March 1968 and the London Gold Fixing
Throughout the 1960s, the London Gold Fixing acted as a barometer for confidence in the U.S. dollar. In the post-Second World War era, the U.S. dollar was the world’s primary reserve currency and vehicle for financing trade. Under this system, it was the only currency backed by gold (at $35 per fine troy ounce). All other currencies were convertible into the U.S. dollar at fixed exchange rates. It was the precious metal’s role in the international monetary system that transformed the Gold Fixing’s establishment of a publicly visible, gold-price benchmark into a daily ritual of confidence in the ability of the U.S. to support the gold-dollar parity. An issue that became increasingly important in the 1960s with growth in U.S overseas commitments and the level of U.S. dollars circulating internationally.
Tensions first erupted when the gold price in London rose several dollars over parity in October 1960. This “Gold Crisis of 1960” signalled that trading in the Gold Fixing was becoming an early warning system of pressure mounting against the U.S. dollar. As the decade continued, this pressure was ever present. In reaction, eight of the most prominent central banks created a “pool” of gold bars that could be used to keep the London price from rising above $35.20 during speculative attacks. By curtailing arbitrage opportunities, it would alleviate immediate strains on U.S. gold stocks. These arrangements worked effectively for several years. In the second half the decade, however, pressure grew and in 1968 the gold pool’s ability to counter speculative pressure reached a crisis point.
On Friday, 15th March 1968, the U.S. government asked the U.K. Treasury to close the Gold Fixing and the London over-the-counter market. Over the weekend, monetary authorities met in Washington D.C. to sort out the international financial situation. As part of their conversation, they extended the closure to 29th March.
When gold trading resumed, on 1st April 1968, the financial landscape was dramatically different.
The Mocatta Fixing Book for the first half of April 1968: a new afternoon fixing has been squeezed in, with the dollar price taking priority over shillings and pence.
The international gold market had been split into two segments. In the first tier, the $35 gold-dollar parity price was maintained, but only central banks and national financial authorities could trade in it. The second segment was a free gold market in which the price of gold was allowed to fluctuate according to supply and demand. Only institutions and private citizens permitted to own gold could trade in this tier. It was in this portion that the Gold Fixing and the over-the-counter market belonged.
Along with these changes, a second (afternoon) Gold Fixing was added for the benefit of Canadians, Americans and South Americans who preferred “to see the state of the market when they were awake.” This signalled a trend that accompanied the gradual demonetization of gold over the next decade. London became one of several critical nodes in a network of gold dealing centres that emerged in the 1970s. Whereas prior to 1968, the world came to London to buy gold, afterwards the members of the Gold Fixing increasingly turned their attention to developing a round-the-world, round-the-clock gold market.
Text courtesy of Rachel Harvey, PhD, Adjunct Associate Research Scholar, Center on Global Economic Governance, Columbia University