1 SEPTEMBER 1939, Page 30


One justification for the Bank Rate rise is, of course, that the authorities could scarcely have avoided taking such an orthodox step before withdrawing the peg from sterling in the exchange market. This has been done with the approval of the United States and France, the other members of the Tripartite Currency Agreement, and is designed to ease the strain implied by a rigid defence of the pound at a pegged level. As may readily be imagined, the pegging of sterling at 4.69i had only been practicable at a heavy cost in gold to the Exchange Equalisation Account which alone was the buyer of the sterling offered for sale. Removal of the peg has meant that would-be sellers of sterling, instead of being able to get out at a fixed price, have had to take whatever rate has been available in a free market. Inevitably, the pound has fallen—it touched 4.10 at one time on Monday —and as a corollary, the sterling price of gold has risen spectacularly by about ism. an ounce. How much of this substantial fall in sterling, and consequently, of the rise in the sterling price of gold is a reflection of the fact that previously the pound was over- valued and how much must be regarded as purely " temporary," i.e., due to a flight of mobile money from Europe to the United States, it is hard to say. I shall be surprised, however, if, in the event of peace, sterling recovers quickly to the old pegged level of 4.69. A moderate depre- ciation to, say, 4.45 would be by no means surprising, which would give a sterling price for gold of roughly 157s. an ounce. That would mean a very big gain for gold mining companies all over the world, even allowing for the possibility of increased taxation. This week such buying as has taken place in speculative markets has been signifi- cantly concentrated on the leading Kaffir shares.