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The London Gold Pool Revisited!

Commodities / Gold & Silver May 17, 2007 - 08:10 AM GMT

By: Mario_Innecco

Commodities

Back in the 1960s when the dollar was still fixed to gold at a rate of $35 per troy ounce the United States Treasury and the other financial “policy makers” of the time were having more and more difficulty in maintainig this fixed rate of $35 in the London and European foreign exchange markets.

From 1933 to 1975 gold could not be traded in the United States so there was no official market in New York. The major reason for this difficulty in keeping gold pegged at $35 per troy ounce was that the U.S. government was printing dollars with no corresponding increase in its gold reserves and as a result the participants in the market started exchanging these inflated dollars for real thing!


This is how Bill Buckler of The Privateer descrided the situation: “ By the beginning of the 1960s, the $US 35 = 1 oz. Gold ratio was becoming more and more difficult to sustain. Gold demand was rising and U.S. Gold reserves were falling, both as a result of the ever increasing trade deficits which the U.S. 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 U.S. and Europe should pool their Gold resources to prevent the private market price of Gold from exceeding the mandated rate of $US 35 per ounce. Acting on this suggestion, the Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the “London Gold Pool” in early 1961. ”

The Pool came unstuck in 1968 as the participants had had enough as the wave of inflated dollars kept flooding the market as the United States kept printing dollars to pay for the Vietnam war and Lyndon Johnson's Great Society welfare program. The French under Charles de Gaulle's leadership broke the pool as they started redeeming their paper dollars for gold.

Today we are experiencing a similar situation as the United States is involved in another war, this time in the Middle East, and at the same time is running huge trade and current account deficits with its trading partners in order to keep the American consumer happy. The dollar, of course, is not pegged to gold anymore but the price of gold is still a signal pointing at U.S. government inflation and profiglacy. With gold approaching $700 per troy ounce in the last couple of months we have seen Central Banks selling .

The other pattern we have noticed is that the gold price seems to firm up during Far East trading hours and the sell off in the London AM session prior to the New York AM opening. The “London Gold Pool” of the 1960's was an overt agreement as the fixed price of gold was official policy. Nowadays there is no official or pegged gold price but it surely looks like a covert “London Gold Pool” is trying to keep the price of gold supressed. Have a look at the chart below and notice how in the last six trading sessions gold has fallen as we approached noon in London!

It will be interesting to see the day when this 21st century “London Gold Pool” breaks!

The 21st Century “London Gold Pool” in action

 

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

tuu
18 May 07, 09:37
vn

thank you for your gold market commentary


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