Finance: Symptoms of Malaise

After last November's devaluation of the British pound, persistent fears of a much greater upheaval began gnawing at the foundation of world finance. The resulting rush to exchange dollars for gold drained well over $1 billion from the dwindling U.S. hoard of bullion, cost the seven-nation London gold pool close to $2 billion. Like Britain, the U.S. has been living extravagantly be yond its budget, partly because of the heavy cost of the Viet Nam war but also through increased spending at home. Speculators' appetite for gold is only the most dramatic symptom of a monetary malaise that has also bred inflation, balance of payments deficits and a downturn in the world stock market.

Last week a second gold fever gripped Europe and again it was fed by doubts about the strength of the dollar and the international monetary system. On the London market, gold purchases reached some $300 million, many times the nor mal demand. Because the fortunes of sterling and the dollar are closely linked, that was enough to drive the value of the pound down to a record low of $2.392, despite efforts by the Bank of England to prop it up. (In Montreal, quotations in 9210 Canadian dollars registered a comparable price.) Gold sales also soared in Paris, Zurich and Frankfurt. Everywhere, buyers were betting that the U.S. would be forced to raise the price of gold — a step tantamount to devaluing the dollar. Though the Treasury and White House Press Secretary George Christian reaffirmed the obviously firm U.S. intention of continuing to sell gold at $35 an oz., the rush only quickened at week's end. Bullion dealers reported that hoarders and speculators from all over the world were seizing what many believed to be a last chance to buy gold that cheaply.

Spreading Ripples. Some influential U.S. bankers have been prodding Washington lately to drop its insistence on the price fixed for gold in 1934. That heresy prompted rumors in Paris that the U.S. would embargo further sales of its gold. Two weeks ago, in a Senate speech, New York Republican Jacob Javits added to the doubts by urging that the U.S. pull out of the London gold pool, stop selling gold to foreigners on demand, support the dollar by buying and selling foreign currencies as other countries do. (The Treasury promptly denied any such intention.) Then there were reports that South Africa, the leading gold producer, might switch from Britain to France to mar ket its metal. South African Finance Minister Nicolaas Diederichs scarcely quelled that worry when he commented last week: "A change isn't impossible."

Predictably, the gold rush spread ripples through stock markets on both sides of the Atlantic. The price of gold-and silver-mining shares spurted on the London Stock Exchange in response to heavy domestic, continental and U.S. orders. On the New York Stock Exchange, the Dow-Jones average dipped to a 14-month low of 827.03, then rallied a bit to end the week at 835.24.