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The result was the greatest gold rush in history. Almost all of the demand fell upon the London gold pool, through which the central banks of the U.S., Britain, West Germany, Switzerland, Italy, Belgium and The Netherlands had for 6½years maintained the free-market price of bullion at its $35-per-oz. monetary level. Between Britain's Nov. 18 devaluation and March 15, when the London market was closed at the U.S.'s request, the buying stampede drained the pool of some $2.5 billion of gold — nearly 2½times the amount mined in California during the 25 years from the gold rush to 1874. That amounted to almost 9% of the gold reserves of the seven countries; the U.S., having provided 59% of the pool's gold since France dropped out last summer, lost $1.5 billion. An estimated $2 billion went into the hands of speculators who were betting that the U.S. would raise the price of gold and so hand them a swift profit.
By their decision to leave the official price intact while abandoning the gold pool, the seven nations pulled a 24-karat rug out from under the hoarders. As Zurich Banker Hans J. Baer put it: "The central banks are saying to the speculators: 'Take it to the dentist.' ! With the London gold market, the world's largest, closed until April 1, the demand for gold dropped abruptly last week in smaller markets elsewhere. In Zurich, gold bars that brought $43 per oz. at the start of the week sold for $39.25 by week's end. In Paris, where the price had shot up to a record $44.36 the week before, the cost of fine gold declined to $37.89 at midweek before rebounding to $38.95.
Temptation to Profit. Welcome as the stabilizing influence of the two-price market was on both sides of the Atlantic, most bankers and economists considered it only a temporary solution to the world's monetary malaise. "All we've bought is a bit more time," said President John E. Whitmore of Houston's Texas National Bank of Commerce. Others were considerably more optimistic. West Germany's Economics Minister Karl Schiller maintained that the split-price arrangement "can endure a very long time."
The decisive element is how long the gap between gold's monetary price and its free-market price remains small. For the present, the latest $2 billion of gold to reach private hands creates a price-depressing oversupply in the market. If the free price rises to $45 per oz. or more, as some European moneymen predict, it may tempt some nations to sell official gold for the profit. Hoping to prevent that, the U.S. last week made it clear that its gold window will be shut to governments that refuse to cooperate with the new system. Could a central bank dump gold on the free market secretly? "Impossible," insisted German Bundesbank President Karl Blessing. "It would become known in twelve hours at the latest."