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.