Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1962

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'Monthly Review
ALASKA

FEDERAL RESERVE BANK OF SAN F R A N C I S C O
T WE L F T H

F EDERAL RES ERVE DI S T RI CT

J'QhAiJuaAj^ 1962
^ H IN G T O N

J n D l is

lie

Review of Business Conditions................ page 22
The Search For Certainty In An Uncertain World
PART

IV

International Gold Movem ents................ page 29
Gold Production
Gold Movements
Summary and Conclusions

GON

m
o


CALIFORNIA


UTAH

Review of Business Conditions
advancing on a broad front in N o­
vem ber and December, national busi­
ness activity slackened in some m ajor sectors
in January and early February. The index of
industrial production declined 1 percentage
point in January, following a three-m onth
rise, and was 114 percent of the 1957 aver­
age. The economic picture was brightened,
however, by a decline in January in the sea­
sonally adjusted rate of unemployment to 5.8
percent, m arking the first time in 16 months
that it had been below 6 percent. Total em ­
ploym ent of 65 million was a record for the
m onth of January. Nevertheless, the Secretary
of Labor warned that the problem of hard­
core unemployment had not yet begun to di­
minish since the num ber of persons unem ­
ployed for four months or more still remained
at 1,250,000, almost unchanged from the
year-ago level. M anufacturing employment
at the end of 1961 was about 500,000 jobs
short of the early 1960 level, with the entire
drop concentrated among production w ork­
ers. Construction, transportation, and mining
employment, seasonally adjusted, have de­
creased by 80,000 jobs since the cyclical up­
turn began in M arch 1961, adding to their
recession losses of more than 300,000 jobs.
Personal income in January declined to a
seasonally adjusted' annual rate of $430.3
billion, down slightly from the December high,
but nearly 7 percent above the year-ago rate;
contributing factors to the January decline
were the greater than seasonal reduction in
the factory workweek and a decrease from the
record volume of dividend payments in De­
cember.
Although overall industrial production
edged downward in January, steel production
continued the upward trend of December by
advancing continuously from the first of
January through the week ending February
3. Production rem ained unchanged in the
succeeding week and then rose slightly in the
middle week of February. Auto assemblies,

A

fte r




adjusted for seasonal factors, declined 10 p er­
cent in January from the near-record Decem­
ber rate and were more nearly in line with the
improved rate of dealer sales. On an unad­
justed basis, auto production in January ex­
ceeded the high level of output in December,
but output slipped below the corresponding
January volume in the first three weeks of
February. However, both new car production
and sales continued to run sharply ahead of
year-ago levels.
Inventories of m anufacturing and trade
concerns continued to rise in Decem ber, and
at the end of the year the book value of all
m anufacturing and trade inventories was 1.6
percent higher than the year-ago figure. In
conjunction with the upw ard trend in inven­
tories in December, total business sales, sea­
sonally adjusted, were somewhat lower than
the Novem ber volume, although m anufactur­
ers’ sales were at a record level. Orders re­
ceived by m anufacturers in Decem ber were
also at a peak, thus strengthening the outlook
for m anufacturing production in the current
year. This upward trend continued in January
as new orders for durable goods rose 3 percent
above the December level after seasonal ad­
justment.
Construction activity changed little in Jan ­
uary from December and was more than 7
percent above the January 1961 level. The
January increase was due to a gain in private
construction, including both residential and
nonresidential, while public construction ex­
penditures declined slightly. Housing starts,
however, declined in January and, on a sea­
sonally adjusted basis, were the lowest since
last May.
Total retail sales declined from the record
Novem ber rate by 1 percent in both Decem­
ber and January but were 5 percent above the
January 1961 figure. Sales of durable goods
in January fell below the December volume,
with the decline centered in durable goods
other than autos; sales of nondurable goods

February 1962

M O N T H LY R EV IEW

showed little change. The seasonally adjusted
index of the departm ent store sales in Jan u ­
ary was 4 percent lower than in December
but was 6 percent above the index of January
of a year ago.
In January and early February, the bond
markets showed mixed trends. Yields on cor­
porate bonds remained relatively steady, while
those on municipal issues declined. The de­
cline in municipal bond yields in the face of a
high volume of new issues has been partly
attributed to a large volume of buying by com ­
mercial banks. M arket yields on long-term
United States G overnment bonds remained
comparatively stable, firming somewhat in
February. Treasury bill yields rose fairly
steadily, however, reflecting in part an in­
crease in supply. In February, the Treasury
successfully conducted a refunding of $11.7
billion of m aturing securities in exchange for
1-year, 3 Vi percent certificates of indebted­
ness and 4-year, 4 percent notes, dated F eb­
ruary 15. In an effort to extend the average
maturity of the debt, it also offered to holders
of $18.7 billion of outstanding bonds an o p ­
portunity to exchange them in late February
for higher-yielding securities of longer m a­
turity.

pushed the seasonally adjusted rate of unem ­
ployment below the long-standing 6 percent
barrier, corresponding with the breakthrough
that occurred in January in the national rate
of unemployment. The rate of unemployment
fell to 5.6 percent, marking the first time since
June 1960 that it has been below 6 percent.
N onfarm employment in the Pacific Coast
States rose 0.8 percent in January; the largest
increase occurred in contract construction,
but there were gains in all industry divisions
except mining. W ithin m anufacturng, em­
ployment in the aircraft industry rose for the
seventh consecutive m onth, although the
January advance stemmed mainly from the
hiring of additional workers in W ashington.
In December, the weekly average num ber
of workers collecting unemployment insur­
ance benefits in the District fell to 301,700
from 306,500 in November, or by 1 Vi per-

District e m p lo y m e n t, e a rn in g s,
a n d h o u rs increased rather
steadily in 1961

A m id-January survey indicated that an es­
tim ated 40 percent of all member banks had
raised their maximum rate on savings deposits
and about 65 percent of the banks had raised
their maximum rate on other time deposits
above the form er 3 percent limit perm itted
under Regulation Q. Partly as a reflection of
this increase in rates, total time deposits at
weekly reporting member banks increased
4.2 percent in the six weeks ended February
7 com pared with a 3.7 percent gain a year
ago.

District employment continues
to rise
In the Pacific Coast States, a broadly based
advance in January nonfarm employment



Note: D ata for average weekly hours and average weekly earn­
ings are for production workers in manufacturing.
Source: State departm ents of employment.

FEDERAL

RESERVE

BANK

cent. The December level was 23 percent be­
low the peak m onth for the District, which
was July 1961. The nation experienced a D e­
cem ber decline of 2.1 percent in this unem ­
ployment classification, reducing the num ber
by 30 percent from the national peak month
of February 1961.
N onagricultural wage and salary em ploy­
ment in the District rose by 0.1 percent in
Decem ber; gains in m anufacturing, finance,
insurance and real estate, services, and gov­
ernm ent sectors offset losses of 0.2 percent
each in mining, construction, transportation
and public utilities. Nonfarm employment in
D ecem ber was almost 3 percent higher than
the year-ago level, with the greatest gains oc­
curring in manufacturing, services, and gov­
ernm ent. W ithin the government category,
the percentage gain recorded in employment
by state and local governments, which consti­
tutes nearly three-quarters of the total, was
nearly double the increase in Federal gov­
ernm ent employment.
The average workweek of District m anu­
facturing production workers shortened to
39.8 hours in Decem ber from 40.1 hours in
N ovember, whereas usually there is a small
seasonal increase in December. The average
weekly paycheck was $110.15, com pared with
$104.15 in December 1960; hourly earnings
were 10 cents higher and the workweek 0.7
hours longer than year-ago figures.
A lthough there were no changes during
January in the Bureau of Em ployment Se­
curity labor m arket classification of the 15
m ajor areas in the District, one smaller area—
M edford, Oregon— was added to the list of
“smaller areas of substantial unem ploym ent,”
which brought the total num ber of these areas
in the District to 17.
Em ployer hiring schedules in the District
labor m arket areas anticipate increases in
m anufacturing employment between Jan u ­



OF

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ary and M arch. Gains in nonelectrical m a­
chinery, fabricated metals, electronic com ­
ponents for missiles and aircraft, ordnance,
and instruments are expected in the Los A n­
geles-Long Beach area. Also, on the basis of
present contracts, gains into early spring are
projected for the aircraft industry in the lat­
ter area, which is the nation’s largest aircraft
production center. The forecasts for the San
Francisco-O akland and San B ernardino-R iverside-Ontario areas indicate m oderate ex­
pansion in steel payrolls, resulting from im­
proved economic conditions and inventory
buildup of some products in the face of a pos­
sible midsummer shutdown of steel produc­
tion.

District construction aw ard s
rose in January
The value of construction contracts aw ard­
ed in the District during January was 6 p er­
cent above the same m onth in 1961. Residen­
tial contracts rose 28 percent above the yearago level, largely because of a significant in­
crease in awards for apartm ent buildings. The
21 percent rise in nonresidential contracts
was the result of gains in the commercial and
in the hospital and institutional building cate­
gories. Contracts let for heavy engineering, on
the other hand, fell 34 percent below the
January 1961 level due to a decline in awards
for public utilities construction. Heavy en­
gineering contracts in January of last year,
however, were at exceptionally high levels,
which may have been due in part to some
bunching of contracts.
District mortgage m arkets apparently eased
during January as discounts on Federallyinsured mortgages were reported to have de­
clined slightly. This is consistent with the
expectations voiced by the majority of the
bankers in attendance at the most recent
mortgage workshop of the A m erican Bankers
Association held in Phoenix. At these m eet­

February 1 96 2

M O N T H L Y REVIEW

ings, it was generally agreed that the recent
change in Regulation Q permitting banks to
pay higher interest rates on savings and time
deposits would lead to an expansion of bank
mortgage operations and that the immediate
consequence of this would be to put down­
ward pressure on rates and perhaps lead to
some liberalization in the other terms of m ort­
gage loans as well. For the year as a whole,
the general feeling appeared to be that rates
would not rise very much because of more
vigorous competition in lending in conjunc­
tion with some weakness in housing demand.
The flow of funds into D istrict savings and
loan associations continued at relatively high
levels in December. The net increase in sav­
ings and loan shares was over half again as
large as in December 1960. For the entire
year, the flow of funds into these institutions
was almost one-fourth greater than in 1960,
while they increased their mortgage invest­
ments by an am ount that was 43 percent
greater than the increase in the previous year.

Lumber markets strengthen;
lumber prices up
L um ber demand strengthened somewhat
during January, according to preliminary re­
ports. Both Douglas fir and W estern pine new
orders were above the level of new business
in the corresponding period last year, 17 and
3 percent, respectively, and were also above
the level of lumber output in January of this
year. The latter, however, was due in part to
production cutbacks attributed to the severe
weather conditions in the producing regions
during the last half of January. The strength­
ening of the market during January was re­
flected in rising lum ber prices. As of Febru­
ary 1, Crow’s lumber price index stood at
$73.52, up about $1.25 from the average at
the first of the year. The average is now $2.34
higher than it was a year ago, whereas at the



beginning of this year prices were about the
same as they were at the start of 1961.
The plywood m arket did not show any im­
provement in January, and the price of sand­
ed plywood rem ained close to the $60 level
throughout the month, with mills operating
at about 70 percent of capacity. In February,
some m ajor producers raised the price of
sanded plywood to $62 and later to $64 a
thousand square feet.

District metal developments mixed
In the four weeks which ended January 27,
the index of W estern steel production rose 6
percent, whereas the national index rose only
4.2 percent. However, in the following two
weeks the national index advanced further
while the W estern index fell, so that the n a ­
tional increase in production was greater than
that of the West for the entire six-week period.
Since steel contract negotiations have be­
gun early this year, precautionary inventory
building, which had been expected to play a
significant role in both national and Western
steel demand in the next few months, now
seems less likely to be very large. New labor
contracts have already been negotiated for
some of the District copper-producing facili­
ties even though the expiration date of the
old contract is not until June 30.
Copper producers and smelters report that
dem and for copper continues to be satisfac­
tory, with February sales and deliveries ex­
pected to be higher than in January. The producer-smelter price for copper is holding firm
at 31 cents a pound.
On February 1, the price of lead was re­
duced 14 cent a pound to 93A cents at New
York, the lowest quotation since November
9, 1946, when it was under wartime price
control. This was the second V4-cent reduc­
tion since January 1 of this year. The decline
was attributed to continued overproduction

FEDERAL

RESERVE

BANK

and excessive stocks of lead in the United
States and abroad. The price of lead in Lon­
don in late January was the equivalent of
about 7.22 cents a pound, close to the low
after W orld W ar II. This was about 2 3A cents
a pound under the New Y ork price before the
latest reduction on February 1. The industry
calculates that a norm al spread between the
two m arkets is about 2 XA cents; any wider
spread enables foreign sellers to undercut the
U nited States quotation even after absorbing
im port duties, freight charges and other trans­
portation expenses.

District farm receipts ease
Cash receipts of D istrict farm ers in De­
cem ber dropped below the record December
returns in 1960 and declined seasonally from
November. R eturns from marketings of live­
stock and livestock products continued above
a year earlier but were more than offset by
lower returns from crop sales. Lower crop
prices contributed to the income decline with
fresh vegetable prices in particular down
sharply from a year ago. Despite the decline
in Decem ber cash receipts, returns in 1961

Incom e o f District fa rm e rs a t
h ig h le ve l in latter part o f 1961
M illio n s

of

Do lla rs

Source: U nited States D epartm ent of Agriculture.




OF

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totaled $5.2 billion, a record high and $100
million greater than in 1960.

Retail sales and auto
registration rise
During December Twelfth D istrict G roup
I retail stores1 experienced a substantial in­
crease in sales when com pared with Novem ­
ber 1961 and the year-ago m onth, rising 16
and 14 percent, respectively. Principally as a
result of the Decem ber upswing, sales at these
stores for all of 1961 were 1 percent above
the 1960 volume. Both the soft goods and
hard goods stores experienced increases for
the year, with the form er showing the greater
gains. In the case of hard goods stores, the
automotive group carried sales above the
year earlier level, although furniture and ap­
pliance, and lum ber and building supply
stores had reduced sales.
Indications are that retail trade continued
at a high level in January 1962. D istrict de­
partm ent store sales, seasonally adjusted,
reached an estimated record high for the
month of January, although they were down
slightly from D ecem ber 1961. The San D i­
ego and Sacramento m etropolitan areas con­
tinued to show the largest gains, reflecting
sales activity of newly opened stores, but all
other areas also experienced increases. The
nation as a whole showed a gain over the
year-ago month during January, but it was
not as large as in the District.
New car registrations in California during
December were at the highest daily average
rate for any month since M arch 1960. Daily
average sales were 7 percent higher than in
November, the previous high for the year,
while the national figure for D ecem ber regis­
trations was below that of N ovem ber 1961.
In the first half of January, however, Califor­
nia registrations increased less than 1 per­
cent over the com parable year-ago level.
•Stores of firms operating 1-10 stores a t the time of the 1958
Census of Business.

M O N T H L Y REVIEW

February 1962

CHANGES IN S E LE C TE D BALANCE S H E E T ITE M S OF
W EE K LY R EPO R TIN G M EM BER BA N K S IN LEAD IN G C IT IE S
(dollar am ounts in m illions}
Twelfth D istrict
From Feb. 1, 1961
From Dec. 2 7 ,1 9 6 1
to Jan. 3 1 ,1 9 6 2
to Jan. 3 1 ,1 9 6 2
D ollars
Percent
D ollars
Percent

ASSETS:
Total loanj and investments
Loans adjusted and invest­
ments i
Loans adjusted
Commercial and industrial
loans
Real estate loans
Agricultural loans
Loans for purchasing and
carrying securities
Loans to non bank financial
institutions
Loans to domestic commer­
cial banks
Loans to foreign banks
Other loans
U. S. Government securities
Other securities
LIABILITIES:
Demand deposits adjusted
Time deposits
Savings accounts

0.39

+ 2,207

+

9.24

— 2,189

—

1.79

+ 8,071

+

7.19

1.46
0.80

+ 1,960
+ 655

+

8.29
4.23

— 2,525
— 2,691

—
—

2.09
3.61

+ 7,544
+ 2,252

+

6.80
3.23

2.57
0.40
5.97

+

+

+
+

698
633
206

+

+

281
174
132

0

0

+

41

4.65

277 + 135.12
16 —
6.64
0.87
28 +
194 —
2.71
2.16
55 —

— 102
— 379
— 130
— 148
+ 22
+
44

—
+
—
+
—
—

United States
From Dec. 27, 1961
From Feb. 1 ,1 9 6 1
to Jan. 3 1 ,1 9 6 2
to Jan. 3 1 ,1 9 6 2
D ollars
Percent
D ollars
Percent

— 451
+ 302
+ 114

—

+
+

+
+

3.66
2.25
1.06

+

928 — 2.82
21 + 0.16
47 + 3.70

+

—

+

5.27
3.27
20.34

21

+

10.55

— 1,062

— 21.83

+

236

+

6.61

+

29

+

3.58

—

618

— 10.08

+

302

+

5.79

+
+
+
+
+

247
39
9
883
422

+ 105.12
+ 20.97
0.28
+
+ 14.50
+ 20.35

+
—
+
+
—

336
29
29
228
62

+ 22.27
— 4.42
+ 0.17
+ 0.66
— 0.51

+ 527
—
70
+ 410
+ 3,389
+ 1,903

+
—
+
+
+

39.98
10.03
2.49
10.90
18.52

—
+
+

+ 1,635
+ 6,253
n.a.

+ 2.61
+ 17.08
n.a.

+

+

4.04
+ 462 +
+ 1,613 + 13.32
+ 1,143e 4- 11.76e

+
+

— 1,981
+ 1.391
+ 558

2.99
3.35
1.85

+

2.23
4.95
+ 18.54

+

e Estim ated,
n.a. N ot available.
1 Exclusive of loans to domestic commercial banks and after deduction of valuation reserves; individual loan items are shown gross.
Sources: Board of Governors of the Federal Reserve System and Federal Reserve Bank of San Francisco.

Seasonal loan decline at District
banks less than in last two years
In January, banks normally experience a
decline in their loan portfolios, a reduction in
dem and deposits and time deposits, particu­
larly savings, and a return inflow of currency.
This year weekly reporting mem ber banks in
the Twelfth District followed the usual sea­
sonal pattern except for a contraseasonal rise
in time deposits. The January decline in total
loans, adjusted to exclude loans to domestic
commercial banks and after deduction of
valuation reserves, was only one-half of the
decrease of a year ago and also less than that
in 1960. As in the past two years, net repay­
ment of bank debt by business firms account­
ed for most of the loan reduction. About half
of the $37 million decrease in loans to durable



goods m anufacturers was due to repayments
by transportation equipm ent manufacturers,
mainly aircraft, and a seasonal decrease of
$27 million in loans to food, liquor and tobac­
co dealers was responsible for almost all of
the reduction in the nondurable goods cate­
gory. Seasonal repayments were also made
by all trade categories— commodity dealers,
and wholesale and retail firms; loans to trans­
portation, communications, and other public
utilities were reduced by $33 million. In addi­
tion to the decline in business borrowing, sales
finance companies also decreased their bank
debt during January as is customary after
relatively large tax-related borrowing in De­
cember. District weekly reporting banks
started the new year with an increase of $22
million in real estate loans, continuing the

FEDERAL

RESERVE

BANK

steady m onth-to-m onth gain which has pre­
vailed since April 1961. This contrasts with
small declines in January of the past two
years. The “other loan” category, which is
mainly consum er loans, also increased in
January this year, whereas it declined in the
corresponding period of 1960 and 1961.
Weekly reporting member banks in the Dis­
trict reduced their portfolios of United States
G overnm ent securities $194 million in Jan u ­
ary, with declines in holdings in all classifi­
cations except securities m aturing in over five
years. The total decline was less than twothirds as great as the January 1960 decline
but contrasts with a nominal increase in 1961.
Following the pattern of the past two years,
these banks also reduced their holdings of
securities other than United States Govern­
ment securities.

Time deposits rise contraseasonally
The weekly reporting mem ber banks had
a larger seasonal loss in dem and deposits ad­
justed in January than in the same month of
the two preceding years. This loss in deposits
was augmented by the usual January reduc­
tion in U nited States Governm ent deposits.
While dem and deposits moved down season­
ally, time deposits increased contraseasonally
for the second consecutive year. The increase
in January this year of $302 million is far
larger than the $80 million gain of a year
ago and is in sharp contrast to the decline of
$325 million in 1960 when banks were los­
ing funds to savings and loan associations and
to other higher yielding investments. The
am endm ent of Regulation Q, effective Jan u ­
ary 1, 1962, permitting banks to pay 3 Vi per-

28



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Tim e d e p o sits o f District b a n k s
h a d a m uch la r g e r in cre ase in
January 1 9 6 2 than a year a g o
B i l l i o n s of D o l l a r s

N ote: D ata are for Tw elfth D istrict weekly reporting member
banks. Tim e deposit data from February 1961 through Septem­
ber 1961 have been adjusted to exclude loan funds of a national
retailer temporarily held as tim e certificates of deposit. Dem and
deposits adjusted are total demand deposits other than domes­
tic commercial interbank and U nited States Governm ent, less
cash items in process of collection.

cent on savings and time deposits and 4 p er­
cent on such deposits held for 12 m onths o r
longer has been largely responsible for stem ­
ming the usual withdrawals after year-end
interest payments have been credited and also
for attracting new savings.
During January, District banks continued
in a relatively tight reserve position due large­
ly to the loss in dem and deposits. As a conse­
quence the banks were, on balance, substan­
tial net purchasers of Federal funds during
the month. Except for one week, the rate on
Federal funds transactions of District banks
averaged over 2 Vi percent, with the bulk of
the funds traded at the discount rate in the
week ended January 17 when banks nation­
ally were under considerable reserve pres­
sure.

The Search for Certainty in
An Uncertain W orld
Part IV
INTERNATIONAL GOLD MOVEMENTS
articles in this series1 have ex­
plained the fundam ental changes in the
economic role of gold since its first appear­
ance in human history. Still used the world
over for ornam ental purposes, gold plays a
less im portant domestic role than formerly in
major monetary systems, and various inter­
nationally accepted assets are used in addition
to gold in the settlement of net international
balances and as external monetary reserves.
a rlie r

E

Changes in the role of gold since 1914—
the date often set as the end of the “classical
gold standard” era— have been partly due to
widespread rejection of the gold standard’s
“autom atic” influence on the domestic econ­
omy by many countries during the unsettled
interwar years. For many countries, “key cur­
rencies” have come to serve essentially the
same purpose in international transactions
that gold once did. The continued success of
the dollar as the most im portant key currency
depends upon the m aintenance of converti­
bility of the dollar into gold at the fixed price
of $35 per fine ounce and on the degree of
confidence foreign central banks and other
official dollar holders have in the future of the
dollar. This confidence depends to some ex­
tent on the size of U nited States gold re­
serves but even more on the general condition
of the United States economy, particularly on
the extent to which balance of payments defi­
cits can be successfully controlled.
1 See M o n th ly Review, Federal Reserve Bank of San Francisco,
as fo llo w s: " T h e Search for C e rta in ty in an U n c erta in
W o rld .”
Part I: " T h e Rise of G old as a Dom estic S ta n d ard ,’' May,
1961

;

Part II: " T h e International A djustm ent Process: T he Gold
Standard and A fter," July, 1961;
Part III: " T h e Present Position of G old and the D o lla r,”
October, 1961.




This final article reviews some facts on the
production and uses of gold, surveys some of
the m ajor gold movements of the past gen­
eration, and examines some recent develop­
ments in the international uses of gold. In
conclusion, two divergent views with respect
to the role w hich gold plays in dom estic
and international m onetary transactions are
presented as evidence of the long and continu­
ing controversy which has revolved around
that lustrous substance— gold.

G old moves in response to
m any different factors
The volume of reserves held by countries
during the gold standard’s heyday was small
co m pared to the volum e of tran sactio n s.
Studies of gold movements have also shown
that the size of the flows did not appear to be
nearly as large as the theoretical considera­
tions would dictate, or else there was an un­
suspected strength in the mechanism by which
small gold flows could induce relatively large
changes in the flows of international pay­
ments. To explain these facts, the idea emerged
that the movement of gold alerted monetary
authorities to the need for readjusting credit
policy— “the rules of the game” thesis— to
protect the reserve ratio of the central bank.1
Credit policy was then assumed, as explained
in an earlier article in this series, to affect
prices and wages and hence to affect the at­
tractiveness of exports as com pared with im­
ports for any particular country.
1For a stim ulating discussion of the pre-1914 gold standard,
see A rthur I. Bloomfield, M onetary Policy Under the International G old S tandard: 1H80-1914, Federal Reserve Bank of
New Y ork. October, 1959.

FEDERAL

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Two subsequent developments modified
this view of gold flows. In the world of ideas,
the thesis that spending was the significant
v ariable in econom ic adjustm en ts rose to
challenge the wage-price process born of the
days when full employment was regarded as
the norm al result of unfettered economic in­
dividualism. In this view, when domestic in­
comes rose in response to increased exports,
spending on imports would tend to rise to
restore balance; similarly, decreases in export
earnings would lead to reduced expenditure
on imports. A nd in the world of deeds, mone­
tary instability in the years following the First
World W ar led to the rise of disruptive move­
ments of speculative capital, including gold,
which made central bank reserves ratios un­
reliable as guides to m onetary policy.
Today gold flows are viewed in a dual light.
Although gains or losses of gold have no di­
rect influence on employment and income,
they do affect the size of the visible assets
backing a country’s currency and, hence, the
credit base. The size of a country’s gold hold­
ings also affect, to some extent, the degree of
confidence that foreigners place in a country’s
currency. Changes in confidence, especially
sudden ones, can provoke speculative pres­
sure against even the strongest m onetary sys­
tem. Gold outflows may, therefore, serve to
warn of impending difficulties in the external
paym ents position of a country.
M ovements of gold, then, sometimes re­
flect political and economic uncertainty rather
than underlying payments patterns. Although
speculative movements often facilitate the
adjustm ent of a payments imbalance, they
can also aggravate the imbalance and delay
or even prevent the normal adjustm ent proc­
ess if uncertainties become strong enough to
dom inate ordinary profit-seeking motives.
In any event, central banks do not simply
transfer portions of a fixed am ount of gold
among themselves. First, the stock of gold is
by no means fixed. New annual production
typically am ounts to at least 2 Vi percent of



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the total gold reserve holdings reported by the
world’s central banks and governm ents.1 A d­
ditions to m onetary reserves average between
half and two-thirds of total new production
although sharp variations from this average
have occurred.- The net addition to m onetary
reserves depends prim arily on the strength of
competing demands for gold. Industrial uses,
including jewelry and ornam ents, usually ab­
sorb a part of each year’s net production. In
some countries gold is highly regarded as a
store of value for individuals, and this gives
rise to the hoarding dem and. To some extent
these other demands can be offset by supplies
from countries which possess previously ac­
quired gold. Russian sales of recent years p ro ­
vide the best known example of this, bu t other
countries have similarly provided gold in the
past.
Second, other factors can affect interna­
tional flows of gold. F o r example, the gold
equivalent of over $3 billion has flowed into
the International M onetary Fund as quotas
fro m the m em b er n a tio n s . F in a lly , som e
changes in the distribution of the w orld’s gold
between m onetary authorities and the general
public have probably occurred as a result of
the activities of exchange stabilization funds,
although the secrecy which surrounds these
operations makes it hard to evaluate their
significance.
International gold flows, then, reflect many
factors apart from the balance of paym ents
situations of different countries, and these
must be examined to put gold flows in proper
perspective.

GO LD PRO D U C TIO N
Gold production checked
by rising costs
The world’s supply of newly mined gold
comes prim arily from the Republic of South
1Excluding Com m unist bloc countries. See Federal Reserve B u l­
letin. various issues, for e stim a te of reserves and production.
2Cf. Oscar L. Altman, "A N ote on G old Production and A d­
ditions to International G old Reserves,” International M one­
tary F und Staff Papers, A pril, 1958, especially pp. 280 ff.

February 1 9 6 2

M O N T H LY R EV IEW

M O V E M E N T S VERSUS SH IPM EN TS OF GO LD
In th e d a y s w h e n th e g o l d s t a n d a r d w a s

gold, ch an gin g

its o w n e r s h i p w i t h o u t

in f u ll b lo o m a n d , e v e n d u r in g th e 1 9 2 0 ’s

c h a n g in g

w h e n th e b fo o m h a d f a d e d s o m e w h a t , g o l d

m ig h t th u s h a v e its to ta l g o l d r e s e r v e s h e ld

m o v e m e n ts

u s u a lly

e n tir e ly o u t s id e its n a t i o n a l b o r d e r s w h e t h e r

m e a n t th e s a m e th in g . G o ld w a s t a k e n fro m

o r n o t a d j u s m e n t s in its e c o n o m y w e r e a s ­

and

g o ld

s h ip m e n t s

o n e p la c e , p u t a b o a r d s h ip o r tr a in o r e v e n
d o n k e y , c a rr ie d to its d e s t in a t io n , a n d le ft
th ere. T h is p r o c e d u re , fo r a ll its c h a r m in g
sim p lic ity , in v o lv e d w a s t e in s h i p p i n g g o l d
b a c k a n d fo rth s in c e th e e s s e n c e o f th e g o l d
stan d a rd

a d ju stm e n t

m e c h a n is m

w as

its

its p h y s ic a l lo c a tio n . A

c o u n tr y

s o c ia t e d w it h g a i n s o r lo s s e s o f g o ld . It is
th e o w n e r s h ip a s p e c t o f g o l d

m o v e m e n ts

w h ic h is m o s t d ir e c tly r e le v a n t to o u r p u r ­
p o s e . T h e re fo re , w e w i ll c o n c e rn o u r s e lv e s
w it h

c h a n g e s in o ffic ia l r e s e r v e h o ld in g s ,

s e lf -c o r r e c t in g t e n d e n c y w h ic h im p lie d th a t

th a t is, o w n e r s h ip , in d is c u s s i n g th e m o v e ­

m o st g o ld

to re ­

m e n t o f g o l d b e t w e e n n a t io n a l tr e a s u r ie s o r

v e r s a l. To e lim in a t e th is w a s t e , it b e c a m e

c e n tra l b a n k s w it h o u t w o r r y i n g a b o u t the

th e p ra c tic e fo r s o m e c o u n tr ie s to e a r m a r k

a c t u a l lo c a t io n o f th e g o l d itse lf.

Africa— about 60 percent of the total pro­
duced— with C anada and the United States
as distant runners-up. Russia is believed to be
a major producer, perhaps ranking second,
but since no reports on actual production
have been made since 1937 this is necessarily
conjecture.

field cover a roughly semicircular arc nearly
300 miles long through the N orthern Orange
Free State and the Southern Transvaal with
53 major producers mining 70 million tons of
gold and uranium ore per year.2
The economics of gold mining has received
intense study by virtue of gold’s historic im ­
portance both as a comm odity and as money.
O ne peculiarity of the gold mining industry
stems from the m arket for monetary gold p ro ­
vided by the United States Treasury. The
T reasury’s standing offer to buy gold at $35
per fine ounce fixes the price for gold, and
consequently the profitability of mining de­
pends solely on costs. These conditions, there­
fore, determine the lowest grade of ore that
can be profitably mined. Changes in the price
of gold, as occurred in 1933 and 1934 when
the United States Treasury raised its price
from $20.67 per fine ounce to the present $35
level, thus tend to cause previously subm ar­
ginal ores to be substituted for higher grades.

m o v e m e n ts w e re

li a b le

The most im portant determ inant of the
supply of gold has been the discovery of sig­
nificant new gold deposits. Although gold oc­
curs in most parts of the world, it is fairly rare
to find it in sufficiently concentrated form to
w arrant its extraction. Until almost the end
of the 19th century virtually all gold came
from quartz reefs or from the alluvial deposits
formed by the disintegration of the mountains
containing these reefs. This was the case of
both the A laskan and Californian deposits
which were so prom inent in the last century.
T he discovery of the W itw atersran d gold
fields in South Africa changed this picture
radically. In 1888 a form ation of pebbled,
gold-bearing ore called the banket by the
Dutch settlers was discovered.1 Mines in this
'T h is term derives from the fact th at the Rand outcroppings
resembled in appearance a D utch alm ond cake called banket.




O ver the course of the business cycle, how­
ever, the output of gold was presum ed to be
2R. A. L. Black, "D evelopm ent of South African M ining M eth­
o d s / ’ Optima, June, I960, p. 65.

FEDERAL

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BANK

contracyclical, increasing during declines in
general business as wages and other costs fell
and decreasing during business expansions.
W hen gold was the prim ary source of domes­
tic liquidity, this pattern gave gold a much
adm ired regulatory reputation in that the sup­
ply of gold “leaned against the w ind” more or
less automatically.
Aside from these relatively short-run con­
siderations, it should be kept in mind that the
supply of ore in any given mine is exhaustible,
and the technically feasible limits to output are
approached only at increasing costs. The en­
gineering problems of modern mining are im­
pressive in scope. In one case, the E ast R and
Proprietary Mines Com pany has extended its
shafts to a depth of over 11,000 feet below
the surface. A t this depth, ordinary rock flows
like lava while the harder or more brittle
form ations explode under the trem endous
pressures. These “rock bursts” are only one
of the problems. Ventilation and drainage
difficulties also tend to increase costs as the
banket is followed deeper into the earth.
The pressure of higher costs has seriously
affected the industry as a whole. In the United
States only one m ajor gold mine is still in
operation, although significant am ounts of
gold are produced as a by-product of other
mining operations, particularly from copper
mines. In recent years, the C anadian Gov­
ernm ent has paid subsidies to domestic gold
mines, relating the amounts of paym ent to
marginal costs of production. A nd even in the
Republic of South Africa, only the new dis­
coveries of banket strata in the Orange Free
State and the profits from by-product uranium
mining have kept conditions there generally
satisfactory from the industry standpoint.
The scope for future improvements in the
industry seem relatively lim ited. R ecovery
of gold from the raw ore typically runs at
w'ell over 97 percent. New discoveries on the
same scale as the Rand are unlikely, though
possible. U nderw ater mining may offer some
promise in this connection. Although mining



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techniques are constantly being developed,
the trend towards greater mining depths raises
so many new problems that rising costs con­
tinually jeopardize the profitable operation of
the industry.

Other factors also affect
the w orld’s gold stocks
The G reat Depression of the 1930’s pro­
vides a good starting place for looking at the
world’s total gold stock and at the broad p at­
terns of gold flows of the recent past.
By 1929 m ost of the w orld’s gold deposits
had already been d iscovered an d m ining
operations were well established. The gold
mining industry had w eathered the (for it)
unhappy decade of the prosperous twenties
and was about to em bark on a new era of ex­
pansion. This expansion was triggered by
generally lower costs, associated with the de­
pression, and higher values for gold, caused
by the general currency devaluations initiated
by G reat Britain in 1931 and the general
downward drift of prices during the early
1930’s.
Table 1 gives the broad picture of the total
supply of gold during the thirties. New pro­
duction rose steadily throughout these years
from a rate of somewhat less than 20 million
ounces in 1929 to well over 40 million ounces
in 1941.
South A frican p ro d u cers acco u n ted for
over half of the world’s output of new gold at
the beginning of the period, but this share
slipped during the decade as a whole, despite
the sizable incentive of a 40 percent boost in
the price of gold at the end of 1932. The 1932
output of South A frican producers, for which
they received 85 shillings per ounce, was sub­
stantially larger than the output in each of
the subsequent four years following the rise
in price to 120 shillings. As mentioned ear­
lier, the new price of gold made the operation
of previously unprofitable mines economically
feasible, and producers shifted to lower grade
ores in order to prolong the lives of the richer

M O N T H L Y REVIEW

February 1962

T

able

1

W ORLD GOLD P R O D UC TIO N AND S U P P LY — 1929-1960
(m illio n s of fine ounces)

New production

Flow from Far East

Total

South
Africa

United
S ta t e s 1

Canada

U.S.S.R.

1929

19.7

10.4

2.2

1.9

1.1

1930

20.9

10.7

2.3

2.1

1931

22.3

10.9

2.4

1932

24.3

11.6

1933

25.5

1934

All other

W orld
Su p p ly

India

C h in a 2

5.1

3

3

1.5

5.6

3

3

2.7

1.7

6.4

5.9

1.1

29.4

2.4

3.0

1.9

7.2

9.1

1.7

35.1

11.0

2.5

2.9

2.7

9.0

5.8

1.6

32.9

27.2

10.5

2.9

3.0

3.9

10.8

6,3

1.1

34.6

1935

29.6

10.8

3.6

3.3

4.8

1 1.9

4.3

0.7

34.6

1936

33.0

11.3

4.3

3.7

5.2

13.6

3.1

0.6

36.7

14.3

1.4

0.5

36.8

15.1

1.6

0.3

38.9

3.1

19.7
20.9

1937

34.9

11.7

4.8

4.1

4

1938

37.0

12.2

5.1

4.7

4

1939

39.0

12.8

5.6

5.1

4

15.5

1940

40.7

14.0

5.9

5.3

4

15.4

1941

41.0

14.4

6.0

5.3

15.3

1941

3 6.15

14.4

6.0

5.3

10.4 5

36.1

1942

32.1

14.1

3.7

4.8

9.5

37.1

42.2

41.0

1943

24.8

12.8

1.4

3.7

6.9

24.8

1944

22.1

12.3

1.0

2.9

5.9

22.1

1945

21.1

12.2

0.9

2.7

5.3

1946

21.7

11.9

7.6

2.8

1947

22.1

11.2

2.3

3,1

1948

23.0

11.6

2.1

3.5

5.8

23.0

1949

24.0

1 1.7

2.0

4.1

6.2

24.0

1950

24.7

11.7

1.8

4.4

6.8

24.7

1951

24.0

11.5

2.0

4.4

6.1

24.0

24.8

11.8

1.9

4.4

6.7

24.8

1952

Sales by U.S.S.R.*

21.1

5.4

1.3

23.0

5.5

0.9

23.0

1953

24.7

11.9

2.0

4.1

6.7

2.1

26.8

1954

26.1

13.2

1.9

4.4

6.6

2.1

28.2

1955

27.4

14.6

1.9

4.5

6.4

2.1

29.5

1956

28.4

15.9

1.8

4.4

6.3

4.3

32.7

6.4

7.4

37.0

1957

29.6

17.0

1.8

4.4

1958

30.4

17.7

1.8

4.6

6.3

6.3

36.7

1959

32.6

20.1

1.4

4.5

6.6

7.1

39.7

1960

33.6

21.4

1.4

4.6

6.2

5.7

39,3

1 Includes production from Philippines received in the United States,
1 Includes sales from Hong Kong.
3 Less than 50,000 ounces.
* 1937-41 estim ates are not shown separately because of deterioration in the underlying statistics.
5 Beginning with 1941, estim ates of U. S. S. R . gold production are excluded from the table. To facilitate the transition, the 1941 figures
are on both the old basis and the new.
* Dollar value estim ates of the Bank for Internationa! Settlements converted to ounces.
Note: Details may not add to total because of rounding.
Source: A nnual Reports, Bank for International Settlements.




FEDERAL

C

hart

RESERVE

BANK

1

W o r ld g o ld production h a s risen
gra d u a lly since W o rld W a r II
Milliont of (in* oz

‘ Including Philippines through 1939.
Sources: Bank for International Settlements, International M one­
tary Fund, and Board of Governors of the Federal Reserve
System.

mines for the future. The rest of the world
was not as conscious (or perhaps not as able
to take advantage) of these long-run consid­
erations and, as the table shows, output out­
side of South A frica soared. The United States
doubled its output in the seven years follow­
ing the January 1934 devaluation; C anada
did almost as well; the Soviet Union reported
q u in tu p led p ro d u ctio n betw een 1929 and
1936.
The effects of the enhanced price of gold
were not confined to stimulating new produc­
tion. Beginning in the early thirties, a flood of
gold began reaching world m arkets from the
hoards of India and China. During the peak
years between 1931 and 1936, the astound­
ing total of almost 42 million ounces was sold
fro m F a r E a s te rn sto ck s. T his ad d ed an
am ount equivalent to over 18 months p ro ­
duction during these years to the w orld’s gold
stock. Table 1 shows the effect of these sales
on the gold supply of the W estern W orld as
a whole.
The all-time peak of gold production was
reached in 1941 with a total output of some



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41 million fine ounces. F o r those who are
tiring of these cold statistics, we might observe
that this is enough gold to produce approxi­
mately 281 solid gold Cadillacs. But along
with this gold W orld W ar II arrived, and
many gold-producing nations, with the nota­
ble exception of South A frica, shifted their
productive efforts from gold to guns. Table 1
records the precipitate decline in the w orld’s
output of gold during the w ar years. From the
1941 level, output fell by almost half to 21
million ounces even though the output of
other metals, such as copper, from which gold
can be obtained as a by-product, expanded
steadily.1
O utput again began to expand following
the war, but rising costs in much of the world
held down the incentive to increase produc­
tion. Only in 1951 and 1953 did total output
fail to exceed that of the preceding year, and
yet signs of retardation were unm istakable
for virtually every gold-producing area until
1953. The 1953 discoveries of the extensions
of the banket into the Orange Free State d ra­
matically increased potential output from the
South A frican area, though the fact that these
discoveries were made by w ildcatters indi­
cates the effect of shrinking profits on the ma­
jor South A frican producers.
During the 1950’s the total available m ar­
ket supply of gold was increased by sales
from Soviet Russia. Aside from emergency
sales in 1946 and 1947, there is no evidence
that Russia sold significant am ounts of gold
to the rest of the world from the end of W orld
W ar II until 1953. Since then, the am ount
sold annually has risen from about two million
ounces in 1953 to an estim ated peak of seven
million ounces in 1959. We have chosen to
regard these sales as net additions to the
w orld’s supply and have (in our table since
1941) excluded consideration of new gold
production in the Soviet Union.
'T h e apparent discontinuity in 1941 jn T able 1 arises from the
exclusion of the probably not very accurate estimates of gold
production in the Soviet U nion, ror which production statis­
tics ceased after 1935.

February 1 9 6 2

M O N T H L Y REVIEW

GO LD M O V E M E N T S
So far, the emphasis has been on the supply
of gold from mining a n d /o r dishoarding, but,
in order to present an overall view of total
gold movements, the shifts in holdings be­
tween countries must also be taken into ac­
count. This consideration leads first to an
examination of the sources of gold— the sup­
ply of new gold, the flow from hoards, and the
losses of those countries that sold gold. Next
comes the consideration of destinations of this
gold— additions to central bank reserves, in­
dustrial demands, and “ all other.” This latter
category is necessarily a catchall which in­
cludes gold hoarded by individuals, errors in
the estimates, and the am ount of gold (pre­
sumably small) irrevocably lost.
Ideally, these sources and uses should be
treated as often as the statistics are available,
but this is impracticable because of the obvi­
ous limitations of space and of the reader’s
patience. The approach must necessarily be
both crude, with regard to the use of the avail­
able statistics, and arbitrary, with respect to
the intervals at which the flows of gold are
measured. About the form er there is no help;
the statistical facts have been gathered and
published and can only be accepted, albeit
with some hesitant qualifications as we pro­
ceed. With regard to the latter, there is greater
leeway. The years that form the crucible in
which many of our current problems and is­
sues first began to boil can be divided into
subperiods over which more meaningful anal­
yses of the international flow of gold can be
made. Since the designation of particular
years as belonging to one period or another is
to a large extent a m atter of judgment, a few
co m m e n ts re g a rd in g o u r sele c tio n are in
order.
The first period to be considered could be
called “the years of panic;” they cover the
collapse of world trade following the great
crash of 1929. From the standpoint of inter­
national gold movements, the outstanding
events of this era were the abrupt cessation of



the flow of loan capital from the United States
and G reat Britain, the attem pts made by var­
ious countries to gain or protect foreign ex­
change reserves through exchange controls,
the weakening of most currencies and the in­
stability of exchange rates, and the abandon­
ment of the gold standard, tem porarily in
one case, by the two nations which formed
the hub of international commerce, the United
States and G reat Britain. The years to be in­
cluded are the four years from the end of
1929 to the United States’ devaluation in Jan ­
uary 1934.
The second period covers the years fol­
lowing the United States’ devaluation during
which a select group of European countries,
notably France, Belgium, the Netherlands,
and Switzerland attem pted to preserve the
gold standard despite the chaotic political and
economic conditions manifesting themselves
in the rise of bilateralism and the form ation
of special, nationalistic trading blocs. The de­
valuations of the gold bloc currencies near
the end of 1936 and the prew ar flight of “hot
money” to the United States give the years
1934-39 a special flavor for the student of
international gold movements.
A bout the W orld W ar II years little need
be said. There is bound to be something of an
artificial tone to any presentation of the flows
of gold among nations engaged in an all-out
struggle for survival. However, the changes
in the international pattern of gold holdings
that occurred during these years had profound
implications for the events which took place
after the war. The United States Treasury
continued to make gold available to monetary
authorities and to buy from abroad. In some
cases gold sales by foreign central banks were
made to the public (for example in India) as
a means of reducing inflationary pressures.
The postwar years can be divided into any
num ber of subperiods according to the pref­
erence of the analyst. But an analysis of the
international flow of gold seems bound to give
some separate consideration to the years be­

FEDERAL

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BANK

tween the end of hostilities and the general
readjustm ent of currency values in 1949. The
years since 1949 will comprise the final pe­
riod.

Supply and dem and factors have
varied w idely in the past
D uring the first of the periods under con­
sideration, the “years of panic” (the end of
1929 to the A m erican devaluation), 93 mil­
lion ounces of new gold were produced. In
addition, G erm any and Japan plus three m a­
jor raw m aterials producers (A rgentina, A us­
tralia, and B razil) lost from their monetary
reserves 58.8 million ounces as foreign loans
were called, capital flows ceased, and com­
modity prices fell. These figures, along with
25.2 million ounces dishoarded by India and
China, comprise total “sources” of 177.1 mil­
lion ounces of gold that were put into circu­
lation during that period.
M uch of this was absorbed by what came
to be known as the “gold bloc” countries and
Italy which added 105 million ounces to their
official reserve holdings. Russia gained 13
million ounces, and the U nited States and the
United Kingdom, despite large losses in 1931 32, together gained 17.1 million. The rest of
the world’s central banks and treasuries ab­
sorbed about 5.7 million on balance.
M ost of the remaining 36.3 million ounces
— worth over $750 million at the old official
price of $20.67 per ounce— probably went
into private hoards. Some may have gone into
industrial uses, but in view of the rapid con­
traction of overall industrial output that char­
acterized those years in most of the world, this
am ount undoubtedly was small.
In the years following the United States’
devaluation, drastic changes in the individual
sources and uses items occurred. From 1934
until the beginning of 1940, 200.6 million
ounces of gold were produced. A nother 23.1
million cam e from the O rient, principally
during 1934-36 and 1939. The gold bloc
countries lost large amounts of gold before



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they were forced to follow the earlier devalu­
ations of the United States and the U nited
Kingdom, and they finally devalued their cur­
rencies in 1936. France lost, on balance, some
70.7 million ounces during this period. O ther
countries, particularly Italy, sold 43 million
ounces more, bringing the total am ount of
gold to be absorbed to about 337 million
ounces.
Clearly the political and economic turm oil
of Europe was the major factor in producing
large flows of “hot money” seeking safety in
the United States. To this was added the in­
centive to buy dollars during the “gold scare”
of 1937 when the belief that the U nited States
Treasury was on the verge of reducing its p ur­
chase price for gold led to large scale conver­
sions of gold into dollars by foreign central
banks. But, aside from the flows of “hot
money,” the U nited States continued to enjoy
its typically comfortable export surplus fol­
lowing the devaluation. Aside from the cur­
rencies of the N etherlands, Belgium, and
Sw itzerland, the exchange value of the dollar
strengthened against all of the m ajor curren­
cies of the world following the devaluation.1
And in addition to the inflow of foreign funds
Americans repatriated large am ounts of their
investments abroad.
These factors combined to produce a vir­
tual “Golden A valanche,” as one study called
it, during the years preced in g the Second
W orld W ar.2 All but 41.1 million ounces of
the total supply of over 14 thousand tons
flowed directly into the United States Treas­
ury. The United Kingdom also gained on bal­
ance during this period, but its gain of 31.9
million ounces was miniscule by comparison.
Aside from the dishoarding from the O ri­
ent, mentioned above, there was a net flow of
something like 4 million ounces out of E uro­
pean and American private holdings over this
same period. One example of an unusual kind
'S ee, for exam ple, "F oreign T rade, C apital Movements, and
International Reserves,’’ Federal Reserve B ulletin, N ovem ber,
„ ,9442Frank D . G raham and Charles R. W hittlesey, G olden A va ­
lanche, Princeton: Princeton University Press, 1939.

M O N T H L Y REVIEW

February 1962

T able 2

S O U R C ES AND U S E S OF GOLD, 1929-59
(Average annual rates in m illion s of ounces)
1934-39

1929-33

1946-49

1940-45

1950-59

1960

SO U R C E S
N e w Production
F low from East
M a jo r tosses by
central b a n k s

33.4

6.3

3.9

22.7
-

A rg e n tin a

France

U nited States

A u stra lia

G e rm a n y

Fra n c .

Brazil

T O TA L so urce s =

23.3

14.7

Italy

G e rm a n y

Japan

Japan

Sw itzerland

27.3

33.6

0.5

3.2

5.7

United K in g d o m
| 175

France

N e therland s

South Africa

U nited K in g d o m

Sw e d e n

40.2

52.6

44.3

total uses

- 15.3

22.7

U nited States

14.4

j
_
I 20.3

43.5

U nited States

4 8 .7

V e n e z u e la

7.3

Canada

2.1

44.9

97.4

USES
M a jo r g a in s by
central b a n k s

U nited States

U nited States

Sw itze rla n d

j

Belgiu m

U nited K in g d o m

South A frica

I 13 5

France

Canada

Sw e d e n

U nited K in g d o m

Italy

N e th e rlan d s

Latin A m erica

O ther Europe

N e therland s

I.M.F.

Sw itzerland

35.2

N e th e rlan d s

South A frica

Sw itzerland

Sw e d e n

56.9

U nited S lo t .*
I.M .F.

j 4j 4

G e rm a n y

France

Italy

G e rm a n y
27.2

Italy
57.4

United K in g d o m

U nited K in g d o m
U.S.S.R.
N e t c h a n g e fo r all other
central b a n k s

1.4

-3 .6

22.5

N e t industrial d e m a n d
H o a rd in g

7.7

-0 .7

4.2

-9 .2

2.5

5.0

5.3

6.0

5.3

9.9

23.6

10.4

N ote: I.M .F . represents International M onetary Fund.
Sources: Board of Governors of the Federal Reserve System ; International M onetary Fund; Bank for International Settlements. Annual
averages computed by Federal Reserve Bank of San Francisco.

of dishoarding that went on is provided by the
Italian campaign to finance the war against
Ethiopia through the donation of gold wed­
ding rings and other jewelry by Italian women.
Industrial demands for gold were probably
m ore than met by reclaim ed “ scrap” gold.
D uring W orld W ar II the annual average
volume of monetary gold transactions de­
clined. A bout 136 million ounces were p ro­
duced, and another 105 million ounces came
from the central banks or treasuries of the
United States, France, the Netherlands, and
the U nited Kingdom in connection with war
financing. A bout 81 million ounces of these
to ta l so u rc es of 2 4 1 .4 m illio n c an be a c ­
counted for by increases in the gold reserves
of Switzerland, South Africa, various Latin
A m erican nations, and Sweden. O ther central
banks gained about 135.2 million ounces,
leaving a resid u al of 25.2 m illion ounces
which went into hoards, industry, or was lost.
The estimate of the U nited States B ureau of
the M int places the am ount consum ed in in­
dustry at about 18.7 million ounces which
leaves something like 6.5 million ounces as
the residual for hoarding and losses.



The early postw ar years were years of both
political and economic uncertainty. N ever­
theless, life and mining went on, and some
90.8 million ounces of gold were wrested from
the earth. M ost countries were forced to re­
duce their gold holdings to pay for essential
imports. The United Kingdom, France, and
Sweden were notable examples of this, selling
some 65.6 million ounces. O ther countries
lost 59.5 million ounces altogether, and South
Africa sold 22.5 million ounces over and
above its new production. All in all, world
“sources” came to 238.5 million ounces, in­
cluding an estim ated 2.1 million sold by R us­
sia.
Somewhat m ore than half of this 1946-49
disgorging of gold flowed into the United
States to pay for imports, despite United
States grants for emergency reconstruction.
And, for the first tim e in history, a sizable
am ount— 41.5 million ounces— was placed at
the disposal of a newly organized interna­
tional financial institution, the International
M onetary Fund. These two “uses” absorbed
about 169.5 ounces. A few central banks
gained m odest amounts, bu t m ost of the re­

FEDERAL

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BANK

maining 46 million ounces are estim ated to
have flowed into hoards (26 million) and into
industrial uses (20 m illion).
The “Fabulous Fifties” saw 272.7 million
ounces of new gold produced, largely after
1953 as the new mines in South A frica began
to hit their stride. R ussia sold an estimated
32 million ounces, and the United States lost
144.4 million ounces to the rest of the world,
to bring the total “ sources” up to 449 million
ounces of gold.
The destinations of these flows are rela­
tively well identified for this period. Western
Europe was the big gainer as recovery led to
shifts in trading patterns. Germ any received
75.3 million ounces; Italy, 42.7; the U nited
Kingdom, 29.9; and other European coun­
tries, 96.4. The International M onetary Fund
absorbed 27.3 million ounces, and the rest
of the w orld’s central banks obtained 24.5
million. Industrial dem and continued to ab­
sorb gold, about 52.6 million ounces during
this era. The remaining 100 million ounces
disappeared from circulation, presumably
into private hoards.
Table 2 summarizes much of what has just
been said and presents the underlying data
period by period but adjusts the figures to
show annual average rates for the m ajor
flows. This eliminates some of the distortion
introduced by using time periods of different
lengths.

The factors which give rise to
hoarding differ from area to area
Two aspects of these flows of gold deserve
more attention. The first of these is the role
of hoarding or, in more formally descriptive
terms, “the private demand for gold.” There
is a trem endous difference between this de­
m and in the Middle and Far East and its coun­
terpart in Europe. In the Far East, particu­
larly India, personal savings have not cus­
tom arily been held in the form of debt instru­
ments, that is, currency, bank deposits, sav­
ings and loan shares, and stocks and bonds.



OF

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The absence of a well developed banking
system has been partly responsible for this
situation. M ost individuals in those areas be­
lieve gold to be the m ost effective store of
value, and this has made for a steady drain
on world gold production over much of re­
corded history, even though a reversal of this
flow during the mid-thirties helped avert an
even more serious world deflation.
In the Middle East the dem and for gold is
slightly different. Some countries, especially
the small, “oil rich” nations, have been mov­
ing toward an internal gold coin standard,
and some of the “private dem and” may have
come from oil companies forced to meet pay­
roll and some other local payments in gold.
This use differs somewhat from the pure
hoarding that occurs in other areas, although
undoubtedly some hoarding of this latter type
does take place in the M iddle East.
In Europe, the private dem and for gold is
radically different. There nongold currencies
have long been in generally accepted circu­
lation, and the use of savings institutions is
common. Yet, from time to time, political
and economic uncertainty has induced peo­
ple to convert a large part of their savings and
other assets into gold. France is, of course,
the example par excellence of this. During the
thirties when the O rient was dishoarding at
record rates in response to the avid dem and
for gold in Europe, individuals in Europe
were absorbing gold in an am ount which in
one year hit 23 million ounces. Even in the
postw ar years, private European dem and for
gold was sizable. The most pronounced de­
mands emerged just before the world-wide
devaluations of 1949 and just after the out­
break of the K orean W ar, but in 1950 the F ar
E ast also dem anded gold so that additions to
European hoards were much smaller than
they otherwise might have been. On the ba­
sis of admittedly imperfect evidence, the prin­
cipal dem and in Europe was in France, al­
though some persistent dem and came from

February 1 96 2

M O N T H L Y R EV IEW

C hart 2

B a r g o ld prices in p riv a te m a rk e ts
d e clin e d rather steadily after 1 9 4 9
Do lla r o r dotla# equivalents per fine ounce
r » d lU U -m tn
on premium
u J«

n in e *
market
do«d

ExebM f*
rite s
idjuJtm ent

in
Korea.

r

60
■ A

a

.

Rrrlicd
rund poller
uo gold

i

HO NG KONG

50
:

I

i

V

H

^

k

L

ZURICH

1947

1949

1951

1953

N ote: T he quotations for gold bars have been expressed directly
in dollars in Tangier (since 1950) and in Zurich (since 1951).
The Zurich quotation prior to 1951 reflected the price a t which
gold was traded for dollars in various markets. In other markets
(such as Hong Kong, Beirut, and Paris) the quotations for
gold, expressed in local currency, have been converted into dollar
equivalents at “ free” m arket exchange rates.
Sources: International M onetary Fund, and Board of Governors
of the Federal Reserve System.

Italy and Greece. Switzerland’s demands were
mostly for the account of foreigners, Eastern
and other. There was no evidence of any sig­
nificant private dem and for gold in other E u ­
ropean countries or in Latin America.

Some gold transfers take place in
private markets
So far, in our discussion of gold flows,
the actual mechanics of the transfers between
private individuals has been ignored. During
the postw ar years virtually all governments



placed restrictions on the gold transactions
of private individuals ranging from outright
prohibition to turnover and transit taxes on
holding or selling gold. They were also the
years when government controls over inter­
national payments were strong enough to
produce widespread and flourishing black
markets in both gold and the few “hard” cur­
rencies, such as the dollar.
Zurich and Hong Kong regained their pre­
war reputation as major international gold
centers during this period, but Beirut, Paris,
and Tangier emerged to challenge their posi­
tion, and brisk demands made all these m ar­
kets highly active despite supply problems. As
a result of supply limitations and the brisk
combined demands, free m arket prices
soared. C hart 2 gives a picture of prices on
some of the m ajor m arkets during this period,
although these estimates are subject to unusu­
ally wide margins of error. One obvious
source of errors stems from quoting gold
prices in terms of dollars per ounce, even
though the prices of other currencies in terms
of dollars were neither stable nor unique
over this period. There often existed a whole
set of prices for dollars ranging from the low
official rate (o r sometimes “rates” for differ­
ent kinds of transactions) up to the rates
charged on the blackest of the black markets.
M oreover, since the volume of transactions
on each of these markets is unknown, the
weight to be assigned each particular price
in deriving an average is at best a rough
guess.
The profits to be made dealing in gold led
to bizarre forms of competition among dif­
ferent gold m arkets as well as between indi­
vidual sellers. For example, the Thai Gov­
ernm ent perm itted a new m arket to open in
Bangkok in early 1953. So much business was
diverted from M acao that a tax-cut war, simi­
lar to a price war, went on for several months
until a satisfactory division of “the territory”
could be established.

FEDERAL

RESERVE

BANK

W ith increasing monetary stability,
other markets opened
These were interesting years in the history
of gold movements, but as in most such peri­
ods, they carried the seeds of their own de­
mise. The political uncertainties gradually
abated. Somewhat less gradually, but still in­
evitably, a m easure of economic stability in
most of the W estern countries was gained;
and slowly but surely the public’s interest in
holding gold began to ebb, while the supply
of gold increased. By the end of 1953, the
open m arket price of gold had fallen to the
point (about $37 per ounce) at which unoffi­
cial transactions were no longer profitable
after the costs of transportation and m arket­
ing had been met. Although there is some evi­
dence supporting the thesis that the Russians
were at least partly responsible for this price
decline by virtue of substantial sales made
late in 1953, it seems more likely that em erg­
ing stability in international economic rela­
tions was the do m in an t factor.
M arch 22, 1954 marked the reopening
of one of the m ajor gold m arkets of the world.
D uring the preceding 15 years, the United
States Treasury had been virtually the w orld’s
only im portant gold m arket because of its
standing offer to buy and sell unlimited
amounts of gold at $35 an ounce (aside from
a small service charge). But by 1954, gold
producers in m ost countries were allowed to
sell on the open market. U nder these favor­
able omens, the British Government perm it­
ted the London gold m arket to reopen.
Since this m arket has become the major
m arket for private gold sales and purchases
in recent years, its workings are worth p re­
senting in some detail.1 Every morning at
10:30, representatives of the five member
firms of the London bullion m arket gather in
the offices of N. M. Rothschild & Sons, in
St. Swithins Lane, to decide what the day’s
•T h e United States T reasury still constitutes the major market
for official sales and purchases of gold for monetary uses.




OF

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opening gold price ought to be. This is not
as arbitrary a procedure as one might think.
Before the meeting, each firm has tried to
match as many of its buying and selling or­
ders as it can, so the real purpose of the m eet­
ing is to determine a price which is most
likely to clear the m arket of the remaining
orders.
The price “fixed” by the dealers provides
an indication of the m arket at the beginning
of the day, but trading can change this price
quite drastically just as in any m arket. N on­
residents of the Sterling A rea may buy or sell
any am ount of gold they wish provided that
payment is made in either dollars or “convert­
ible” sterling (th at is, pounds which are al­
ready held abroad and so can be converted
into gold or dollars without increasing ex­
ternal claims on G reat B rita in ). Sterling A rea
residents are not completely excluded from
the m arket; they can sell gold freely but can
buy only limited amounts for approved indus­
trial and export uses. In the London m arket,
a large share of the purchases is customarily
for the account of foreign central banks, and
much of the gold is supplied to the m arket
through the Bank of England.
The United States, as has already been re­
m arked, stands ready to buy or sell gold for
legitimate m onetary purposes at $35 per
ounce excluding handling costs. W hen these
costs are included, the Treasury’s buying
price is $34.9125, and its selling price is
$35.0875. Because foreign m onetary authori­
ties have the possibility of purchasing gold
from the United States Treasury and export­
ing it to London, the dem and for gold in
London by these m onetary authorities gener­
ally tends to decline when the L ondon price
exceeds the United States Treasury selling
price by significantly more than the cost of
transportation.1 Furtherm ore, under the A rti A central bank which wishes to hold gold in London rather
than New York will presum ably buy in the London m arket so
long as the London price is below $35.0875 plus transportation
and insurance costs. Hence slight fluctuations above the lim it
set by the U nited States are not uncommon. Taking this into
account, the upper lim it is between $35.17 and $35.20 per
ounce depending on particular shipping arrangements.

February 1962

M O N T H L Y REVIEW

id es of Agreem ent of the International M one­
tary Fund, member countries of the Fund are
obligated to m aintain the exchange values of
their currencies within 1 percent of each side
of parity, so that in effect they cannot buy gold
when the price rises above $35.35. W hen the
gold price in any market rises above such a
point, it thus largely reflects private specula­
tive demand, and prices tend to fluctuate
more sharply because of the relative thin­
ness of the market.

Recent gold developments
With the foregoing description of some
past gold movements in mind, we are in a
better position to evaluate in perspective the
events of the past two years, a period during
which the “gold rush days” of O ctober 1960
were a m ajor highlight.
Production of new gold (excluding the
U. S. S. R .) during 1960 am ounted to about
33.6 million fine ounces. South A frica ex­
panded its output despite increasing difficul­
ties with the mining labor force, but both
United States and Australian output fell
slightly. Russian sales were of the order of
5 to 6 million ounces. But this addition to the
w orld’s gold “circulation” was dwarfed by
the 59.2 million ounces lost by three coun­
tries: Canada, 2.1 million; Venezuela, 7.3
million; and the United States, 48.7 million
ounces. The total am ount of gold to be ab­
sorbed was about 74 million ounces during
1960.
Over two-thirds of this became part of the
official gold holding of W estern Europe. The
largest gold gainers were Italy (13 million
o u n c es), France (10 m illion), G erm any (9.5
m illion), the Netherlands (9.1 m illion), the
United Kingdom (8.6 m illion), and Switzer­
land (7.2 m illion). W estern European mone­
tary authorities as a whole bought 66.5 mil­
lion ounces during the year, while minor
changes in the rest of the world’s central
banks (excluding the three big sellers m en­



tioned earlier) absorbed on balance 1.3 mil­
lion ounces. Assuming that net industrial
demand absorbed 6.0 million ounces, prob­
ably a slightly high estimate, not less than
23.6 million ounces, worth almost a billion
dollars, went into private holdings.
The sudden and dram atic resurgence of
private demands for gold had an immediate
effect on gold prices in free markets. Until
late July, the London m arket operated much
as it had been doing during the preceding six
years, although perhaps at slightly higher vol­
ume levels associated with higher South A fri­
can and Russian gold exports. During A u­
gust and September, central banks continued
to make purchases in the London market be­
fore prices rose above the $35.35 per ounce
level at which central banks of countries be­
longing to the International M onetary Fund
are precluded from further buying. The gold
purchases reflected, in part, the outflow of dol­
lars due to the persistence of substantial dif­
ferentials in short-term interest rates between
W estern Europe and the United States and,
in part, the continuing weakness in the United
States balance of payments position. As G er­
many and later Switzerland took measures to
discourage the inflow of “hot m oney,” some
private dollar-holders turned to gold, and
pressure on the London m arket built up.
By mid-October, the London “fixing price”
had been fluctuating between $35.20 and
$35.25 for over a month, slightly above the
cost of bringing in gold from New York. Still,
the fixing price did clear the market; no m ajor
overnight revision was necessary until O cto­
ber 18.
On the morning of O ctober 18 the fixing
price was set at $35.27. By midafternoon,
prices rose to $35.35, a full percent above
the dollar’s par value. The following day’s
fixing was set at $35.38 but the surge in p ri­
vate dem and pushed prices to an unprece­
dented $35.65. On O ctober 20, the fixing
price followed the trend of the preceding two

FEDERAL

RESERVE

BANK

days by rising to $36.55. The m arket re­
sponded with bids that rose as high as $40 per
ounce before the fever subsided. F or four
days, transactions took place at well over $36
per ounce even in the absence of central bank
demands.
From O ctober through December, prices
moved slowly downward despite persistent
dem and. The m ajor factor in keeping prices
below the $36 level was the increased supply
of gold which reached the m arket during this
period. The Bank of England purchased some
$350 million in gold from the United States
between O ctober and December, and the
United States Treasury announced that it had
no criticism of the Bank of England’s opera­
tions in the London gold m arket. In January
1961, an Executive O rder prohibited United
States citizens from purchasing or holding
gold overseas (aside from rare coins) after
June 1. More im portant was the statem ent
made by the President in early February to
the Congress outlining plans to improve the
United States balance of payments and dis­
avowing any intention of devaluing the dollar.
The net effect of these moves reduced the
intense speculative dem and for gold and the
London price fell towards its norm al level. By
M arch 1961 the fixing price was below the
official United States price of $35.0875 per
fine troy ounce and the “great gold scare” was
over.

But unusual events should not
destroy perspective on go ld
It is tem pting in studying international
movements of gold to emphasize the unusual
to the detrim ent of one’s perspective of the
broader picture of norm al gold transactions.
When one hears of clandestine transfers at
astronom ical prices or of shipments of gold
smuggled through unfriendly borders, such
transactions tend to dominate one’s impres­
sion of the world market. This can lead to
serious misjudgments of the relative im por­



OF

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tance of gold and of the forces which cause
gold to move between nations.
Fluctuations in the L ondon gold m arket
should be viewed in the context of represent­
ing a relatively small volume of transactions,
and consequently they should not be allowed
to obscure the very real im provem ent that has
been made in strengthening the stability of
the world’s international exchange m echan­
ism since the late 1920’s. International gold
transactions no longer pose the direct threat
to domestic stability that they once did, and
stable exchange rates and the convertibility
of all m ajor currencies for current transac­
tions have become realities in the relatively
short period since the m ajor distortion caused
by World W ar II and its afterm ath. The res­
toration of convertibility has greatly facili­
tated the development of world trade and the
more advantageous use of the w orld’s eco­
nomic resources that such trade prom otes.
M uch of the credit for this achievement
must of course go to the efforts of the Inter­
national M onetary Fund and its m em ber n a­
tions and other international institutions, but
credit is also due the United States for its
significant contributions to the m aintenance
and strengthening of the international pay­
ments mechanism, particularly in the imme­
diate postw ar years. Clearly, however, as the
events of the past two years have shown, the
dollar is not inherently immune to specula­
tive attacks provoked by large or persistent
payments deficits. To ensure the continuing
acceptance by foreign nations of dollar assets
and to prevent the chaos that would result
from loss of confidence in the dollar, the
continued convertibility of the dollar into
gold at present levels and a reduction in our
balance of payments deficits appear essential.

SUMMARY AND CONCLUSIONS
The fourth and concluding article in this
series has presented a brief survey of gold
movements and markets within the past gen­

February 1962

M O N T H L Y REVIEW

eration. Gold has come a long way since its
first use as a medium of exchange and a store
of value, and this series of articles has de­
scribed in some detail the developing role of
gold in the m onetary affairs of the world. T o­
day, gold’s main role is that of providing a
means of official settlement of international
balances, while its form er role as a medium of
exchange in domestic m onetary transactions
has declined to the vanishing point in prac­
tically all countries. In the absence of a single
world currency, many countries hold signifi­
cant proportions of their international re­
serves in gold to meet balance of payments
deficits. With the rapid growth in world trade
and investment in the postwar period, there
has been increasing use of “ key” currencies,
especially the dollar, as international reserves
with the result that gold now constitutes a
smaller proportion of such reserves than it did
in the early postwar years. The establishm ent
and growth of the International M onetary
Fund has also contributed to “economizing”
the use of gold as international reserves.
Belief in the stability of the dollar through­
out the world is still based to a considerable
extent on the ready convertibility of the dol­
lar into gold for foreign official institutions at
the fixed price of $35 per ounce. In fulfilling
its obligations as the w orld’s banker, there­
fore, the United States must see to it that ac­
tual and potential claims on its gold stock do
not become so large as to undermine faith in
that fixed and ready convertibility. It is not
for this reason, however, but because of the
fundamental need to achieve reasonable pay­
ments equilibrium that so much attention has
been devoted in the last year or more to steps
that are designed to reduce the United States
balance of payments deficit.
Increasing international cooperation and
consultation, particularly in the past year,
have emerged as a potentially useful device in
dealing with problems of international eco­
nomic and monetary policy. Moreover, the
various international institutions, such as the



International M onetary Fund and the W orld
Bank, have gradually expanded their oper­
ations and adapted their policies to meet chal­
lenges as they appear.
Any further “economizing” in the use of
gold would, of course, be wholly in line with
the historical trend in which gold has re­
treated from being the p rin cip al dom estic
money to being only p art of the domestic
money supply, then to an officially held back­
ing for domestic money while providing the
principal means of settling international bal­
ances, and then to one of various means of
international settlement.
Nevertheless, it is clear that gold still plays
an im portant role in the world’s monetary sys­
tem, owing in good part to faith being placed
in it as a store of value. This is illustrated by
the fact that a gold “backing” for the money
supply is still required by the laws of several
im portant countries, by the role of gold in
official reserves, and by the persistence of
private gold hoarding in some countries.
The purpose of this series of articles has
been to broaden the reader’s knowledge of the
role of gold in human affairs and, even more
im portant, to give the reader a basis on which
to form his own opinion on public issues in­
volving gold. One aspect of gold which has
never been challenged is its ability to provoke
heated discussions among students concern­
ing its role. Perhaps the best conclusion to this
series is to cite the opposing views of two of
gold’s more famous students, John M aynard
Keynes and Per Jacobsson.
In speaking of public attitudes concerning
various possible types of expenditure to re­
lieve unemployment, Keynes rem arked as fol­
lows in The General Theory o f Em ploym ent,
Interest and M oney published in 1936:
. . . the form of digging holes in the ground
known as gold-mining, which not only
adds nothing whatever to the real wealth
of the world but involves the disutility of
labour, is the most acceptable of all solu­
tions.
If the Treasury were to fill old bottles
with banknotes, bury them at suitable
depths in disused coalmines which are then

FEDERAL

RESERVE

BANK

filled up to the surface with town rubbish,
and leave it to private enterprise on welltried principles of laissez-faire to dig the
notes up again (the right to do so being
obtained, o f course, by tendering for
leases of the note-bearing territory), there
need be no more unemployment and, with
the help of the repercussions, the real in­
come of the community, and its capital
wealth also, would probably become a
good deal greater than it actually is. It
would, indeed, be more sensible to build
houses and the like; but if there are politi­
cal and practical difficulties in the way of
this, the above would be better than noth-

Ancient Egypt was doubly fortunate,
and d o u b tless ow ed to th is its fab led
wealth, in that it possessed two activities,
namely, pryamid-building as well as the
search for the precious metals, the fruits
of which, since they could not serve the
needs of man by being consumed, did not
stale with abundance.

Per Jacobsson, M anaging Director of the
International M onetary Fund, expressed quite
a contrary view in a series of lectures before
the A m erican Philosophical Society in 1961,
w hich have been published in book form
under the title of The M arket Econom y in the
W orld o f Today.
In the first place, the alignment of cur­
rencies to gold gives a certain stability to
the world’s monetary system which cannot

44



OF

SAN

FRANCISCO

be ignored,. . . Gold cannot be Arbitrarily
created as credit can, and, from the point
o f view of stability, the guarantee given by
gold is therefore felt to be superior to that
o f credit as a means of payment.
Secondly, when international liabilities
are settled in gold, this is a definite and
final settlement, leaving no credit nexus as
is the case when settlement is made in
other ways. Gold payments are less com­
plicated, and this is an advantage.
Thirdly, in the world in which we live
with so many beliefs and, 1 must admit,
prejudices inherited from past generations,
the possession of gold inspires confidence
in a way that the possession of no other
monetary asset can. Given human beings
as they are, they need “props” for their
confidence to be sustained, and gold still
proves useful in this respect.
Fourthly, the use of gold as the wellnigh universal basis of money may not by
itself give cohesion to the world’s mone­
tary system but it greatly facilitates the
task and it would not be easy to establish
the same degree of cohesion in any other
way.
And fifthly, the current gold output, in
so far as it becomes available for mone­
tary purposes, gives a certain impetus to
financial expansion and an increase in in­
ternational liquidity— which is helpful, as
far as it goes.

In his opinion, this list of reasons clearly in­
dicates “why gold should be retained to play
a role not as master but as an auxiliary in the
world’s monetary system.”

February 1 9 6 2

FEDERAL

RESERVE

BANK

OF

SAN

FRANCISCO

BANKING AND CREDIT STATISTICS AND B U SIN E SS INDEXES— TWELFTH DISTRICT 1
(In d e x e s : 1947-1949 = 100. D ollar a m o u n ts in m illio n s o f d o lla rs)

Condition items of all member banks2' 7
Year
and
Month
1929
1933
1939
1952
1963
1954
1955
1956
1957
1958
1959
1960
1961
1961
Ja n u a ry
F e b ru a ry
M arch
A pril
M ay
June
Ju ly
A ugust
S eptem ber
O ctober
N ovem ber
D ecem ber

1962
J a n u a ry

Loans
and
discounts

U.S.
Gov’t
securities

Bank debits
index
31 cities1’ 6

Demand
deposits
adjusted3

Total
time
deposits
1,790
1,609
2,267
7,502
7,997
8,699
9,120
9,424
10,679
12,077
12,452
13,034
15,116

42
18
30
140
150
153
173
190
204
209
237
253
270

2,239
1,486
1,967
8,839
9,220
9,418
11,124
12,613
13,178
13,812
16,537
17,139
18,499

495
720
1,450
6,619
6,639
7,942
7,239
6,452
6,619
8,003
6,673
6,964
8,278

1,234
951
1,983
10,520
10,515
11,196
11,864
12,169
11,870
12,729
13,375
13,060
14,163

16,751
17,525
17,517
17,637
17,632
17,578
17,504
17,779
18.028
17,901
18,212
18,499

6,984
6,991
6,916
7,436
7,393
7,571
7,935
7,863
7,955
8,190
8,182
8,278

13,010
12,750
12,860
13,222
12,865
12,935
13,206
13,212
13,317
13,901
13,944
14,163

13,121
13,639
13,754
13,999
14,289
14,371
14,492
14,656
14,786
14,867
14,874
15,116

254
256
273
266
265
268
267
262
277
291
265
293

18,646

8,082

13,671

15,448

294

Bank rates
on
short-term
business
loans6’ 7

Total
nonagricultural
employ­
ment

3.95
4.14
4.09
4,10
4.50
4.97
4.88
5.36
5,62
5.46

5 48
5.50
5.45
5.42

Industrial production (physical volume)5
Year
and
month
1929
1933
1939
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1960
D ecem ber

1961

Ja n u a ry
F eb ru ary
M arch
A pril
M ay
Ju n e
Ju ly
A ugust
S eptem ber
O ctober
N ovem ber
D ecem ber

Car­
loadings
(number)5

Dep't
store
sales
(value)1

Retail
food
prices
71

60
118
121
121
127
134
139
138
146
150
152

57
130
137
134
144
154
161
153
165
165
163

102
52
77
100
100
96
104
104
96
89
94
88
87

30
18
31
120
122
122
132
141
140
143
157
156
175

64
42
47
115
113
113
112
114
118
123
123
125

150
150
150
150
151
152
152
152
153
153
154
154

161
161
161
160
162
163
162
164
165
166
167

84
83
83
88
81
85
86
84
87
99
100
92

154
164
160
164
153
162
167
157
170
164
165
175

127
127
127
127
127
126
126
125
126
127
126
127

155p

168p

167r

Copper7

Electric
power

Total

Dry Cargo

55
27
56
128
124
131
133
145
156
149
158
174
161
169

24
146
139
158
128
154
163
172
142
138
154
171

103
17
80
116
115
113
103
120
131
130
116
99
129
136

29
26
40
136
145
162
172
192
209
224
229
252
271

190
110
163
186
171
141
133
166
201
231
176
188
241

137

151

133

137

274

271

134
134
131
135
143
143
143
140
142
144
144
141

159
176
178
168
169
188
157
160
163
171
182
152

131r
152
162
172
191
187
183
180
174
181
167
167

139
134
137
133
143
143
121
107
138
149r
147
145

277
276
285
283
285
289
293
300
295

235
248
264
261
265
224
232
247
217

Refined

95
40
71
113
115
116
115
122
120
106
107
116
110

87
52
67
106
107
109
106
106
105
101
94
92
91
92

78
50
63
112
116
122
119
124
129
132
124
130
134
140

99

91

lOOr
lOOr

91
91
92
92
92
91
91
91
92
92
92
92

Cement

...

164

Exports

Steel1

Crude

,

Waterborne Foreign Trade Index7’ *• 10

Petroleum1
Lumber

103
114
111
111
110
111
111
110
113

Total
mf’g
employ­
ment

Imports
Tanker

Total

Dry Cargo

150

247

7

243
175
130
145
123
149
117
123
123
138
149

124
72
95
162
204
314
268
314
459
582
564
686
808

128

io7
194
201
138
141
178
261
308
212
223
305

97
140
141
163
166
187
201
216
221
263
269

57
733
1,836
4,239
2,912
3,614
7,180
10,109
9,504
11,699
14,209

338

175

1,046

245

21,919

318
362
363
331
331
290
299
324
317

118
95
124
163
171
128
138
138
76

779
666
952
759
865
684
1,027
647
840

218
233
252
286
292
267
297
274
277

15,394
11,985
19,268
13,139
15,856
11,535
20,025
10,354
15,542

Tanker

. • .

1 A djusted for seasonal variation, except w here indicated. E xcept for banking a n d credit and d e p a rtm e n t sto re sta tistics, all indexes are based upon
d a ta from outside sources, as follows: lum ber, N atio n al L um ber M a n u fac tu rers’ Association, W est C o ast L um berm an’s A ssociation, a n d W estern
P ine A ssociation; petroleum , cem ent, a n d copper, U.S. B ureau of M ines; steel, U.S. D e p a rtm e n t of Com m erce and A m erican Iron a n d Steel In stitu te ;
electric pow er, Federal Pow er C om m ission; non ag ricu ltu ral and m anufacturing em ploym ent, U.S. B ureau of L abor S ta tistic s and cooperating sta te
agencies; retail food prices, U.S. B ureau of L abor S ta tistics; carloadings, various railroads and railroad associations; a n d foreign trad e , U.S. D e p artm en t
of Com m erce.
2 A nnual figures are as of end of year, m onthly figures as of last W ednesday in m onth.
3 D em and deposits, excluding
in te rb an k a n d U.S. G overnm ent deposits, less cash item s in process of collection. M onthly d a ta p a rtly estim ated.
4 D ebits to to ta l deposits
except in te rb an k prior to 1942. D ebits to dem and deposits except U.S. G overnm ent a n d in te rb a n k deposits from 1942.
6 D aily average.
6 A verage ra te s on loans m ade in five m ajor cities, weighted by loan size category.
1 N o t a d ju ste d for seasonal v ariation.
8 Los A ngeles,
San Francisco, a n d S e a ttle indexes com bined.
* Com m ercial cargo only, in physical volum e, for th e Pacific C o a st custom s d istric ts plus A laska
a n d H aw aii; sta rtin g w ith Ju ly 1950, “ special categ o ry ” exports are excluded because of security reasons.
10 A laska a n d H aw aii are included
in indexes beginning in 1950.
p— Prelim inary*
r— Revised.




44A