50 Years Of Free Gold
It is difficult to say when the ‘free’ gold market came into existence, since there always has been one. Yes, the goldprice has been set and fixed by governments for long periods of time throughout history, as part of various types of goldstandards. However, gold prices always have fluctuated around those official prices.
Setting such nuances aside, the modern gold market 50 years ago this month when the free or private gold price spun outof the control of central banks and governments. A more accurate description is that the fixed dollar-gold exchange ratethat existed in the period from World War Two became too expensive and economically destructive for governments tomaintain, so they let it go. The process of letting go started in March and April 1968. The change came in two bigmoves in March and April 1968: The closing of the London Gold Pool and the closing of the U.S. Treasury’s privategold window, through which non-governmental people and entities traded dollars for gold held by the Treasury.
Central banks closed the London Gold Pool and stated they no longer would trade gold and currencies in the open marketin an attempt to keep the market price of gold in line with the official $35 per ounce price at which central bankstraded gold among themselves. Efforts to keep the two prices aligned had cost central banks hundreds of millions ofounces of gold and billions of dollars from the late 1940s through 1968. In March and April 1968 they gave up trying.
A bit of historical background helps explain all of this. As just stated, a free gold market always existed parallel to anyofficial gold standards and gold policies. At times the free gold market was illegal, but at other times it just was there.As World War Two was winding down the global community created the International Monetary Fund at BrettonWoods in 1944 and established what would be a post-war international currency system centered on a U.S. dollar thatwas convertible to gold at $35 per ounce. Other currencies were convertible into U.S. dollars at fixed exchange rates. Asthe post-war era proceeded and economies grew at different paces, the fixed exchange rate system caused monetary crisisafter monetary crisis. During this time a few countries allowed private ownership of gold. As the 1960s progressedmost European countries opened up free private gold markets. The U.S. followed suit on 31 December 1974.
Under the Bretton Woods system there were two ways in which the U.S. dollar was exchangeable into gold. One wasthe official public gold window through which national treasuries, central banks, monetary authorities, and ministries offinance could exchange their dollars for gold at $35 per ounce. The other was the private gold window, which allowednon-government holders of gold to exchange dollars for gold.
There was a massive drain on U.S. gold reserves under the Bretton Woods dollar-gold standard. U.S. Treasury goldholdings totaled 652.0 million ounces in 1950. By 1960 they were down to 508.7. By the end of 1967 they were down to344.7 million ounces. The first quarter of 1968 saw a massive monetary and financial crisis, not accidentally coincidentalto the Tet Offensive in Vietnam and major political problems in the United States. Governments and private entitiesturned in $1.17 billion dollars in exchange for 33.5 million ounces from January into April 1968.
This led to a series of changes in the official gold market. On Sunday 17 March an announcement was made that on thefollowing day, 18 March 1968, the London Gold Pool would be closed. The U.S. Congress on 18 March reduced thegold cover of U.S. dollars in circulation to 25%.
President Lyndon Johnson announced that week that the private gold window was closing, that private entities no longercould directly turn in their U.S. dollars in exchange for Treasury gold. The date of the decree is lost to history, a scouringof the internet indicates, but the decree was made in the second half of March, and was effective in April 1968.
CPM Group’s 2018 Gold Yearbook available as of 27 March 2018. The Yearbook may be purchased for $160. Sendrequest to info@cpmgroup.com.
By Jeff ChristianContributing tokitco.com
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jchristian@cpmgroup.comwww.cpmgroup.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.