The Gold Market Becomes Slightly Less Opaque

A Veil Is Lifted In Zürich

According to a recent report by the Neue Zürcher Zeitung (NZZ), the Swiss government has decided to finally publish Switzerland's gold trading data, which have been kept secret for 33 years.

Zürich became one of the largest gold trading hubs in the world when the London Gold Pool collapsed in March of 1968. The gold pool was established by Western central banks in order to be able to continue to pretend that one ounce of gold  indeed represented the 'backing' for $35, as per the Bretton Woods gold exchange standard. The agreement stipulated that central banks outside of the US would use the US dollar as a reserve currency, while the dollar would be fully backed by gold held by the US treasury and could be exchanged at the fixed rate of $35 per ounce on demand. US citizens had no possibility to voice any disagreement as to the state of the 'backing' via their wallets, as they were not allowed to possess gold. Soon after FDR's gold confiscation/dollar devaluation combo, two groups of people took a step across the line from illegality to legality and vice versa. Suddenly someone owning a bottle of whiskey was no longer a criminal, while someone owning an ounce of gold was.

However, similar limitations were not imposed on the rest of the world and gold demand was brisk, as everybody soon realized that the dollar had been inflated way beyond its alleged gold cover. De Gaulle broke ranks with other nations, withdrew from the gold pool in 1967 and ordered the Banque de France to test the exchange standard promise by exchanging its dollar holdings for gold. This and the growing distrust elsewhere soon unmasked the whole scheme for what it actually was: a giant fraud.

The London gold pool turned out to be a doomed attempt to perpetuate this scheme. The idea was to use central bank gold reserves that were shipped to the Bank of England to manipulate the market – by buying and selling gold so as to keep the price pegged at the official rate. There were frequent runs on the gold pool, which in the end forced governments to declare defeat. They did so in time-honored fashion: Britain declared a 'bank holiday' and all gold trading in London was simply suspended for two weeks.

Gnomes of Zürich Lying in Wait

That was the moment Swiss Bankers had evidently prepared for, as the Zürich Gold Pool began to immediately operate, ostensibly to minimize the effects of the  turmoil in currency markets (the pound was devalued by 14.3% in one fell swoop as well) on the Swiss monetary system. With the London gold market closed, a lot of business suddenly went to Switzerland, and Zürich managed to henceforth establish itself as the second big gold trading center in Europe.

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