More Gold, Less Deficit

During the height of its monetary crisis last March, the U.S. lost some $1.2 billion worth of gold, the biggest outflow ever in one month. Since then, the situation has eased. In April, the nation's gold loss dropped to $156 million, in May to $79 million. Last week came the most encouraging word yet. During June, the Treasury Department announced, the U.S. enjoyed a net inflow of $213 million worth of gold, the biggest single increase in the nation's bullion reserves in more than four years and the first monthly gain of any kind since last September. The June turnaround brought U.S. gold holdings to $10.68 billion.

The easing of the gold drain can be partially attributed to the success of the four-month-old "two-tier" price system. Under that arrangement, the U.S. now sells bullion at the official $35-per-ounce price only to foreign central banks, thus forcing private speculators to purchase gold on the open market. Gold fever has also been dampened by the fact that France is no longer in a position to cash in dollars for U.S. gold. On the contrary, a good part of the gold that has flowed into the U.S. comes from France, which has been forced to dip into its hoard to defend the beleaguered franc.

Above all, the latest gold figures reflect the fact that foreign governments are no longer in such a hurry to cash in their dollars as they have been. The new confidence in the dollar has been brought about in part by continued improvement in the U.S. balance of payments position. The nation's payments deficit soared to $1.74 billion during last year's final quarter, then dropped to $606 million in the first three months of 1968. The deficit for the quarter that ended June 30, a Government official said last week, is expected to be "substantially" lower still.

New Sources. A major cause of the brighter payments picture is the set of mandatory controls that the Johnson Administration imposed on corporate investment abroad last Jan. 1. The controls are designed to reduce the dollar outflow by a total of $1 billion in 1968, and it now appears that they will do so without seriously impairing overseas business expansion.

Restricted in the amount of dollars and foreign earnings that they can invest in their international operations, U.S. companies have been finding new sources of capital on European money markets. Last week the Government reported that U.S. corporations figure to borrow, or arrange to borrow, more than $3 billion abroad this year. Because of their success in arranging loans such as these, the total U.S. corporate investment abroad this year is expected to surpass the $10.2 billion it totaled in 1967--without increasing the dollar outflow.

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