Gold News

Gold Price: Open Suppression in Action

A short history of 1960s' London Gold Pool, and its failure to suppress gold prices...
By the BEGINNING of the 1960s, the US Dollar peg of 35 to 1 ounce of gold was becoming more and more difficult to sustain, writes Julian Phillips at The GoldForecaster.
Gold demand was rising and US gold reserves were falling, both as a result of the ever increasing trade deficits which the US continued to run with the rest of the world. 
Shortly after President Kennedy was inaugurated in January 1961, and to combat this situation, newly-appointed Undersecretary of the Treasury Robert Roosa suggested that the US and Europe should pool their gold resources to prevent the private market price for gold from exceeding the mandated rate of US$35 per ounce.
Acting on this suggestion, the central banks of the US, Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the "London Gold Pool" in early 1961. One wonders why they were so cooperative with the US.
Granted the gold that left these nations ahead of the war was still in the US and slowly but surely they felt it necessary to get it back. What happened in occupied Europe was that US Dollars became more abundant there and a market in 'Eurodollars' sprang up derived in part from US soldiers still in Europe. But the volumes grew more and more as the US established a perpetual Trade deficit feeding the rest of the world with them.
The 'Pool' came apart as Europe, under Charles de Gaulle, decided enough was enough and began to send the Dollars earned by Europe back to the US back and exchanged these for their gold. Then they were unwilling to continue accepting US Treasury Bills & Bonds in return. Under the terms of the 'Bretton Woods Agreement' signed in 1944, Europe was legally entitled to do this. It would appear that by the time the gold sent to the US before the war had returned to Europe, the US pulled the plug on exchanging gold for Dollars letting the London Gold Pool fold in April 1968. But the demand for gold from Europe did not abate. 
By the end of the 1960s, the US once again (as with the 1935 Dollar devaluation against gold) faced the stark choice of eliminating their trade deficits or revaluing the Dollar downwards against gold to reflect the actual situation. 
President Nixon decided to do neither. Instead, he repudiated the international obligation of the US to redeem its Dollar in gold just as President Roosevelt had repudiated the domestic obligation in 1933. On August 15, 1971, President Nixon closed the "gold window" at the New York Fed.
In other words the US defaulted on its agreement with Europe and once again Europe tolerated it. We have to ask why? How could a currency with, what was to become perpetually undermined by being printed and exported, continue to stand and become the world's sole reserve currency and not collapse?
Military might, might add some pressure, but not among the allies. No, the key lay in the then established fact that you could only buy oil with US Dollars.
Nearly everything modern needed oil to work. Most nations import bills comprised 25% of so of oil. The US controlled Opec. and provided their political and military security. In turn the US had a firm grip on all their allies and secured their financial 'empire'. 
The last link between gold and the Dollar was gone. The result was inevitable. One of the prices paid by the US was to permit the oil producers to 'nationalize' their oilfield, production and the US and British companies that ran them, the 'seven sisters'. The oil price began to run up from $8 a barrel to $35 a barrel vastly increasing the demand for Dollars and US Dollar liquidity. The US in turn permitted this, provided that the oil producers reinvested the capital they earned into the US Treasury market and US equities and US products (including military hardware). They were allowed to keep the interest income in their own hands under these conditions. This prevented the oil producers posing any financial challenge to the US 
The Persian Gulf was defined as part of the US' 'vital interests', as a result. So if the allies in Europe wanted their economies to function properly they had to accept this fact. Quietly they accepted more and more US Dollars into their foreign exchange reserves. 
As the oil price rose the pressure on all currencies climbed too. In February 1973, the world's currencies were "floated". They were allowed to move to levels that reflected the state of their Balance of Payments. The US was excused all such value measurements because it was so needed by all.
By the end of 1974, gold had soared from $35 to $195 an ounce in an almost mathematically neat progression. This did not make the US happy at all, as it highlighted the real weakening of the US Dollar and the sagacious investor was fully aware of this.
So a war on gold was begun. This was not just manipulation but a transparent bullying attack on real money. At first the tactics used underestimated the power of gold and the trust placed in it.
Nevertheless the common theme to this manipulation was to suppress the gold price.

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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