Full text of Private Demand for Gold, 1931-53

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TLe Private Demand

For Gold, 1931-51
REPRINTED
FEDERAL

RESERVE

FROM
BULLETIN

FOR S E P T E M B E R 1954

I S S U E D BY THE

B O ARD O F G O VERN O RS
O F THE FEDERAL RESERVE SYSTEM
WASHINGTON

THE PRIVATE DEMAND FOR GOLD, 1931-531
During the past decade the magnitude of
the private demand for gold throughout the
world was unprecedented. Recently this de­
mand subsided, and it seems appropriate to
assemble the available information and statis­
tical data that contribute to an assessment
of the amount of metal involved and the
direction of its movements. This article
analyzes the supplies and uses of gold during
the period from the end of 1930 to the end of
1953, thus bringing up to date a review pub­
lished in the Federal Reserve B u l l e t i n for
1937."
During the years 1944-53, approximately
4.5 billion dollars of gold flowed into private
channels throughout the w orld; this fol­
lowed a liquidation from private holdings
of some 1.5 billion during the years 193143. There was very little net change over
the period as a whole in privately held gold
in Middle and Far Eastern countries, as their
acquisitions since the war reconstituted hold­
ings that had been reduced during the thir­
ties. Of the net flow during the entire pe­
riod (around 3 billion dollars), about onethird was accounted for by uses in industry
and the arts in the United States, and the
remainder represented largely additions to
private gold holdings in all forms in a few
countries of Western Europe.
The aggregate amount of gold absorbed in
the years 1931-53 by private demand through­
out the world (excluding the U.S.S.R.) rep­
resents about one-seventh of gold production
totaling an estimated 600 million ounces (21
billion dollars, at $35 per ounce). About the
1 T his article was prepared by F rank M. T am agna, Chief,
and M argaret Garber, of the Financial Operations and Policy
Section of the Board’s Division of International Finance.
" B u l l e t i n for August 1937, pp. 703-708.




same quantity of gold had been produced in
the period 1900-1930, while some 300 million
ounces were produced during the nineteenth
century, and only about 100 million ounces
throughout the preceding three centuries.
It may be surmised, therefore, that gold pro­
duction over the past four and a half centuries
aggregated perhaps 1.6 billion ounces (56
billion dollars), of which more than 1 billion
ounces (37 billion dollars) are presently held
as official reserves by central banks and gov­
ernments. On this basis, the total absorption
of gold since the discovery of America into
private holdings, industrial or artistic uses,
and waste and losses may be placed at about
a half billion ounces (19 billion dollars).
The many and varying factors that con­
tributed to the large private demand for
gold in the past decade are related to mone­
tary disorders, political fears, and dangers
of war. The first appears to have been the
most pervasive, as countries where there was
a high preference for gold were generally
among those which suffered from monetary
inflation and loss of public confidence in their
currencies. On the other hand, traditional,
psychological, and institutional factors seem
to have conditioned nations differently; in
many cases the reaction to monetary dis­
orders was flight of capital into foreign as­
sets, speculative investments, and consumer
goods, rather than into gold.
Growth of private demand for gold dur­
ing the postwar period, under conditions of
restrictions on trade and exchanges, led to
the formation in many countries of so-called
“free” gold markets, whose operations were
circumscribed by government controls. As
gold movements and exchange settlements
1

T H E PRIVATE D EM A N D FOR GOLD, 1 9 3 1 -5 3

between such markets in different countries
were generally restricted, their activities in­
volved varying degrees of evasion of govern­
mental regulations, particularly with respect
to import and export of gold and related for­
eign exchange operations.
Prices of gold varied greatly among these
markets and they fluctuated widely from
time to time. The prevalence until recently
of premium prices—that is, prices higher
than the official dollar value of gold—was a
phenomenon that arose from attempts of
governments to insulate their respective gold
markets through the imposition of direct
controls. Premium prices seem to have re­
sulted mainly from effective depreciation of
the various currencies involved, but such
prices also reflected, in varying degrees, both
the risks involved in the illegal nature of
many transactions and a speculative prefer­
ence for gold.
Abatement of private demand and decline
in prices for gold in most markets to official
valuations over the past year have accom­
panied achievement of financial stability and
relaxation of exchange and trade restrictions
in Western Europe and the Sterling Area. In
any system of general currency convertibility
and free gold movements, such as prevailed
before the war, changes in private demand
for gold would be reflected in fluctuations in
exchange rates and would result in compen­
satory gold movements. Under such condi­
tions, there would be no room for wide dis­
parities between the price of gold and the
corresponding foreign exchange rates.
M

e a s u r e m e n t of

G

old

F lows

In general terms, estimates of the flow of
gold into or out of private channels for any
time period may be derived by taking the
difference between the amount of gold pro­
duced and the accretion to official gold re­
2




serves during the period; this difference
represents the gold used for industrial or
artistic purposes as well as changes in private
gold holdings irrespective of their forms.
This article is based in part on regularly
reported figures and in part on incomplete
data and estimates. Statistics on gold pro­
duction and official gold reserves are believed
to be reasonably reliable. All major produc­
ing countries, except the U.S.S.R., provide
information on gold production. Thus, the
annual supply of gold may be measured by
the world production outside the U.S.S.R.
plus any reported transfers from the U.S.S.R.
to other countries. Apart from these reported
transfers, it may be noted, there have been
indications of recent sales of Russian gold
in free markets but the volume of these can­
not be accurately gauged.
The figures for the changes in gold held
in official reserves are based on reported gold
holdings of central banks and governments
and international institutions, unpublished
data on holdings of various central banks
and governments, and estimated official hold­
ings of certain countries from which no cur­
rent reports are made available—again with
the exception of the U.S.S.R.
The difference between gold supplies, as
defined above, and changes in official gold
reserves (outside the U.S.S.R.) represents in­
dustrial or artistic uses of gold, changes in
private gold holdings, and errors and omis­
sions. From this difference may be deducted
the net use of gold in industry and the arts
in the United States since estimates of such
uses and of the return of gold coin and scrap
are available for the United States for the
entire period covered by the article.
Residual figures derived on this basis repre­
sent the net flow of gold into and out of
private hands in the rest of the world, that
is, outside the United States and the U.S.S.R.

T H E PRIVATE D E M A N D FOR GOLD, 1 9 3 1 -5 3

year period 1931-53 may be estimated at 21.6
billion dollars, of which 21.1 billion was ob­
tained from new production and the rest
from the U.S.S.R. Monetary reserves in­
creased an estimated 18.6 billion dollars
(from 18.1 billion at the end of 1930 to 36.7
billion at the end of 1953). The difference
of 3 billion dollars between supplies of gold
and additions to official reserves may be
taken to represent the amount absorbed by
private uses throughout the world.
The gross demand from industry and the
arts in the United States during the entire
period took 1.8 billion dollars. About half
of it was covered by the return of coin and
scrap, which was particularly large in the
thirties. The net private requirements of
this country (840 million dollars) were
covered by domestic production which for
1931-53 totaled 2.4 billion dollars.
After deducting the net private use in the
United States, there is left 2.1 billion dollars,
representing gold used in arts and industries
or added to private holdings in the rest of the
world (outside the U.S.S.R.), as well as
errors and omissions. This residual may
understate the absorption of gold into pri­
vate channels to the extent of any gold sales
by the U.S.S.R. in free markets, which may
perhaps have reached a few hundred million
dollars over recent years.
The period under discussion may be
divided into two phases. The first phase,
1931-43, was characterized by large sales
from private holdings in Middle and Far
Eastern countries, moderate accretions to pri­
vate holdings in other areas, and, on balance,
a net liquidation of some 1.5 billion dollars
from private holdings. In the second phase,
1944-53, substantial growth of private de­
F l u c t u a t i o n s in P rivate G o l d H old in g s
mand in both the East and the West re­
The table on the following page indicates sulted in the addition of around 3.7 billion
that the aggregate supply of gold for the 23- dollars of gold to private holdings. On bal-

While prewar estimates indicated that ap­
proximately the same amount of gold was
normally used in the arts and industry in the
rest of the world as in the United States, there
is no basis for distinguishing between various
forms of private use of gold or holding in
other countries during the postwar years.
In view of the limitless interchangeability be­
tween artistic and other forms in which gold
may be privately held, the aggregate residual
for the rest of the world appears to be the
only reliable yardstick of the private demand
outside the United States and the U.S.S.R.
A distribution of this residual between
changes in Eastern countries and in other
areas has been estimated on the basis of
available information on local gold produc­
tion and sales by monetary authorities within
individual countries, as well as on move­
ments of gold to and from countries and
areas. A number of countries publish figures
on gold movements, but their value is limited
by the incompleteness of the statistics and the
variety of definitions of the items covered.
Furthermore, government restrictions in
most countries on the import and export of
gold have given rise to illegal movements.
Any analysis of the statistics, therefore, de­
pends largely on supplementary information
which may be available from official or un­
official sources. Owing to the inadequacy of
the reported data and information, it is im­
possible to estimate the quantity of gold
moving from one country to another. An
estimated distribution between broad geo­
graphic areas, which is used for some of the
analysis in this article, is subject to a much
wider margin of error than the over-all resid­
ual estimate of changes in private holdings.




3

T H E PRIVATE D E M A N D FOR GOLD, 1 9 3 1 -5 3
E s tim a te s

of

S u p p lie s

and

U ses

of

G o ld ,

1931-53

[In millions of dollars at $35 per fine ounce]
Supplies of gold

Uses of gold
Flow into private channels

Year

New
produc­
tion
(exclud­
ing
U .S.S.R .)'

R eported
receipts
from
U .S.S.R.2

Total

Changes
in
official
gold
reserves
(exclud­
ing
U.S.S.R.)

Total

U nited
States
industry
and arts
(net)3

Residua!: Changes in private
holdings outside U nited States
and U.S.S.R., etc. *
Total

Eastern
countries

O ther
areas

1931..........................................
1932..........................................
1933..........................................
1934..........................................
1935..........................................

720
775
795
825
885

100
80
70
85
25

820
855
865
910
910

510
1 ,150
460
1 .465
975

310
-2 9 5
405
-5 5 5
-6 5

10
-1 0
-110
-1 1 0
-3 5

300
-2 8 5
515
-4 4 5
-3 0

-2 0 0
-4 7 5
-3 0 0
-250
-2 0 0

500
190
815
-1 9 5
170

1936..........................................
1937..........................................
1938..........................................
1939............... ..........................
1940..........................................

970
1 ,040
1,140
1 ,220
1 ,310

10
210
-4 0 0
55
55

980
1 ,250
740
1 ,275
1 ,365

1 ,595
1 ,715
295
1 ,925
1 ,710

-6 1 5
-4 6 5
445
-6 5 0
-3 4 5

-5
5
10
15

-6 1 0
-4 7 0
445
-6 6 0
-3 6 0

-1 2 5
-7 5
-7 5
-1 7 5
-5 0

-4 8 5
-3 9 5
520
-4 8 5
-3 1 0

1941..........................................
1942..........................................
1943..........................................

1,265
1,125
870

45
30

1 ,310
1 ,155
870

1 ,210
980
905

100
175
-3 5

35
45
85

65
130
-1 2 0

25
25
150

40
105
- 2 70

365

13,305

14,895

-1 ,5 9 0

-6 5

- 1 ,5 2 5

-1 ,7 2 5

200

45
30

775
740
800
795
805

385
390
350
420
385

390
350
450
375
420

95
110
155
50
45

295
240
295
325
375

175
125
125
50
225

120
115
170
275
150

840
865
840
865
935

475
410
150
310
430

365
455
690
555
505

110
100
70
95
75

255
355
620
460
430

175
150
200
150
125

80
205
420
310
305

Total, 1931-43...............

12,940

1944..........................................
1945..........................................
1946............... ..........................
1947..........................................
1948..........................................

775
740
755
765
805

1949..........................................
1950..........................................
1951..........................................
1952................. ........................
1953..........................................

840
865
840
865
860

75

Total, 1944-53...............

8,110

150

8 ,260

3,705

4,555

905

3,650

1,500

2,150

G rand to ta l, 1931-53.

21.050

515

21,565

18,600

2,965

840

2,125

-2 2 5

2,350

11931-37, estim ates of U. S. Bureau of the M int; 1938-52, estim ates of U. S. Bureau of Mines; 1953, estim ate of Board of G ov­
ernors of the Federal Reserve System.
2Incom plete d ata. Includes im ports by the United States and other countries until 1939 and since then receipts by m onetary a u th o r­
ities. Does not include any other sales by U.S.S.R. in gold markets. D ata for 1938 have been adjusted to include outflow to U .S.S.R.
of 520 million dollars of gold stated by Bank of Spain to have been sent to the U.S.S.R.
3E stim ates of U. S. Bureau of the M int for net am ount of gold issued for use in industry and the arts; i. e., gold issued by U nited
States m ints and assay offices and private refiners and dealers less return of old jewelry and scrap. In addition, includes return of gold
coin as follows: 1933, 100 million dollars; and 1934, 50 million.
4 Includes also gold used in industry and arts and errors and omissions in ovei-all set of estim ates.

ance, for the 23-year period as a whole there
appears to have occurred a moderate decline
in private Eastern holdings, and the net flow
of gold into private channels presumably
related to a few countries of Western Europe.
The net liquidation of gold during the first
phase went through three stages. In the
years 1931-35, the decline in world prices af­
fected especially raw material-producing
countries and depreciation of sterling pro­
vided a profitable opportunity to holders in
India and other countries to shift from gold
4




to different types of investments. Under such
conditions Eastern holders may have liqui­
dated during these years about 1.5 billion
dollars of gold, while private holders in
other areas may have acquired nearly the
same amount.
Subsequently, during the period 1936-40,
liquidation of private gold holdings be­
came important in Western countries—ex­
ceeding 1 billion dollars—while such liqui­
dation in the East was perhaps only .5 billion
dollars. Many private holders in Europe ap­

T H E PRIVATE DEM A ND FOR GOLD,

1931-53

parently preferred to dispose of their gold in prices with other countries or with the na­
order to shift into overseas assets that seemed tionals of other countries. In compliance
to afford greater security from governmental with the Fund’s recommendations, member
controls and from the effects of war. In addi­ as well as certain nonmember countries gen­
tion, in the later years various governments erally tightened their controls over private
required the surrender of gold held by their gold transactions.
nationals, and the German forces requisi­
Despite these measures, the amount of gold
tioned gold in occupied countries.
flowing into private channels in 1948 was the
In the years 1941-43, which mark the tran­ largest in many years, and in the first half
sition between the two phases, there was re­ of 1949 the flow continued at about the same
vival of private demand in the East and some level. Increased demand was reflected in a
further liquidation in the West. The Allied rising price until mid-1949, when prices in
and Japanese Governments sold gold during most markets, as indicated in the chart, were
these years in the Middle Eastern, Indian, at or above $50 per ounce.
and Chinese markets as a means for raising
A decline in these prices followed, as sup­
local currency to finance military operations. plies increased and demand showed a tendThe second phase, 1944-53, was charac­ BAR GOLD PRICES
terized by a succession of political disturb­ Dollars or dollar equivalents per fine ounce, end of month
ances. Strong inflationary pressures pre­
vailed in the early postwar years and it was
not until 1952 that most countries made
decisive progress toward financial stability.
During this period an estimated 3.7 billion
dollars of gold went into private uses out­
side the United States, representing about
half of foreign gold production of the pe­
riod. The peak of private demand abroad
appears to have been reached in 1951, when
the equivalent of 80 per cent of that year’s
foreign production went into industrial uses
or private holdings, or was otherwise unac­
counted for.
F a c t o r s In f l u e n c i n g P o s t w a r D
and

emand

Su p p l y

A number of specific developments have
affected the supply and demand in gold mar­
kets in the postwar years. In a statement
of June 1947 regarding transactions in gold
at premium prices, the International Mone­
tary Fund recommended that all its mem­
bers take effective action to prevent inter­
national transactions in gold at premium




N o t e . — In tern atio n al M onetary F u n d data.
The quotations
for gold bars have been expressed directly in dollars in T angier
(since 1950) and in Z urich (since 1951). The Zurich quotation
prior to 1951 reflected the price at which gold was traded for
dollars in various m arkets. In other m arkets (such as H ong
Kong, Beirut, and P a ris) the quotations for gold, expressed in
local currency, have been converted into dollar equivalents at
“ free” m arket exchange rates. L atest figures shown are for
A ugust 1954.

5

T H E PRIVATE D EM A ND FOR GOLD, 1 9 3 1 -5 3

ency to fall. The supply of gold was aug­
mented as a result of the decision in early
1949 by the Union of South Africa to permit
the export of fabricated and semi-processed
gold for private sale. At about the same
time Chinese sources ceased to be net buyers
of gold. For several years China had ab­
sorbed large quantities of gold but in mid1949, following the establishment of Commu­
nist control, the Chinese liquidated part of
their holdings.
The world-wide currency adjustments of
September 1949 took place at the time when
prices of gold in most markets had declined
to below $50 per ounce. These adjustments
contributed further to the diminishing pri­
vate interest in gold, accentuating sharply
the decline in prices which by May 1950
reached a level between $36.50 and $39.50
per ounce.
W ith the outbreak of hostilities in Korea
in mid-1950, there was an immediate and
widespread renewal of private demand for
gold. The amount of gold flowing into pri­
vate hands in the second half of 1950 reached
an estimated 275 million dollars, compared
with around 75 million in the first half.
Correspondingly, prices in the various mar­
kets rose until January 1951, when they were
at or above $42 per ounce.
In 1951 the amount of gold entering pri­
vate channels reached a new high and gold
prices fell, the sharpest drop taking place
after September. At that time the Inter­
national Monetary Fund announced that it
would leave to member countries decisions
pertaining to the regulation of gold transac­
tions. Following this announcement, the
gold producers of Canada, Australia, South­
ern Rhodesia, and West Africa were given
permission by their respective governments
to sell gold in processed form on free mar­
kets. No limit was placed on the amount
6




of sales by Canadian and Australian produc­
ers.
In Southern Rhodesia and West
Africa, free market sales were limited to 40
per cent of output, but this restriction was
removed in 1952. Furthermore, the provi­
sion that gold had to be in processed form
was removed in Australia, Southern Rhode­
sia, and West Africa in 1952 and in South
Africa and Canada in 1953, thus leaving pro­
ducers free to sell gold in fine bar form.
The amount of gold entering private chan­
nels in 1952 was substantially less than in the
preceding year. Demand declined through­
out the East, particularly in India. Appar­
ently there was also less demand for gold in
France until the latter part of the year. In
fact, net sales of 34 tons (38 million dollars)
from private holdings occurred in the latter
country in connection with the Pinay gold
loan. Reflecting the decreased demand,
prices of gold in various markets declined
to about pre-Korean levels.
In 1953 the flow of gold into private hands
appears to have been about the same as in the
preceding year. In 1952, however, the rate
of absorption was about the same through­
out the year, while in 1953 it was higher
in the first than in the second half. As de­
mand contracted, the dollar price of gold in
Zurich and Tangier fell in November below
the official parity of $35 per ounce, and prices
in other markets fell to close to parity. At
this point South Africa producers ceased sell­
ing in free markets, and by the end of the
year prices showed again a tendency to rise
slightly in most markets.
G

eographic

P attern

of

G

old

Flows

From available information it appears that
private demand for gold in the West was
largely concentrated in a few countries. In
Western Europe, the greatest demand for
gold apparently originated in France, and

T H E PRIVATE DEM A ND FOR GOLD,

there was evidence of persistent demand
from Italy. For some years, there was an
active demand for gold coin by the Greek
public. In London, gold has been custom­
arily held for the account of nonresidents.
Zurich and Tangier have been important
international gold centers. There is no sta­
tistical evidence of any significant demand
for gold in other Western European or in
Latin American countries.
Private holdings in Middle and Far East­
ern countries have been subject to few effec­
tive restrictions and appear to be more wide­
spread than elsewhere. Until the imposition
of restrictions in 1952, Egypt appeared as an
importer of gold. In Saudi Arabia and a few
other countries in the Middle East, gold
coins were used as a medium of exchange.
Until mid-1949 most of the gold entering
Asia reportedly was destined for China and
India; afterward the main flow was directed
toward India.
Gold entering private channels either for
use in industry and arts or as addition to
holdings comes from two sources—new pro­
duction or sales by monetary authorities from
official reserves. Between 1950 and 1953, the
Union of South Africa reportedly was sell­
ing in gold markets about 40 per cent of its
annual production of more than 400 mil­
lion dollars. More than half of the gold
produced in other sterling area countries
(estimated at around 100 million dollars a
year) also went into private uses or holdings.
In 1952 Canadian producers sold approxi­
mately 30 per cent of their current gold out­
put (157 million dollars) through foreign
private channels, but such sales appear to
have declined in 1953. Newly mined gold
from Latin America and Asia, after being
refined in the United States and Europe, was
also sold in gold markets, largely in the
Middle and Far East; over the past years




1 9 3 1 -5 3

these sales accounted for more than half of
the combined production in these areas,
totaling some 100 million dollars a year.
There were reports of intervention in lo­
cal gold markets by monetary authorities. In
France the Exchange Stabilization Fund
intervened from time to time in the market,
principally as a buyer of bars and a seller of
coins in view of the higher demand and
prices for gold pieces. The Bank of Greece
sold gold sovereigns to the public for a num ­
ber of years, such sales amounting to around
65 million dollars in the period 1946-52. Some
350 million dollars of gold, mainly in coins,
was sold before 1948 by the Swiss National
Bank and until 1950 the Bank of Mexico
also sold gold coins. Between 1948 and 1950
the Government of Saudi Arabia acquired
about 80 million dollars of gold sovereigns
in payment for oil royalties and in later years
it issued Saudi Arabian gold coins; most of
these gold pieces were exported for sale at a
premium, while some became part of the
local currency in circulation.
The flow of gold from producing countries
to the various markets of the world and its
distribution between major areas can be
analyzed broadly, despite the limitations of
underlying data described on page 3.
Movement of gold to Western Europe.
During the past decade Western Europe was
the final destination for part of the gold re­
ceived from producing countries and a tran­
sit area for gold shipped to Middle and Far
Eastern markets.
Semi-processed gold from South Africa,
the principal source of supply for gold mar­
kets, moved largely to a few European goldprocessing countries. It appears that France,
Switzerland, and the Netherlands were the
immediate recipients and principal transit
countries, from which processed gold was
moved to other countries and areas. In some
7

T H E PRIVATE D EM A ND FOR GOLD, 1 9 3 1 -5 3

cases the United Kingdom was the country
to which gold was consigned. Gold im­
ported into the United Kingdom for refining
and processing can be held there by banks
and dealers for the account of nonresidents
or exported, subject to license, to any coun­
try outside the Sterling Area, provided the
country permits the import. Although
there are no figures available, it would ap­
pear that the amount of gold located in Lon­
don vaults for the account of foreigners may
be considerable.
A free gold market has existed in France
since early 1948, but legally the market is
restricted to domestic transactions; the im­
port and export of gold require permission
of the Bank of France. A considerable
amount of gold and gold alloys moved
through France in recent years, including
reported imports and exports under license
as well as unreported movements between
France and neighboring countries.
Italy has a free internal gold market. The
import of gold coins into Italy is free but
the import of gold in other forms and the
export of any type of gold are subject to
license. According to Italian statistics, a
considerable quantity of gold coins was im­
ported into Italy from the Netherlands,
France, and Belgium in the years 1950-52.
According to statistics of other countries,
semi-processed gold has also moved into
Italy. It is impossible to trace the move­
ment of gold from Italy.
The gold market in Switzerland has been
completely free since mid-1952 when the
last of the wartime controls on gold transac­
tions and the import and export of gold
was removed. Switzerland has been one of
the principal transit centers in the movement
of gold in all forms. Statistics indicate that
Switzerland imported gold in semi-processed




forms, and exported it to the other Western
European countries.
The Tangier market is closely related to
Europe. The exchange and gold markets
in Tangier have remained completely free
for local and foreign residents alike. D ur­
ing the postwar years an active gold mar­
ket developed with facilities for storage, in­
ternational transfer, and settlement of gold
transactions. From 1948 to 1953, according
to Tangier statistics, net imports for storage
were about 53,000 kilograms (60 million dol­
lars). Gold came almost entirely from Euro­
pean countries.
Movements to Middle and Far East.
Since early 1949 Beirut has become a pri­
mary transit center in the movement of gold
from West to East. At that time the Gov­
ernment of Lebanon liberalized the transit
of gold, permitting traders to keep gold for
a period up to four months, and to export
the gold to any destination. In 1952 the
period was extended to six months to aid
Beirut gold traders who were having diffi­
culty in moving their stocks, owing to falling
Indian demand. According to Lebanese
statistics, an average of 75,000 kilograms of
gold (84 million dollars) has passed through
that country each year since 1950. The prin­
cipal countries of origin have been the
Netherlands, France, United Kingdom, and
Switzerland, and it is indicated that most of
the exports have been destined for Kuwait.
In the Far East, Macao has served as a dis­
tribution center and a point at which gold
coming from Europe and the Western
Hemisphere is converted into bars and shapes
acceptable to local traders. Closely asso­
ciated with the Macao market, Hong Kong
has traditionally provided the facilities for
arranging and financing international gold
transactions. Gold can be shipped to and
from Macao with little restriction. Until

T H E PRIVATE DEM A ND FOR GOLD,

recently imports of gold into, and exports
from, H ong Kong were restricted, but gold
may now be imported into this colony for
re-export to any destination in the world
with the exception of Kuwait.
Prior to the middle of 1949, China was
a principal market for gold passing through
Hong Kong and Macao. W ith the exodus
of refugees, following the establishment of
Communist control in China, this flow was
reversed for a time and there was less ac­
tivity in these two markets. At the middle
of 1950, however, with the outbreak of hos­
tilities in Korea, gold trading in these mar­
kets began to flourish again, reflecting a
renewed demand in the area. According to
estimates of local bullion dealers published
in Hong Kong, gold imports into Macao
during the period 1948-51 totaled almost
300,000 kilograms (338 million dollars) of
which about one-third were imported in
1951. Imports declined somewhat in 1952,
and in 1953 were said to be only about 30,000
kilograms (34 million dollars), but recently
this flow has again shown signs of increasing.
The same sources indicate that Hong Kong
imported gold from Macao and the Philip­
pines, and exported it, until November 1952
principally to Bangkok and Singapore and
since then to Singapore, Burma, Indonesia,
Indochina, and Japan.
Bangkok serves as a transit point in the
movement of gold and also as a center for
gold redirected to India. Until 1952 the
import and export of gold were illegal. In
October of that year, a syndicate of Thai
banks was granted permission to import a
limited amount of gold each m onth; this
gold apparently originated in Europe. Im­
ports by private merchants continued to be
officially forbidden.
In March 1947 the Reserve Bank of India
suspended the issuance of gold import li­




1 9 3 1 -5 3

censes, but an internal free market con­
tinued. Since then this market has been
supplied by newly mined domestic output
(around 8 million dollars annually) and by
clandestine imports. From all indications, it
appears that sizable amounts of gold reached
India illegally by two principal routes—
through Beirut and Kuwait from the West,
and through H ong Kong and Bangkok
from the East. However, this gold traffic
apparently began to decrease in March 1952.
At that time a slump in commodity prices
was accompanied by a decline of around 15
per cent in the rupee price of gold, leading
to a settlement crisis in the local bullion
exchange. Forward trading was suspended
for two months, and after the reopening of
the exchange the price continued to decline
through December. In early 1953 the price
recovered somewhat and remained rela­
tively constant. This development coincided
with the tapering off of inflationary pres­
sures since 1952.
D

evelopments

in

1954

In the first half of 1954 the price of gold
in the various markets remained around
$35 per ounce. Only a small amount of gold
appears to have moved into private chan­
nels, probably only that required to meet the
normal demand for industrial uses.
The most important development in this
period was the reopening of the London
gold market on March 22. The market had
been closed since 1939, but authorized gold
dealers had been permitted for some time to
act as agents in arranging transactions be­
tween nonresidents. The London bullion
market consists of the same six firms as
before the war, and banks in the United
Kingdom are also authorized to deal in gold.
Residents of the Sterling Area may freely
sell gold only for resident (that is, incon­
9

T H E PRIVATE D EM A ND FOR GOLD,

vertible) sterling; they may purchase gold
only w ith a special license from the Bank
of England. Residents of all other countries
may buy or sell gold freely, provided pay­
m ent is m ade in Am erican account or Cana­
dian account sterling, or in registered ster­
ling. T he latter category of sterling was
established w hen the gold market was re­
opened and may be held only by residents
outside the dollar and sterling areas. Reg­
istered sterling accounts may be acquired
by selling gold or dollars in London.
South A frican gold production remains
the most im portant source of supply for
gold m arkets. W ith the reopening of the
London m arket, past arrangements whereby
South African gold producers were perm it­
ted to sell part of their production in free

10




1 9 3 1 -5 3

markets were discontinued. Sales of gold
are now handled by the South African Re­
serve Bank which is committed to sell a
m inim um of 4 million ounces (140 million
dollars) a year to the United Kingdom and
as a rule effects any additional gold sales
through the London market.
Private demand for gold is the smallest
in many years. According to press reports,
some gold has moved out of private holdings
in France, as the Exchange Stabilization
Fund has made net purchases in the market.
Reports from India indicate that activity in
the local bullion m arket continues at a low
ebb. There appears to be some return flow
of gold from Tangier to Europe. These
trends reflect the abatement of private inter­
est in gold in most markets of the world.