Re-opening the London Gold Fixing after the Second World War
The Fixing Room at Rothschilds’ New Court offices in the early 1960s
Picture reproduced with the permission of The Trustees of The Rothschild Archive
With the outbreak of the Second World War, the Gold Fixing closed, with a final price of £8:00 per fine troy ounce on Friday, 1st September 1939. The devastation and economic disruption that followed were behind the pricing mechanism’s almost 15 - year hiatus. Reflecting Britain’s weakened economic condition, the country’s currency, the pound sterling, remained inconvertible until the end of 1958. As such, the U.S. dollar was the world’s primary reserve currency and vehicle for financing trade. Gold was still central to the international monetary system under the Bretton Woods arrangements, but it did not circulate freely. Since it was the ultimate means of settlement, many countries, including the US and the UK, protected their reserves by prohibiting citizens from owning monetary gold (mostly with a fineness of 999.5 or above). Despite these restrictive conditions, by 1953 the growing importance of gold markets in other countries resulted in the Bank of England strongly urging the UK Treasury to reopen both the Gold Fixing and the over- the-counter market (where gold was traded through individually negotiated bilateral contracts). Towards the end of that year, the Treasury gave its blessing to start planning for the market’s reopening.
The Bank then turned its attention to the organization of the Gold Fixing. It quickly decided that some aspects of the market would remain the same. Each day, the Gold Fixing would establish a single price for gold denominated in pounds per fine troy ounce that would clear the market and be publicly visible (as opposed to the private prices in the over-the-counter market). Bank officials considered making several changes to the pre-war setup, such as rotating the chairmanship and expanding the firms permitted to participate in the pricing mechanism. Yet, when the Gold Fixing re-started on 22nd March 1954, none of these changes were made.
When the day arrived, it was as if the Gold Fixing had never been closed. At 10:30 a.m., the representatives of the six participant firms (N.M. Rothschild & Sons, Johnson Matthey, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps & Wilkins) took their seats around a large wooden table at Rothschilds’ offices. Resting on the table were a handful of telephones and small Union Jacks for each participant to raise when they wanted to pause trading. In line with pre-war practice, Rothschilds frequently spoke to the Bank of England during the Gold Fixing since it was the central bank’s agent. The remaining telephones connected the other participants to their trading desks, which in turn, were in contact with customers around the world. The six men then negotiated the price of gold based on the buying and selling orders being received by their offices. Within ten minutes the whole affair was over, and the gold price was fixed at 248 shillings and 6 pence (£12.425).
The market had worked quietly, efficiently, and had a reasonable trading volume. After almost fifteen years of slumber, the world’s most important gold pricing mechanism was back in business.
Text courtesy of Rachel Harvey, PhD, Adjunct Associate Research Scholar, Center on Global Economic Governance, Columbia University
Detail
- Date
- 22 March 1954
- Era
- Modern Period
- Related tags