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Reflexions on gold

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Published : July 19th, 2010
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Category : Gold and Silver

 

Reflexions on gold


Eric de Carbonnel

Market Skeptics

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This is the section on gold, which still needs explanations, but is otherwise done.

 

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gold as an inflation hedge

 

it is little wonder that gold has been chosen in most nations as an inflation hedge. South African gold marketers — in an attempt to sell the popular South African rand, a coin, containing precisely one troy ounce of gold — trace the march of inflation 400 year back.

Specifically, between 1560 and 1974, the South Africans say that the cost of living increased by 7,653 per cent. During that period, they say, the price of gold increased by 7,690 per cent. Says a proposed ad, “you could call it a good hedge against inflation.”

 

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Dollar Crisis Weathered

 

Dollar Crisis Weathered
Milwaukee Journal - Google News Archive - Sep 18, 1962

A mood of cautious optimism about the dollar appears to prevail at this week’s meetings of the international Monetary Fund (IMF) and World bank in Washington.

The world’s money managers and financial experts are being told that the key currency is in better shape than it has been in two years. The root difficulty—the persistent deficit in this country’s international balance of payments—is becoming less severe. By the end of next year, the Kennedy administration hopes to eliminate the deficit completely. This would slow down or halt increases in foreign holdings of dollars.

The current good health of the dollar is a partial tribute to the new spirit of co-operation in international monetary circles. The United States now can turn to foreign central banks and fiscal authorities for help in easing the damaging shifts of capital between countries. Foreign banks have established a gold pool to fight speculation on the London gold market. The IMF stands ready to use its reserves to help cushion the dollar if the United States should suddenly be hit by an outflow of short term funds. All of these measures help maintain calm and stability in the international money markets.

The battle of the dollar is not won, however. The American economy has yet to prove that it can grow at a rate fast enough to restore complete confidence in the currency. This involves keeping the lid on inflation, maintaining a favorable trade balance, winning greater access to new markets in wester Europe.

 

See Federal Reserve Archival System results for London "gold pool"

 

Quiet Pooling Of Resources Stabilizes The Gold Market

 

Quiet Pooling of Resources Stabilizes the Gold Market
Fort Scott Tribune - Google News Archive - Feb 26, 1963
By SAM DAWSO?’

AP Businss News Analyst

NEW YORK (AP) United States money transactions with the rest of the world have taken a turn for the worse in recent months. But there’s been nothing that could be called a new raid on its gold reserves, Times have changed.

the stability of gold and the evident strength of the dollar in world financial markets is cause of considerable satisfaction.

Much of the thanks goes to the group of central bankers, American and foreigners, who have rigged up a device to halt the raids that in the past unsettled one or another currency and for a brief period put the American dollar under strain to the surprise of most Americans who thought it as good as gold.

The group acts quietly. In fact, American money managers have never officially said the United States was taking part. But the success of this quiet pooling of international financial resources to protect currencies against the stress of temporary ups and downs of trade and financial balances shows plainly in the stable gold market as reported daily from London. This week prices have been below $35.08 an ounce, making any buying of U.S. government gold unprofitable.

This very real, if officially unannounced, international gold pool keeps the London free market stable simply by buying when the price is below the official U.S. Treasury figure. When the price goes above that figure the pool can step in and sell.

This swells the amount of gold available and as the supply goes up the demand is met and the price returns to the desired level.

The pool doesn’t pretend it can protect the dollar forever if the balance of payments deficit keeps mounting. That is why the United States has taken many measures to boost the total U.S. exports on one hand and to discourage the outflow of dollars on the other. The measures have fallen short of their goal.

 

Gold Still Drains Off

 

Gold Still Drains Off
Miami News - Google News Archive - Jul 6, 1965

VAS11iNGTON — Private gold hoarding and speculation in the first quarter of this year drained off nil the newly mined gold and an estimated $250 million from official monetary reserves as well.

Most of this drain almost certainly occurred through the operations of the gold "pool" in London. Acting for a group of the leading financial nations the Bank of England controls the London gold market, selling to hold down the price when demand is heavy and buying for the account of the pool when demand is light.

The Bank of England uses newly mined gold from South Africa for its sales and can also call upon the official reserves of the members of the pool when necessary. The United States’ share in the pool is 50 per cent.

Thus it is probable that upwards of $100 million of the U. S. gold loss this year has gone straight into the hands of gold speculators, not into other countries’ reserves.

Gold speculation was heavy in the early months this year, largely because the crisis of the British pound led to fears of a general currency upheaval, including fears of a devaluation of the dollar. A dollar devaluation means an increase in the price of gold.


 

Gold Data: Lesson in Artful Dodging

 

Gold Data: Lesson in Artful Dodging
Wall Street Journal - Aug 1, 1967
By RICHARD F. JANSSEN

WASHINGTON -- "In this business, you have to choose between lying to people or scaring them to death.” The speaker isn’t a doctor or a nuclear bomb expert but a Johnson Administration official coping with the balance of payments problem. His choice is usually clear: Don’t public or more pertinently the nervous bankers abroad who could cash in their dollars and touch off a run on the nation’s gold supply...

Illustrating the uncertainty among outside analysts is this year’s decision of the New York based National Foreign Trade Council to halt its long practice of forecasting of payments deficit. Instead the respected council estimated most components individually and stopped right there cautioning that it no longer dared predict such items as the dollar inflows.

AII the shadowy activities revolve around the persistent payments deficit—which has as foreigners acquired more dollars than they returned to the U.S. … With $29 billion of foreign owned dollars stacked up as potential claims on $13.2 billion gold stock figure, they have ample reason for what's left as best unsaid...

Since international high finance is so subtle, ... the dilemma rarely has to be resolved with the outright lie either. Instead the Administration is ever more shrewdly guarding the dollar’s value abroad and intelligence about it through little known techniques that range from doublecounting gold bars to tinkering with of otherwise routine Government securities. The result is a web of statistics that mask almost as much they display about the dollar outflow.


… Some of this double counting dates back to the 1950s when the IMF made gold investments in interest earning short-term Treasury securities. The fund can reclaim this $800 million gold whenever it wants. And 5228 million more is gold the U.S sold outright for dollars in the last year or so to smaller nations so they in turn could make their mandatory quota payments to the IMF. Swiftly before these show up in Government data, the IMF restored this gold to the Treasury as a special deposit. The purpose was clearly by both parties. Mitigation of the original sales effect on the U.S. statistics…

Only a discreet footnote following in Government statistical publications brings these double countings to light. But because they were openly announced when they were initiated, Washington officials contend they aren’t really deceptive...

Happily for officials anxious to put the best face on the figures, there’s no simple standard for deciding just what is a dollar going into foreign hands and thus swelling the payments deficit. Few of them are greenbacks carried out of the country the basic measure comes from major banks reports of how foreigners checking accounts went up or down during a reporting period. These dollar deposits are considered liquid liabilities. Also counting as liquid liabilities are the dollars foreigners invest in most Treasury securities regardless of their maturity and dollars they invest in other Federal securities and bank certificates of deposit having original maturities of less than one year. But the self-imposed accounting standards that class these as liquid liabilities are sterner than those in most other nations, so Administration men argue that it’s not dishonest to bend events around them to America's best advantage. Thus it was that, because a single day’s added maturity would make these short-term investments count as a favorable dollar inflow, a recent a 400 million debenture offer by the Federal National Mortgage Association appeared with maturity of one year and two days. If foreigners should chance to buy some it would help rather than hurt the payments position.

 


Privately foreign financial officials are delighted to see Walther Lederer, the Department's chief payments economist, persistently pointing out that there’s no real advantage for the U.S. in getting foreigners to put dollars in securities that are just barely over an arbitrary line.
The Treasury is very clever but Walther spoils it by being so honest one embassy aide snickers.

foreign purchases of such securities aren’t being left entirely to chance. Other governments are frequently coaxed to rechannel their dollar investments into the most statistically soothing forms. It's partly because the Treasury can quietly arrange such investments at the last minute before a balance of payments reporting period ends of course that forecasting the deficits has become so much less attractive to private predictors. In the first 1967 quarter for instance it was largely a spate of foreign official purchases that spared the Government from having to report a deficit close to $900 million instead the figure was roughly $540 million...

It's not all arm-twisting a State Department official insists arguing that interest rates on short-term Federal securities and bank certificates of deposit have been high enough to inspire such purchases voluntarily. Even so, the growing awareness in Washington that pressures are applied makes the topic a sensitive one.



 

Discreet Dissembling

The discreet dissembling is squarely in the public interest officials are convinced. To give the world a glimpse at raw payments deficit figures for just a single month or at one day’s actual gold outflow they argue could prove disastrous. While U.S. authorities might take an immensely adverse number calmly knowing a big inflow is on the way, such a figure might so frighten outsiders that greater exodus of dollars would result.


Even a prominent private financier who helped create the Government's dollar defenses confesses that he can’t tell anymore what our balance of payments trend is. Since he has left Washington ho says the dodges have become even more artful. The Treasury's credibility problem is becoming terrible...

 

Us Looked To For More Gold Action

 

U.S. Looked To For More Gold Action
Daytona Beach Morning Journal - Google News Archive - Dec 18, 1967

LONDON (AP) — Financial experts in London looked to the United States Sunday for measures to halt panic buying of gold, which is expected here to continue in the world’s bullion markets.

The London experts expressed doubt of U.S. ability to stem the flood of buying orders which have poured in on all bullion markets since Britain’s Nov. 18 devaluation of the pound.

Authoritative estimates put the amount of the metal that has moved out since then through the international gold pool in London at more than 1,000 tons worth about $1.1 billion.

Nearly 60 per cent of that gold came from the United States.

The experts explained the gold rush as a coincidence of widespread loss of faith in paper money as a result of the pound’s devaluation, inflation in much of the world, and a broad belief held by international speculators that the price of gold must rise.

Some British economists and politicians add to this their feeling that President charles do Gaulle of France may have had a hand in fomenting the gold rush. The French, however, strenuously deny this.

France withdrew from active participation in the eight-nation international gold pool, which operates out of London, in June when Paris refused to supply more gold. The pool was set tip in 1961 to stabilize the gold market by buying or selling the metal as needed to satisfy demand.

The dollar came under pressure Friday in Europe’s money markets, except in London, after showing strength all week despite the gold rush.

The sale of dollars by European holders showed the fear of many on this side of the Atlantic that the dollar was weak because of the continuing—and increasing—deficit in the American balance of foreign payments.

 

The TIME article below was written in March 1968, as the "London Gold Pool" collapsed under a speculative gold stampede.

 

Speculative Stampede
Friday, Mar. 22, 1968

Quietly and secretly, technicians at Fort Knox, Ky., loaded an estimated $450 million worth of gold ingots [about 410 tons of gold] onto a heavily armed convoy. The convoy proceeded to a nearby U.S. Air Force base, where the gold was loaded aboard a transport plane and flown to Britain.

There, it was sent to the Bank of England, to be transported by Swissair and British European Airways flights to the coffers of Swiss banks. The influx of gold became so bulging, in fact, that one Swiss bank had to reinforce the walls of its vault to contain it. It was all part of the largest gold rush in history, a frenetic, speculative stampede that last week threatened the Western world with its greatest financial crisis since the Depression.

Socks & Mattresses. Telephone and telex lines to London, the world's largest gold market, were swamped as buyers throughout Europe demanded gold, gold and more gold. More than 200 tons, or $220 million worth, changed hands on the London gold market in one day to establish a new single-day trading record. Where gold could be bought directly, mob scenes erupted and the price soared. Ten times the usual number of buyers jammed the gold pit in the cellar of the Paris Bourse, and fist fights broke out as the price on one day rose to $44.36 an ounce v. the official price of $35. In Hong Kong, frantic trading drove the price up to $40.71, and around t

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