Gold exports and imports, while not constituting any great part of the activity of the average foreign department, are nevertheless a factor of vital importance in determining the movement of exchange. The loss of gold, in quantity, by some market may bring about money conditions resulting in very violent movements of exchange; or, on the other hand, such movements may be caused by the efforts of the controlling financial interests in some market to attract gold. The movement of exchange and the movement of gold are absolutely dependent one on the other.

Considering broadly this question of the movement of gold, it is to be borne in mind that by far the greater part of the world's production of the precious metal takes place in countries ranking very low as to banking importance. The United States, is indeed, the only first-class financial power in which any very considerable proportion of the world's gold is produced. Excepting the ninety million dollars of gold produced in the United States in 1908, nearly all of the total production of 430 million dollars for that year was taken out of the ground in places where there exists but the slightest demand for it for use in banking or the arts.

That being the case, it follows that there is to be considered, first, the primary movement of nearly all the gold produced—‌the movement from the mines to the great financial centers.

Considering that over half the gold taken out of the ground each year is mined in British possessions, it is only natural that London should be the greatest distributive point. Such is the case. Ownership of the mines which produce most of the world's gold is held in London, and so it is to the British capital that most of the world's gold comes after it has been taken out of the ground. By every steamer arriving from Australia and South Africa great quantities of the metal are carried to London, there to be disposed of at the best price available.

For raw gold, like raw copper or raw iron, has a price. Under the English banking law, it is true, the Bank of England must buy at the rate of seventy-seven shillings nine pence per ounce all the gold of standard (.916-2/3) fineness which may be offered it, but that establishes merely a minimum—‌there is no limit the other way to which the price of the metal may not be driven under sufficiently urgent bidding.

The distribution of the raw gold is effected as follows: Each Monday morning there is held an auction at which are present all the representatives of home or foreign banks who may be in the market for gold. These representatives, fully apprised of the amount of the metal which has arrived during the preceding week and which is to be sold, know exactly how much they can bid. The gold, therefore, is sold at the best possible price, and finds its way to that point where the greatest urgency of demand exists. It may be Paris or Berlin, or it may be the Bank of England. According as the representatives present at the auction may bid, the disposition of the gold is determined.

The primary disposition. For the fact that Berlin, for instance, obtains the bulk of the gold auctioned off on any given Monday by no means proves that the gold is going to remain for any length of time in Berlin. For some reason, in that particular case, the representatives of the German banks had been instructed to bid a price for the gold which would bring it to Berlin, but the conditions furnishing the motive for such a move may remain operative only a short time and the need for the metal pass away with them. Quarterly settlements in Berlin or the flotation of a Russian loan in Paris, for instance, might be enough to make the German and French banks' representatives go in and bid high enough to get the new gold, but with the passing of the quarter's end or the successful launching of the loan would pass the necessity for the gold, and its re-distribution would begin.

In other words, both the primary movement of gold from the mines and the secondary movement from the distributive centers are merely temporary and show little as to the final lodgment of the precious metal. What really counts is exchange conditions; it is along the lines of the favorable exchange that the great currents of gold will inevitably flow.

For example, if a draft for pounds sterling drawn on London can be bought here at a low rate of exchange, anything in London that the American consumer may want to possess himself of can be bought cheaper than when exchange on London is high. The price of a hat in London is, say, £1. With exchange at 4.83 it will cost a buyer in New York only $4.83 to buy that hat; if exchange were at 4.88, it would cost him $4.88. Similarly with raw copper or raw gold or any other commodity. Given a low rate of exchange on any point and it is possible for the outside markets to buy cheaply at that point.

And a very little difference in the price of exchange makes a very great difference so far as the price of gold is concerned. As stated in a previous chapter, a new gold sovereign at any United States assay office can be converted into $4.8665, so that if it cost nothing to bring a new sovereign over here, no one holding a draft for a pound (a sovereign is a gold pound) would sell it for less than $4.8665, but would simply order the sovereign sent over here and cash it in for $4.8665 himself. Always assuming that it cost nothing to bring over the actual gold, every time it became possible to buy a draft for less than $4.8665, some buyer would snatch at the chance.