GOLD SHIPMENTS 1. Gold or specie points.—The use of bills of ex change as shown in Chapters IV and VI eliminates, in a great measure, the expense and trouble of shipping gold in payment of international indebtedness. The necessity of importing gold arises only when the seller of a bill of exchange finds the price offered for his bill lower than the expense entailed in purchasing gold in the foreign country and importing it. Similarly, gold is usually exported when a purchaser finds it cheaper to ship gold to his foreign creditor than to pay the ex change rate demanded.
In explaining exchange fluctuations, we have, for the sake of simplicity, thus far spoken as if a solitary seller or purchaser of exchange undertook the import or export of gold respectively whenever the rate be came unsatisfactory. In practice, however, the ship ment of gold is confined almost entirely to bankers and other large dealers in foreign exchange who have special facilities at home and abroad for undertaking such shipments. The merchant, therefore, or even the average banker, is not concerned in gold shipments, tho he is concerned in the rate of exchange which the shipments are intended to adjust.
The cost of a shipment of gold between any two countries can only be estimated, as it varies with the size of the shipment and the facilities and knowledge possessed by those who undertake it. Sometimes spe cial concessions are offered by a government in order to encourage the importation of gold into a country.
2. Gold values, Landon, and New York.—The operation and cost of gold shipments between New York and the various financial centers of Europe can be explained by reference to transactions with Lon don, with which point the majority of gold shipments occur.
Gold shipments between London and New York are made in several forms : The Royal mint in London pays the above prices a fortnight after the gold is delivered to them. The Bank of England pays on delivery at the rate of 77s. 9d. per ounce standard, the difference of 1Y2d. cor responding to about four per cent interest on the four teen days' delay exacted by the Royal mint.
The Bank of England will, as a rule, buy eagles and other coins (minted .900 fine) according to their full weight at the rate of 76s. 4%d. and sell them (if in stock) at 76s. 9d.
The United States mint assay office in New York pays 90 per cent of the above prices on delivery of the gold, and the remaining 10 per cent, less a small melt ing charge of 4 cents per $100, a few days later when the melting and assaying have been completed.
Gold sells according to weight and degree of fine ness and it should be noted that the values of eagles and sovereigns quoted above, are .900 and .916%, re spectively, of the value of fine gold bars. Gold bars are seldom absolutely pure by a few thousandths, but their value is easily established. A gold bar, for instance, that assays .995 fine is worth x 20.671835 or $20.568476 per ounce. The London price of gold is always based on standard gold 916% fine, at £3: 17: 10Y2 per ounce (£3.89375).
The ratio of the London prices to those of New York are as 1: 4.86656; in other words, divide a New York price by the corresponding London price and the quotient is the mint par value of the sovereign in dollars. Reverse the calculation and you get the par value of the dollar in English money.
3. Gold shipments from New follow ing description of a shipment of $1,000,000 in gold from New York to London is taken from Dean Jo seph French Johnson's "Money and Currency" and will serve as an example of how a shipment of gold is made under normal conditions.
During the last quarter of the nineteenth century the cost of shipping gold from New York to London fell from three to two cents per pound sterling. The charges for freight and insurance both declined, while the increased speed of transatlantic liners reduced the loss on account of interest.
The following figures, showing the cost of shipping $1,000,000 in gold from New York to London, were fur nished by the representative of one of the largest New York banking houses: Invested in fine bars, 23,200,000 gr. (48,375 oz.) $1,000,000.00 Assay office premium on bars, 4 cents per $100 400.00 Freight, %2 per cent 1,562.50 Insurance, ]jib per cent 625.00 Packing and cartage 70.00 Total outlay $1,002,657.50 The Bank of England's "price" of gold varies from 77s. to 77s. per ounce, English standard, 916% fine. The mint coins an ounce of gold, English standard, into 77s. but the Bank of England, with which it is the custom of bullion owners to deal, usually pays a fraction less than this sum, thus saving itself from loss of interest while the bullion is being coined. It is assumed below that the bank pays 77s. 10d. per ounce.