Commentary: The London Gold Pool revisited

Last year, 22 central banks, situated largely east of Germany, bought the largest amount of gold since 1967, the year the London Gold Pool collapsed. Furthermore, the gold repatriations by many European countries of the last few years are another sign that we are reaching the end of a calm monetary period that has lasted over 40 years. It could bring about the largest monetary changes since the closing of the gold window by U.S. President Richard Nixon in 1971.

The U.S. wants its fiat dollar system to prevail for as long as possible, and it has every vested interest in preventing a “rush out of dollars towards gold,” as happened in the 1970s. Through the sale of (paper) gold, bankers have been trying to keep the gold price under control for the last few decades. This war on gold has been going on for almost 100 years, but as I explained in my book, The Big Reset, it gained traction in the 1960s, with the forming of the London Gold Pool, whose members included the U.S., U.K. Netherlands, Germany, France, Italy, Belgium and Switzerland.

During meetings of the central bank presidents at the Bank for International Settlements in 1961, it was agreed that a pool of US$270 million in gold would be made available by the eight participating countries. This so-called ‘London Gold Pool’ was focused on preventing the gold price from rising above US$35 per ounce, as set during Bretton Woods, by selling official gold holdings from the central banks’ gold vaults.

However, in March 1968, the London Gold Pool was disbanded because France would no longer cooperate. The end of the London Gold Pool signalled the start of a “bull market” in gold, which would last for 13 years, and send gold to over US$800 per oz, in 1980.

Now, some 50 years later, the U.S. may consider it useful to bring back gold to support the dollar. Some American insiders have even called openly for a return to the gold standard. One such insider is neoconservative Robert Zoellick, the former president of the World Bank, who wrote an open letter to the Financial Times in 2010 entitled “Bring back the gold standard.”

A 2012 study by the Chatham House Gold Taskforce titled “Gold and the International Monetary System” suggested the idea that gold could be added to the currency basket of the International Monetary Fund’s special drawing right (SDR). One of the members of this task force was Lord Meghnad Desai, chair of the Official Monetary and Financial Institutions Forum (OMFIF) advisors council. During a conference in Dubai, he remarked: “We could ask that gold be nominated as part of the SDR. That is one thing I think is quite likely to happen. This will be easier if China increases its official gold holdings.”

We know that China wants to increase its gold reserves in the shortest time possible to at least 8,000 tonnes. This would put the Chinese on par — in terms of its gold to gross domestic product ratio — with the U.S. and the European Union. This would then open the way for a possible joint U.S.-E.U.-China gold revaluation to support the financial system, should the need arise.

The Chinese realize that the U.S. could surprise the world with a unilateral gold revaluation. Wikileaks revealed a cable, sent in early 2010 to Washington from the U.S. Embassy in Beijing, which quoted a Chinese news report about the consequences of such a U.S. dollar devaluation: “If we use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original 10 old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold — we will be dumbfounded.”

In recent years, there have been numerous statements clearly showing that China has a good understanding of the “dark forces” suppressing the gold price on Wall Street.

Zhou Zhiaochuan, then-governor of the People’s Bank of China, revealed in a 2009 article that the Chinese do understand the hypocrisy of the U.S. policy towards gold: “After the disintegration of the Bretton Woods system in the 1970s, the gold standard, which had been in use for a century, collapsed. Under the influence of the U.S. dollar hegemony, the stabilizing effect of gold was widely questioned. The ‘gold is useless’ discussion began to spread around the globe … there are now more and more people recognizing that the ‘gold is useless’ story contains too many lies. Gold now suffers from a ‘smoke screen’ designed by the U.S. — which stores 74% of global official gold reserves — to put down other currencies and maintain the U.S. dollar hegemony.”  Since then, China and especially Russia have stopped buying U.S. Treasuries, while adding physical gold reserves.

We can now conclude that gold is making a remarkable comeback into our financial system, and even that a new gold standard is being born without any formal decisions. At least, that is how Ambrose Evans-Pritchard, an influential international business editor of The Telegraph, described the ongoing efforts by countries to lay their hands on as much physical gold as possible: “The world is moving step by step towards a de facto gold standard, without any meetings of G-20 leaders to announce this.”

— Willem Middelkoop is the founder of the Netherlands-based Commodity Discovery Fund, and author of The Big Reset, the war on gold and the financial endgame. He is also a member of the OMFIF advisory board, and this edited opinion piece first appeared in the OMFIF’s newsletter.