Africa. This work, although nobody knew it at the time, trained and equipped the Mint nicely for coping with the great golden stream which in the years following the War, was to come flowing from Canada’s own mines. As a result of this tremendous growth in mining which has shot Canadian production of gold up from about 760,000 ounces in 1919 to 4,100,000 last year, the refining of gold has become the Mint’s biggest job.
But our rough gold is arriving at the Ottawa station and, under special guard, is trucked to the Mint. Arriving there, it is assayed to see how big a cheque must be sent to the mine.
After assaying, the rough gold is then further refined
until it is the required 1,000 parts fine. It is again cast into oblong blocks, only this time, as befits its new purity, the name "brick” is dropped, and blocks are referred to as bars. A bar weighs only 400 ounces.
The gold is now ready to enter upon the third stage in its pilgrimage. Remember that the Mint has, all along, been acting merely as an agent for the Dominion Government.
The Government has three outlets for this gold. Some of it is sold to manufacturers, and a further small amount is sold to the institution known as the Bank of Canada—a sort of banker’s bank, which started in business on March 11, 1935. Under the act of Parliament which created it, the Bank of Canada is compelled to have at least twenty-five per cent of its total note issue backed by actual gold. Since it has only to maintain this reserve, and since its note issue does not increase greatly from year to year, the Bank of Canada is not a large purchaser of gold now, and last year bought only about $500,000 of the yellow metal from the Canadian Government.
The Bank of Canada and the manufacturers are both small users of gold, and the great bulk of it is shipped abroad.
Back to the Ground
IN THE past few years, Canada has had the world’s biggest gold buyer right next door, in the United States Treasury Department. In 1934, you may remember, President Franklin D. Roosevelt, with a squiggle of his pen, signed an act which redefined the gold content of the dollar, and impounded all the gold in the United States. One of the results of the important steps taken at that time was that henceforth one ounce of gold was worth $35, instead of $20.67, as formerly. This is why Canadian mining men
described President Roosevelt as the best United States President Canada ever had.
To the United States last year, Canada sold some 3.200.000 ounces of gold, which made a big hole in our 4,100,000-ounce production. Compared with this sale to United States, the 72,410 ounces sold to the United Kingdom is small potatoes indeed. The reason for this is that rarely, and only when, through some abnormality of foreign exchange, the price London pays for gold is sufficiently higher than Washington’s price, is it worth while for the Canadian Government to pay the extra shipping charges across the ocean.
While waiting to ship the gold, the Canadian Government keeps it in elaborate vaults under the recently opened Bank of Canada Building in Ottawa. Before this building was completed, the gold was kept in vaults under the Elast Block of the Parliament Buildings.
In handling the details of the shipping, the Bank of Canada acts as agent for the Government.
When Uncle Sam gets this Canadian gold, what does he do with it?
He just reverses the procedure of the gold miner, and buries it in vaults under Fort Knox, Kentucky, or in one of the half-dozen other modem vaults in the U. S., where neither moth nor rust doth corrupt, and into which only foolish thieves would try to break through and steal. Uncle Sam has already stored in these vaults more than $12,760,000,000 worth of gold—more than half the world’s total monetary supply—but he is willing to take more, as we will see a little later.
John Bull does the same with the gold he is buying.
Thus we have followed our gold around the cycle, from hole in the ground to hole in the ground, and have not yet, like the patient in the asylum, asked, “What’s the point?”
Basic Standard of Value
TO FIND the point, we’ll have to go back a few hundred years or so and note briefly how the world’s attitude toward gold has changed, and how, in spite of these changes, there has always been a demand for it.
Since primitive times gold has always been treasured by man because of its rarity, its beauty and its comparative indestructibility. It was only natural, therefore, that in
course of time it should come to be highly regarded as a medium of exchange or money. Many other commodities have been used as money—silver, copper, bronze, iron, stones, wampum, cattle, hides, to mention only a few. (Our word pecuniary comes from the Latin pecus, meaning cattle.) In due course, however, metals ousted other commodities because they were more convenient; ulti mately, gold, rivalled only by silver, established its preeminence as a monetary metal.
Originally, gold itself was used as a circulating medium, that is, it was made into coins and passed from hand to hand. But as trade expanded and money became more and more widely used, it was found more convenient to use paper bills or notes which could be exchanged for gold. With this development there emerged the "gold standard.” Gold itself was used less and less as a circulating medium, but over a large part of the world it became the sole legal standard and measure of value-—the yardstick in which all other values were measured. With the rise of the modern
banking system and the development of the use of "bank money” such as cheques, drafts, etc., gold tended to withdraw still farther into the background—into bank and government vaults—but it still remained the fundamental basis of the whole monetary structure.
The success of this pre-War gold standard system depended on a nice adjustment of international trade balances which need not concern us here, but its essential characteristics were that gold was the standard of value, that one could exchange paper currency for gold, and that once having secured the gold, one could move it about the world at will.
Today, an important change has taken place. Since the War, most of the countries of the world, headed by Great Britain, have swung away from the old-time concept of the gold standard. The theory of balance on which it was based was found unable to stand the shocks of post-War debts and trade maladjustments. Today you can no longer take a dollar bill into the bank and get its equivalent in gold, although the dollar bill you have is theoretically worth a certain amount of gold, and has to be “backed” by a certain amount of gold. We have seen that the Bank of Canada must, by law, have twenty-five per cent of its total note issue backed by gold.
In the years since the War, while the function of gold was changing as described above, its eminence or usefulness was seriously doubted and attacked. But gold still holds its position, largely because it is still regarded as being a basic standard of value. Some economists argue that the world has outgrown a standard of value based on one commodity; others that gold is not the most practical measure of value available. Dominant opinion, however, still favors gold as the basic measure, still believes that gold is uniquely equipped for the job. Granted that psychology has a good deal to do with the value placed on gold, it is true that gold is scarce enough and hard enough to obtain to give it some value in its own right. It occurs in many widely scattered places around the globe, and its production is not therefore likely to become a monopoly. It does not deteriorate like iron and other metals under oxidization. It is compact, and easy to carry around. When most of the world was on a gold standard, as it was known before the War, prosperous times inevitably followed the finding of a great new source of gold; hard times, a drying up of world sources. Some eminent historians have even traced the downfall of the great Roman Empire indirectly to a shortage of gold.
The question is often asked: Why is it that, although
the world goes on producing gold year after year, gold has been able to maintain its usefulness as a measure of value? The writer asked this question once of a prominent New York economist, who gave a surprisingly simple answer.
Averaged out over the years, the world’s annual increase in population and in business or international trade works out to about three per cent. Gold is the only product which, prior to and since the formation of the Bank of England, has, over the years, kept pace with this increase.
On the other hand, some opinion argues that the world's mounting debt structure may ultimately affect the role of gold. The combined governmental debt of the seven leading industrial countries of the world—United States, Germany, England, Italy, E'rance, Japan, and Canada--as measured in dollars, has increased from $65,731.000,000 in 1931 to $112,400,000,000 at the end of 1937. Some believe the gold standard system will ultimately break down under the mounting load, but many experts insist that adjustment will come through further revaluation of gold with a more equitable distribution of the world’s present gold supply, and that these measures will maintain gold’s supremacy.
We have devoted quite a lot of space to the monetary uses of gold, and yet have only dipped into this highly controversial subject. While its monetary' use is far and away its greatest use at the present time, gold has other minor functions. Gold is also used in industry and the arts. Again, in the slow-moving East, where it is still regarded as a symbol of wealth, it is hoarded in fluctuating but sizable amounts.
The yellow metal has many unique attributes which make it irreplaceable in the industrial and artistic fields. One of these is that its rich yellow lustre has always strangely appealed to the eye of Man—and Woman. Another is its great malleability. If you had the time and inclination, not to mention the gold, you could hammer one single gram of it, a piece about the size of a match head, into a leaf, 1/300,000 of an inch thick, covering six square feet. If you didn’t want to play at that, y'ou could take the same gram and draw' it out into a wire nearly one and a half miles long.
In some industrial applications, such as the manufacture of ornaments, watch chains, fountain-pen nibs, and so on, gold has to be alloyed w'ith some firmer metal because of its malleability. Chemical combinations of gold are also used in industry, such as in the manufacture of ruby glass, in gold plating, and in toning photographic prints. The telephone you use daily has gold in its contact points. A lot of it is still used in filling teeth.
Amount of Gold In World
PEOPLE never kept accurate records of gold production until the discovery of the New World in 1492. Even today, the record is more or less sketchy. Russia’s production is virtually unknowm, although extravagant and vague claims have been made by the Soviet Government, and Russia is usually considered as the second largest gold producer in the world. Again, who can guess how much gold is hoarded in India and the East? Or how much gold lies at the bottom of the seven seas, amid the rotted hulks of Spanish galleons and modern liners?
But despite all these obstacles, certain doughty statisticians have made a stab at it, and their conclusions, accepted by most authorities, are interesting.
According to their figures, if all the gold produced since 1492 were to be put together in one block, it would weigh about 1,262,000,000 fine ounces, or about 43,200 short tons avoirdupois.
This amount of gold would form a cube roughly 41 feet in dimension, and, at present prices, w'ould be worth about $44,170,000,000.
Of course, there was already quite a lot of gold kicking about the world prior to 1492, but this amount is thought to have been fairly well offset by the gold lost at sea, or buried with Uncle Tom's molars.
The forty-four billions are divided three w'ays: (1) Monetary gold. (2) Gold used in industry and the arts. (3) Hoarded gold.
Monetary gold is concentrated in the central banks and government vaults throughout the world. With the exception of Russia, which does not issue figures, this amount is fairly accurately known, and estimating Soviet holdings, bankers say that fifty-two countries of the w'orld held, as at Dec. 31, 1937, about $24,123,000,000 in monetary gold, of which United States has the lion's share.
Just how much gold is tied up in industry and the arts is not exactly known, but most of those attempting an estimate put the figure at about $12.500,(XX),000, including the gold in Uncle Tom’s teeth—where it serves an industrial, if not artistic, function.
When we come to the third outlet for gold - hoarding— we have to rely on another estimate. Your Indian potentate may be behind the times in valuing gold as a commodity to be hoarded, but he is a shrewd fellow' otherwise, and does not just sit on his gold hoard, come what may. He knows what the w'orld is paying for gold, and what the world is thinking about it. Thus these Evastem hoards are
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continually fluctuating. Only last year, during the “Great Gold Scare,” when a lot of people thought that at last there was too much yellow metal in the world, and that the price would have to come down, gold came pouring from these dim Eastern hoards, adding to the apparent acuteness of the problem. After the scare was over, the gold did not go back into hiding nearly as rapidly as it had come out, because by this time it had fallen into the hands of the United States, England, and others who valued gold for its functions as a standard of value. As a result, statisticians have pared down their estimates as to how much gold was hoarded in the bazaars and homes of India, and while in 1935 we find gold in private hoards estimated at $5,000,000,000, the United States Federal Reserve Board estimated the amount at the end of 1937 at only about $1,000,000,000, a comparatively small sum, and no longer regarded as a threat to the operation of government stabilization funds and maintenance of gold price stability.
Adding these three great uses to which gold is put, we have accounted for $37,623,000,000 of the $44,000,000,000 cube we
started with. You can amuse yourself of an evening trying to account for the rest. You will probably conclude that some of it is held in secret funds by various governments; that more of it has been lost in the ordinary course of mankind’s puttering around the face of the globe, and that perhaps the statisticians’ stab in the dark as to how much gold is hoarded by the dusky Oriental is below the mark.
There has always been a certain amount of superstition surrounding gold. Sir Martin Frobisher, the doughty Elizabethan navigator who in 1576 tried to find a northwest passage to India around Labrador, found some satisfaction in discovering a swarm of spiders, “which, as many affirm, are signs of great store of gold.”
But we have seen that it is not entirely superstition which has caused mankind to value this strange metal so highly from earliest times, and to be willing today to pay more for it than ever before.
Many, among them some of the world’s greatest thinkers, have sought to “debunk” gold, and the attempt is still going on.
But so is gold.