"Not Right Now"

Speaking of commodities in general and copper and steel in particular, President Roosevelt declared last fortnight that prices were entirely too high (TIME, April 12). As an experiment in talking down inflation, the President's pronouncement had by last week proved a notable success. His words touched off a world-wide break in commodities which left copper 1 1/2-c- below its 17-c- -per-lb. high, lead off 1 1/4-c- (high: 7 3/4-c- per lb.), rubber off nearly 3#162; (high: 27#162; per lb.), wheat off 6#162; (high: $1.45). Most other staples tumbled proportionately, while the stockmarket took the deepest dive in nearly three years. At week's end such speculative stalwarts as U. S. Steel, Johns-Manville, Air Reduction, Anaconda Copper, International Nickel, International Harvester, were selling from 10 to 28 points below their 1937 highs.

No small part in the stockmarket break was played by the week's premier rumor --that the Treasury was about to cut the price of gold, now $35 per oz. One of the oddities of the New Deal's monetary legislation is that only the President has power to change the official gold content of the Roosevelt dollar, and then within fixed limits (50% to 60% of the Hoover dollar). Its present value is about 59#162; , so that its theoretical value could be revised in only one direction--down, which would indicate higher gold prices, not lower. Yet the sole U. S. market for gold is the Treasury, and the Treasury may pay any price it pleases. Thus if the Treasury one fine day decided to offer $20.67 per oz. for gold instead of $35, the dollar, for all practical purposes, which means in foreign exchange, would be right back where it started in 1933.

Any reduction in the Treasury's gold price would be: 1) directly deflationary and 2) a quick method of halting the flow of foreign funds to the U. S. Since the intertwined problems of inflation and "hot money" are very much on the Administration's mind, last week's rumor about price-cutting in gold seemed by no means fantastic. Where it started no one could be sure. One story was that Russia sought a 60-day guarantee on the $35 price for future gold shipments, and having been refused for the good reason that the Treasury's buying policy is, and always was, on a 24-hour basis, concluded that a change was imminent. The Treasury's story was that some Manhattan bank concluded the same thing after a similar inquiry about future prices. Best guess was that it started abroad after some Manhattan bank notified its foreign correspondent that it was temporarily out of the gold market. Profits on gold transactions have been getting as slim as $250 on $1,000,000 worth of the metal, and with money rates rising the banks can now use their funds to better purpose elsewhere.

Whatever the source of the rumor, it would not be downed. Repeated denials emanated from "high Treasury officials." At his mid-week press conference President Roosevelt said he had given no thought to a reduction in the gold price or to any other device for shutting off the gold inflow. Secretary of the Treasury Morgenthau also tried to down the rumor but only made it worse by replying to a direct query on whether a change was contemplated: "Not right now."

Meantime the dollar was soaring in foreign exchange, the franc had another bad spell, and a near-panic occurred in South African gold shares on the Johannesburg Exchange. Not until after President Roosevelt emphatically denied the rumor a second time did the world's money-changers shake their jitters. The President said he knew of no plan to tinker with the price of gold, that all he knew about it was what he saw in the newspapers. He said he understood the story originated in the foreign press. Nevertheless, suspicion remained that the great gold scare had been founded on more than fantasy. Chairman Marriner Stoddard Eccles of the Federal Reserve Board in his recent FORTUNE article on how to control booms & depressions listed manipulations of gold prices as a likely tool.

The New York Times's Arthur Krock suggested that a hint of cheaper gold prices might be useful in negotiating trade and money pacts with Britain, the Empire being by all odds the world's biggest gold producer.* Even if the Administration did not loose the gold rumor as a trial balloon, it certainly did not shoot it down on sight.

*Even without pressure, Britain is already cooperating with President Roosevelt in trying to head off inflation. Buying of U. S. securities by British investment trusts is being "discouraged," and in the past fortnight British banks tightened up on credit to U. S. speculators trading through London.

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