Tuesday, December 11, 2012

Gold Bubble, 1960

I don't necessarily agree all POG events were true/actual "Bubbles." But that's what the media declared, back in the day. Here's the first (which looks more like a supply squeeze, Dollar panic and cornered market to me.)

>>“Treasury Holds Price at $35; ‘Gold Bubble’ Deflates Quickly” Leroy Price, UPI (Oct. 21, 1960: Eugene-Register Guard, p.5a and elsewhere)

The swift puncturing of the “gold bubble” that sent the price of bullion soaring to $41 an ounce in London and $48 in Toronto Thursday made huge profits for some people- and severe losses for others.

The bubble burst when the US Treasury said firmly the United States has no intention of raising the official $35 an ounce buying price. American economists, among them Marcus Nadler of New York University, said speculators who think the next administration in Washington will raise the gold price are deluding themselves.

The London price dropped back below $38 after the Washington announcement, following the most hectic trading since the London gold market was reopened in 1954 after its long wartime and post-war suspension.

Trading Light

However, all the gold traded by private operators on the open market during the rise this week of about $5 in the price of gold is estimated to have been no more than $10 million or $15 million. This compares with the $18.5 billion the US Treasury holds and the $33 million which foreign central banks acquired during the last week from the Treasury in normal dealings.

The buying was virtually all by continental speculators. British law forbids Britons to speculate on the London gold market

The deals were all made through the banks so the actual identity of the traders is not known. Naturally, suspicion arises that the bubble was created at least in part by traders out to shear some lambs-to push the price up swiftly, then sell at the top and buy back when the price fell on Washington’s inevitable cold-water reaction.

But London gold dealers were content with saying the demand for gold was caused by the recent declines of stocks in New York and other leading markets and by a growing conviction on the part of many people that the next U.S. administration will have to raise the official gold price.

Canada Hopes Up

The continuing weekly drop in the U.S. gold reserves and the United States big balance of payments deficit naturally feeds the hopes of Canada, South Africa and other gold-producing countries that Uncle Sam will raise the gold price. {…}

The wishful belief in some foreign gold circles that the United States will be forced to raise the gold price finds virtually no support among American economists and bankers. {…}

Nadler said there is no reason for the United States to devalue the dollar because we are not in a period of deflation- that the U.S, economy is basically strong and our balance of payments deficit is not a straight economic matter but it caused by our political and military commitments abroad.<<

>>“Somebody Made a Killing in ‘Gold Bubble’” UPI (Oct. 21, 1960: Oxnard CA The Press-Courier, pg 2)

The swift puncturing of the “gold bubble” that sent the price of bullion soaring to $40.60 an ounce in London and $42 in Toronto Thursday had experts puzzling over who profited.

Somebody made a lot of money and somebody lost a lot of in the wild scrambling market. The gold fever definitely had subsided in London today as the opening price fell to $36.55, down almost $4 from yesterday’s top.

But across the world in Hong Kong, the fever broke out again briefly today sending the price up to U.S. $ 50.85, before trading was suspended.

London reported widespread assumption that American interests operating through Swiss banks were responsible for yesterday’s buying.<<

{Same text as article cited above.}

>>“Gold Bubble Bursts for Speculators” AP (Oct. 22, 1960: Victoria TXThe Victoria Advocate, pg 12)

London (AP) {…} Dealers caught their breaths during the light, uncertain trading and the price settled at 261 shillings $36.54 per ounce fine, compared with 290 shillings - $40.60- Thursday.

Market experts warned the speculation against the American Dollar could start up again at any time. {…}

An ounce of gold sold on the London exchange Monday for $35.25-close to the U.S. Treasury’s official price of $35 an ounce. Thursday, some buyers paid over $40 an ounce – a gain of 15 per cent in three days for speculators who bought and sold at the right moments.

Who were the speculators? {…} Many of the dollars that were changed into gold came from Swiss banks, where rich people of many nationalities have accounts.

But more than one highly placed market source said some of those who unloaded dollars for gold were private Americans, wanting either to take quick speculative profits or to guard themselves against a loss in the value of the dollar.

By law Americans are not allowed to buy or keep monetary gold in the United States, but there is nothing to prevent them from buying the bullion on the world’s free markets if they store the gold abroad.<<

>>“Recent London Gold Now Blamed on Americans” (Oct. 31, 1960: The Victoria Advocate, pg 20)

Paris Oct. 31 (CDN) Important Swiss bankers visiting Paris describe recent gold bubble on the London market as the result of heavy gold purchases by American investors abroad coupled with a sudden and mysterious change in the policy of Soviet gold sellers on the same London market.

{…}Started Oct. 20

The sudden rush on gold and the consequent rise in gold price started on Oct. 20, these bankers say, and coincided with Senator Kennedy’s successful visit to New York.

On that very day, orders for selling dollars in Switzerland against gold started pouring from various cities in the U.S. The gold immediately jumped in London to $40 per ounce.

For Swiss observers this rush of orders looked very much as if financial wizards in Wall Street had suddenly realized that Senator Kennedy might be the next United States president and that his administration might be willing to change the present gold parity of $35 per ounce.

Russian Sales Halted

{…} Contributing to the sudden peak of the London gold market was the instantaneous stoppage of Russian gold sales in London.

For months and years now, the Soviets have been the biggest providers of gold on the London market. {…} Soviet interruption of gold sales drastically cut down gold supplies on the market and sent the price of the precious metal skyrocketing.

Swiss View

Two different explanations are given in Swiss banking circles for the sudden Soviet gold turnabout.

First is that the Russians are speculating on the rise of the gold price if Senator Kennedy is elected.

Second is that the Soviets, whichever candidate wins, are keen to create financial difficulties for the United States at this time.

If the next administration has to accept a revaluation of gold price, which is perhaps artificially linked in Europe with a devaluation, U.S. prestige will suffer from it much to the satisfaction of the Soviets, it seems

{Another} element, although on a minor scale, {…} was just Swiss government influence. It’s reasons were purely internal and in no way designed to embarrass the United States.

Dollar Balances

To prevent the influx of foreign capital in Swiss banks, the Swiss Federal bank last September imposed a ¼ per cent commission on all foreign deposits in Swiss francs in its banks.

As a result, investors kept most of their funds in dollars instead of exchanging them for Swiss francs.

When speculation on a dollar valuation started week before last, investors were caught with ample dollar supplies which they promptly changed into gold.

{…}One element which should work in favor of stability, Swiss say, is the forthcoming arrival of gold from South Africa on European markets.

Fourteen million dollars worth of gold is on its way to London aboard United Castle liner Capetown Castle.<<

The Gold Price surge was also discussed in a memorandum of a meeting by the Fed Chairman and key Treasury Dept personnel with President Eisenhower, Tuesday 10/25/1960. The British had been instructed to force down POG; if any further crisis developed, the Germans (Adenauer) were to be instructed to sell Gold on London, likewise.


US Treasury Dept docs about the Gold Market Intervention were declassified in 2011 & released in July 2012


And here's a Gold Chart you don't often see: