102.1/10–1544: Telegram
The Ambassador in China (Gauss) to the Secretary of State
Chungking, October 15,
1944—2 p.m.
[Received October 16—4:20 p.m.]
[Received October 16—4:20 p.m.]
1681. For Treasury from Friedman.
- 1.
- Some discussion of gold sale program took place at PPC19 meeting but largely confined to asking for details of program. Interest shown in existence of black market and in difference between black market and official prices and questions asked as to why these conditions allowed to continue. Points made that ordinary merchants found difficulty in obtaining gold in market and that sale in form of large bars made it impossible for ordinary individuals to purchase at official price. No resolutions passed or introduced on this matter. Considerable discussion did take place on desirability of Government commandeering foreign exchange resources of private citizens and using them to help finance program of improving condition of soldiers and this still being discussed by Standing Committee of PPC. Suggestion [Page 943] made in PPC that dollars acquired in this manner could be converted into gold and sold. (Reurtel 1316, October 10).
- 2.
- Ta Kung Pao on October 1 carried article by Prof. Wuchi-Yuan of South-West Associated Universities, Kunming adversely critical of gold sale policy. Wuchi-Yuan does not oppose sale of gold but feels should not be sold to “rich class at low prices.” Sale gold price should be CN dollars 70,000 per ounce. If not sold at this price should be conserved for post-war use. In off record conversation Hu Lin, manager Ta Kung Pao, told me that paper was in general agreement with United States position. Commercial Daily News on October 6 carried editorial opposing sudden increase to dollars 70,000 per ounce but favoring gradual increase; seriously questioned desirability of gold sale policy, said justifiable only as last resort because there will be more important uses after the war. Attempting to obtain more on press criticism and PPC meeting on gold sale policy.
- 3.
- Widespread opinion that official gold price is too low; Kwok20 opposed to raising gold prices unless he has on hand stocks adequate to meet demand for week following change; expects increase in price would further stimulate demand.
- 4.
- Regarding 1. (b) of your telegram, word “forward” garbled. There is no difference between forward price and spot price. Central Bank requires full payment in advance and guarantees delivery on arrival without specifying time. This practice (a) guarantees speculators and hoards [hoarders?] who are chief purchasers that [they?] will get gold since there is constant fear in market that Government will cease gold sale program and (b) protects purchasers against rise in price.
- 5.
- There is considerable spread between official and black market prices. Black market rises whenever Central Bank sells forward because of shortage of stocks on hand. However, as Central Bank has repeatedly met its commitments when gold shipments have arrived, during each successive period of black market sales the price has tended not to rise as much from level which prevails during period of spot sales, e. g., during first half of September black market price reached high of $28,500 per oz; in second half of September $25,000; early October $24,000 and on October 13 $22,600. Speculators take advantage of this difference by selling own stocks on black market and buying forward from Central Bank at official prices. Kwok claims that Government can not eliminate black market except by being always able to sell for immediate delivery. Gold sales October 1 through 13 total 108,007 own [ounces?], of which 57,600 undelivered commitments.
- 6.
- Since September 28 old [gold?] purchasers required to purchase “community welfare savings certificates” issued by four Government banks and Postal Savings Bank equal to 10% of gold purchases. Certificates mature in 3 years and pay 8% interest. Central Bank permitting goldsmiths to pass on this burden to ultimate purchaser in form of resale of certificates to customers.
- 7.
- Gold deposit program said to be still unimportant. Purchasers of gold deposits still not required to purchase certificates; no effect noted as yet on volume of gold deposit. [Friedman.]
Gauss