*****Preview of 2010′s Gold Rush And Dollar Panic*****

In 1961, The US and Europe pooled their Gold resources in London to prevent the market price for gold from exceeding the mandated rate of $US 35 per ounce. This project to suppress gold was known as the "London Gold Pool".

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

(emphasis mine) [my comment]

Speculative Stampede
Friday, Mar. 22, 1968

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

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

Socks & Mattresses. Telephone and telex lines to London, the world's largest gold market, were swamped as
buyers throughout Europe demanded gold, gold and more gold. More than 200 tons, or $220 million worth, changed hands on the London gold market in one day to establish a new single-day trading record. Where gold could be bought directly, mob scenes erupted and the price soared. Ten times the usual number of buyers jammed the gold pit in the cellar of the Paris Bourse, and fist fights broke out as the price on one day rose to $44.36 an ounce v. the official price of $35. In Hong Kong, frantic trading drove the price up to $40.71, and around the world investors and banks bought gold certificates and gold stocks. Many refused to accept the U.S. dollar in payment.

In dozens of nations, from Austria and Italy to Sweden and Ireland, ordinary citizens rushed out to buy gold coins to stuff socks and mattresses,
cleaning out numismatic stocks virtually overnight. In London, a $20 U.S. gold piece sold for $56, a Ł 1 British sovereign for $10.20. In Geneva, the Swiss lined up at tellers' windows to convert their savings to gold bars. There was even a run in Hong Kong on gold jewelry. All told, between $1 billion [910 tons] and $2.5 billion [2270 tons] in gold may have changed hands within ten days in London—as much as 10% of the total gold in the seven-nation Gold Pool, whose bullion reserves are the cushion for the $35 international price of gold. No estimate was possible of all the other trading in gold around the world, except that it was colossal.

Lost World? The rush was on because speculators—some avaricious, some panicky, some merely prudent—had become convinced that the U.S. and its partners could not much longer maintain the $35 price. With a balance of payments deficit of $3.6 billion last year and a war in Viet Nam that is costing some $30 billion annually, the U.S. has seen its gold reserves shrink by 50% from a postwar peak of $24.6 billion. Now, believed the speculators, the U.S. was nearing the end of its gold tether [This is beginning to happen again]. If the U.S. could no longer sell gold to all takers at $35 an ounce and the price were allowed to rise to meet the demand, the speculators stood to make a handsome profit, just as they had in the devaluation of the pound sterling last November. Having tasted blood then, many scented another kill —and, in their wild bu ying, ripped and clawed at the remaining gold stocks in the Gold Pool [for more on the London Gold Pool, see my entry on Gold Wars].

Who were the speculators? The identity of most was veiled in the secrecy of Swiss bankers' files, but they were situated throughout the world. Perhaps as much as 40% of Swiss bank purchases were destined for safekeeping in the coffers of Middle Eastern sheiks and oil potentates. Latin American businessmen, affluent overseas Chinese, Asian generals—all claimed a piece of the action. The central banks of many smaller nations with precarious national reserve margins, including some Communist Eastern European countries, had undoubtedly joined in to protect themselves. More in sorrow than in greed, European corporations moved into the buying to hedge their foreign-currency holdings. So did some wealthy Americans with numbered Swiss accounts, although it is illegal for U.S. citizens to own gold bullion.

[When 2009's gold rush and dollar panic truly begins, everyone, even US allies (Middle Eastern sheiks, European corporations, US citizens), will flee the dollar into physical gold.]

For the men who understood the situation best, the spectacle was appalling. "The world is lost," said London Economist John Vaizey. "A rise in the price of gold is inevitable now. It's like a grand opera of which the overture is over, and we're in the first act of a world depression." A usually unemotional Swiss banker warned that "in participating in gold speculation, capitalists are doing their best to destroy the capitalist system. If they win the battle in London, the probability is that the whole present international monetary system will come crashing down." French Economist Jacques Rueff, who has long predicted a crisis and argued for a rise in the price of gold, saw his worst jeremiads vindicated. "Whether one wants a gold price increase or not," said Rueff, "it will soon be achieved."

Two-Tier Price. Finally,
the pressure grew so great that the U.S. refused to continue to feed gold to satisfy speculators' greed. In a telephoned message to British Chancellor of the Exchequer Roy Jenkins, the U.S. asked Britain to close the London gold market and shut off the flow from the Gold Pool. Prime Minister Harold Wilson hurried to Buckingham Palace for a midnight meeting with Queen Elizabeth, who declared a bank holiday in foreign-exchange trading. That shut off the Gold Pool's dealing, and money markets from Singapore to Lusaka followed suit. The Paris market alone stayed open.

The U.S. then invited representatives of the Gold Pool nations to Washington for a weekend conference. There was little doubt that the
speculators had succeeded in wrecking at least part of the world's monetary system, and that the U.S. and the other members of the Gold Pool would no longer sell gold to all takers at $35 an ounce. What would likely be decided in Washington was a "two-tier" pricing system for gold, by which the speculators would have to conduct their transactions in a free market (see BUSINESS). Without the U.S.'s willingness to buy back speculative hoards, their price just might prove in the end to be lower than many of the hoarders think. [By the end of 1974, Gold had soared from $35 to $195 an ounce.]

My reaction: This is what a speculative gold rush and dollar panic looks like. The points to note about what happened in March 1968 are:

1) The world experienced the largest gold rush in history and the greatest financial crisis since the Depression.

2) Several hundred tons of gold were secretly flown to London from Fort Knox and sold in an effort to keep the price of gold fixed at $35 per ounce:

3) More than 200 tons changed hands on the London gold market establishing a new single-day trading record.

4) Telephone and telex lines to London were swamped as "buyers throughout Europe demanded gold, gold and more gold."

5) Wherever gold was sold, mob scenes erupted and the price soared.

6) Fist fights broke out as ten times the usual number of buyers jammed the gold pit in the cellar of the Paris Bourse

7) Traders around the world refused to accept the US dollar in payment.

8) In dozens of nations, from Austria and Italy to Sweden and Ireland, ordinary citizens rushed out to buy gold coins to stuff socks and mattresses, cleaning out numismatic stocks virtually overnight.

9) In Geneva, the Swiss lined up at tellers' windows to convert their savings to gold bars.

10) Hong Kong experienced a run on gold jewelry.

11) Between 910 tons and 2270 tons of gold may have changed hands within ten days in London

12) Trading in gold around the world was "colossal"

13) The gold rush was caused by the belief that the US was nearing the end of its gold tether.

14) The investors speculating on gold's rise included:

A) Middle Eastern sheiks and oil potentates
B) Latin American businessmen
C) Affluent overseas Chinese
D) Asian generals
E) The central banks of many smaller nations with precarious national reserve margins
F) European corporations
G) wealthy Americans with numbered Swiss accounts (Although it is illegal for U.S. citizens to own gold bullion)

15) The men who understood the situation best were appalled:

"The world is lost"

"A rise in the price of gold is inevitable now. It's like a grand opera of which the overture is over, and we're in the first act of a world depression."

"In participating in gold speculation, capitalists are doing their best to destroy the capitalist system. If they win the battle in London, the probability is that the whole present international monetary system will come crashing down."

"Whether one wants a gold price increase or not, it will soon be achieved."

16) The pressure grew so great that the US asked Britain to close the London gold market and shut off the flow from the Gold Pool. The US and the other members of the Gold Pool would no longer sell gold to all takers at $35 an ounce.

17) US's fiscal irresponsibility had succeeded in wrecking at least part of the world's monetary system.


Conclusion: We will see something like 1968's gold rush soon, except it will probably be much worse. The trigger for 2010's gold rush will be the collapse of paper gold (ie: gold futures, GLD, unallocated gold, etc). This time around, the dollar won't just lose some of its value: it will lose nearly all it.

This entry was posted in Background_Info, Currency_Collapse, Gold, Social_Unrest, Wall_Street_Meltdown. Bookmark the permalink.

12 Responses to *****Preview of 2010′s Gold Rush And Dollar Panic*****

  1. Robert says:

    One thing that was different back then is that with the dollar pegged at $35/oz there was no risk in buying gold at all.

    There was no risk of them losing money as they could always convert their gold back at $35/oz if the dollar peg held.

    That made the speculative gold buying more of a one way bet than it appears to be now.

    These days with a floating gold price the perceived risk of losing money may be a much greater deterrent.

    Perception is everything. The modern financial system relies on making things complicated enough that most people don't understand what's going on.

  2. Anonymous says:

    Am I safe to purchase the gold bear ETFs if they aren't backed by any physical gold?

  3. Robert says:

    You're being facetious, but no.

    If gold goes spikes up there's a risk that buyers of paper gold will lose out due to their counterparties going bankrupt and being unable to pay.

    Obviously that's bad for the buyers of paper gold since they lose out on the protection they paid for.

    But the counterparties are still bankrupt which is bad for them also.

  4. Numonic says:

    Robert I don't think the run to gold will be the cause of the decline of the US dollar but the effect. The decline in the dollar is inevitable because of all the debt already built up and rising borrowing costs that need to and will be passed on to consumers. These rising prices in consumer goods is what will push people to hold physical gold. If they don't they will watch their savings get wiped out by the rising prices. The rise in price of gold is not the cause of the US Dollar decline, it is the effect. So there is no risk in holding gold, in fact there is less risk with gold today than there was with gold pegged to the dollar.

    I believe those causing the price of gold to rise right now to it's $1000/0z price are in the minority of people who understand that rising prices on everything are coming. There are still allot of people out there not holding gold, when prices start rising, this is where the panic to gold and out of the dollar will happen. There are still allot of people unaware of the imminent rise in prices coming there way which is why Treasuries are still holding up. But just because people believe prices will not rise doesn't mean prices will not rise. The ball is already set in motion and it has been since this credit crunch began. There are allot people who only have it halfway correct. Yes it will be hard to get Fed Notes and in an economy that wasn't so dependent on borrowing to provide, that would mean lower prices but when your economy is based on borrowing to run a business/survive, you have to factor in borrowing costs, and borrowing costs will be as severe as there is debt in the system holding those dollars from getting out and there is an enormous amount. More than all the worlds production many times over. In a system based on borrowing to survive, higher borrowing costs means higher prices. This is why the dollar and all paper currencies(in there current state which is fiat) along with Fractional Reserve Banking is dead. When you think about the fact that Walmart is doing the best(because of it's cheap goods) it's proof that we are close to that point where more and more people realize prices will not be dropping but instead rising. So we are very close to a larger panic to gold and out of the dollar.

    I was listening to bloomberg radio today and they were talking about gold. Questioning if it's wise to get in to gold at this time since it's so near it's all time high. Not realizing that gold right now is very cheap compared to what it will be.

  5. WalrusBank says:

    What are your thoughts on this, dealing with the agriculture crisis:

    http://changealley.blogspot.com/search/label/Agriculture

    ...

  6. Anonymous says:

    I live in a country where private citizens are not allowed to buy physical gold/silver. It's frustrating, because I have a lot of money I want to "save" in gold, rather than our currency that would plummet as soon as the US dollar will. I don't trust the paper gold we are allowed to buy, for reasons that have been strengthened after reading blogs like this one.

    So, my question is:
    Where would you recommend me to invest my money when physical gold/silver is out of the question?

  7. Anonymous says:

    I suggest you buy things you need, such as water/food. Preferably food that doesn't expire quickly. Basically, buy the things you would buy with gold, if you were allowed to buy gold.

  8. Excellent info. Many thanks!

  9. Yeah, now (and 5 years ago) would be a good time to invest your savings into something other than the dollar - it's value will continue to drop, unfortunately.
    -jack

  10. Anonymous says:

    "Where would you recommend me to invest my money when physical gold/silver is out of the question?"

    Since you are reading and posting to this blog, you have internet access. So I suggest you buy and store gold and silver at GoldMoney.com, http://goldmoney.com, or buy gold and silver at GoldSilver.com and have them store it for you. Or in similar other sites.

  11. mark says:

    "Where would you recommend me to invest my money when physical gold/silver is out of the question?"

    http://www.bullionvault.com/#rxlist

    They're members of the London Bullion Market resulting in much lower commissions and storage rates than goldmoney.com Then, there's the transparency. Like no other site you'll find. Finally their marketplace and website are engineered by someone who knew what they were doing. Welcome to the 21st century in gold ownership.

    I don't work for them, really!

  12. Anonymous says:

    So, my question is:
    Where would you recommend me to invest my money when physical gold/silver is out of the question?

    What about platinum or palladium? These are considered to be more "industrial metals" but if your government will allow you to own them in person then it might just be the next best thing.

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