VI: Gold Production and Prices

International Monetary Fund
Published Date:
September 1956
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Gold Production

In 1955 total world production of gold, valued at $35 per fine ounce, exceeded 1954 output by about $49 million and 1953 output by about $97 million. Total world output (excluding that of the U.S.S.R. and the countries associated with it), which had been $852 million in 1952, $849 million in 1953, and $897 million in 1954, increased in 1955 to $946 million.

Production in the Union of South Africa accounted for virtually all of the increase of world output in both 1954 and 1955. In 1955 it rose to $511 million, the highest ever recorded by that country. The increases in both years were attributable mainly to the expansion of mining in the Orange Free State, whose output increased in 1955 by $38.3 million, to $76.6 million However, production of the Witwatersrand mines, which had declined between 1941 and 1951, also improved, and continued to increase during 1955. As a result of the new mines moving toward full production and the beginning of operations by four more mines, total production in South Africa can be expected to increase further in 1956, provided the supply of African labor, which improved somewhat in 1955, is maintained or increased.

Production also increased during 1955 in Canada, where output rose by $6 million, to $159 million. The booming base metal business, in which the output of gold as a by-product expanded, was responsible for much of this increase. As the Canadian exchange rate approached parity with the U. S. dollar, the Canadian gold price rose from Can$33.80 per fine ounce in January 1955 to Can$35.00 in November. In both 1954 and 1955, all mines eligible for subsidy elected to sell their output to the Government rather than in a free market. While the mines received a higher price for their gold in 1955, they received less aid than in 1954 under the modified Emergency Gold Mining Assistance Act, described in last year’s Annual Report. Increasing costs have forced some mines to expand their treatment of higher grade ores and have caused others to shut down. The number of gold producers in Canada fell from 122 in 1949 to 94 in 1953 and to 60 in 1955.

Gold production in the United States increased in 1955 by $1 million, to about $66 million. It declined by about $3 5 million in the Gold Coast, $2.4 million in Australia, and $1 million in India. In other gold producing countries, there were smaller movements of less importance.

As mentioned in previous Annual Reports, high production costs continue to be a matter of concern to the gold mining industry in most major gold producing countries. Some marginal mines have been closed, and others have shifted from the production of lower grade to that of higher grade ore. In several countries, producers who had obtained relief by selling gold in premium markets have received virtually no premium during the last two years. Relief has been granted in some countries either by tax concessions or by subsidy programs. The subsidy programs of the Governments of Australia, Canada, Colombia, and the Philippine Republic, which were discussed in last year’s Annual Report, are still in operation. During the year under review, two of these members again consulted the Fund regarding their subsidy programs, and the Fund deemed both programs to be consistent with the objectives of the Fund’s statement of December 11, 1947 on gold subsidies. In September 1955, the Government of the Philippines adopted modifications of its gold subsidy program which were effective for a period of three and one-half months ended December 31, 1955. The rates of assistance to two categories of mines in respect of newly mined gold bought by the Central Bank were reduced. Gold producers were required to sell to the Central Bank a minimum of 50 per cent of their gold production at the new rates of assistance, with the option of selling their entire output at the same prices. In March 1956, the Australian Government extended its subsidy scheme without change for a further period of three years commencing with the financial year 1956–57.

Gold Reserves

Gold reserves continued to grow throughout 1955. The total stock of gold in the possession of monetary authorities in the world (excluding the U.S.S.R. and the countries associated with it, but including the Fund, the Bank for International Settlements, and the European Payments Union) at the end of 1955 is estimated at $37,150 million. The increase during the year was approximately $600 million; the increase in 1954 had been about $600 million, in 1953, $400 million, and in 1952, $300 million.

With the extension of marketing facilities for gold, it has become more difficult than in recent years to trace the movements of gold, and to estimate how much is sold to the arts and industries or to private individuals for hoarding purposes. Such data as are available suggest that the percentage of newly mined gold flowing into official monetary reserves during 1955 and 1954 was larger than in any other similar postwar period. Reliable data on U.S.S.R. sales of gold to other European countries are not available, but reports indicate that the total of such sales was less in 1955 than in either 1954 or 1953. The major shifts in the distribution of gold reserves during 1955 have been described in an earlier section of this Report.

Gold Markets and Gold Prices

The gradual easing of restrictions and the growing tendency to grant more freedom for domestic and international gold transactions, described in previous Annual Reports, continued in several countries during the year under review. New marketing facilities have created new channels for the flow of gold and have made it possible for new international trading centers to develop. The most notable events in this connection since the reopening of the London gold market in March 1954 are the measures taken by Belgium-Luxembourg and by Canada, which permit residents as well as nonresidents to buy and sell gold for their own account and to import or export gold freely.

As of January 1, 1956, Belgium and Luxembourg abolished restrictions on gold transactions within their territories. Imports and exports of gold coin or bars are authorized by a general license issued by the National Bank of Belgium. Transactions in such gold, whether it is located in Belgium-Luxembourg or abroad, are permitted between residents or between residents and nonresidents. Payments for international transactions in gold have to be made in Belgian, Luxembourg, or foreign banknotes, or through the free exchange market for capital transactions. While private gold trading had been prohibited in Belgium since March 1935, a “grey” market had been tolerated; the new regulations legalized the previously existing situation.

The Government of Canada, which on several occasions from 1951 onward had liberalized the regulation of gold transactions in Canada, announced the removal of all restrictions on gold transactions in Canada as of March 21, 1956. From that date, both residents and nonresidents are free to buy gold in Canada for export or for safekeeping, and Canadian gold producers who may in the future forego aid under the Emergency Gold Mining Assistance Act are free to sell their gold wherever they desire, subject only to the obligation to report production and sales to the Department of Finance.

Imports into Greece of gold in bars, plates, coins, or any form except jewelry were completely freed in January 1956 from all exchange control or customs formalities, and exempted from all customs duties or other taxes at the time of importation. The importer is not required to declare his import to the monetary authorities. For some years there has been a free domestic gold market in Greece; the freeing of imports is intended to limit profits from arbitrage operations in gold and foreign exchange with foreign markets, and thus to lower the domestic drachma price of the gold sovereign.

The Government of Thailand in June 1955 imposed a temporary ban on the importation of gold, in order to conserve foreign exchange for the import of essential commodities. This embargo was lifted in January 1956, when the Government took measures to curb clandestine imports by authorizing the annual importation of 90,000 ounces.

These developments, together with those described in previous Annual Reports, indicate that a number of governments have increasingly relaxed restrictions on gold transactions. While affirming the principle that “to the maximum extent practicable, gold should be held in official reserves rather than go into private hoards,” the Fund had, in its gold policy statement of September 28, 1951, left to the discretion of members the practical operating decisions in this field, subject to the provisions of Article IV, Section 2, and other relevant articles of the Fund’s Articles of Agreement; it has not taken exception to any of the measures applied by members for freeing their gold markets. In general, the freeing of gold markets does not appear to have increased the proportion of newly mined gold that goes into private hoards.

Prices in international gold markets during the year under review were fairly stable. The dollar price of gold did not diverge from $35 per fine ounce by more than a few cents, and the trade pattern that developed following the reopening of the London market in March 1954 continued to strengthen London’s position as the world’s main gold trading center. The measures taken by Belgium-Luxembourg and Canada have not, as yet, had any appreciable effects on the operations of the London market. A large proportion of gold production in 1955 was sold in the London market, the main supplies coming from South Africa and other sterling area producers. Western European central banks were the principal buyers, and private operators purchased gold for export to the Middle East and Far East. For some time after the U. S. dollar price of gold on the London market had declined to a few cents under $35 per fine ounce in September 1955, some Western European central banks took more active interest in gold operations. They converted part of their increased dollar holdings into gold, and initiated the practice of settling their monthly EPU obligations in gold rather than in dollars. This practice was advantageous for them when the price of gold was less than $35 per fine ounce since, for the settlement of EPU balances, gold is valued at $35 per ounce irrespective of the current price in international free markets.

During the year under review, the London “fixing” price of bar gold in sterling moved within a narrower range than in the previous year, fluctuating between a high of 251s. 9¾d. on July 21, 1955 and a low of 248s. 11½d. on April 19, 1956. The dollar equivalent of the sterling price converted at the dollar rate prevailing in London at the time of the fixing remained above $35 per fine ounce from May 1, 1955 through September 12, going as high as $35.06 on several occasions; on September 13, 1955, it fell below parity and has since fluctuated between $34.95¾ and $34.99¾. On April 30, 1956, it was $34.99 per fine ounce.

The price at which gold is traded in other markets directly for U. S. dollars remained within a few cents per fine ounce of the London dollar price. In Zürich, the U. S. dollar bid price moved between a high of $35.05 per fine ounce on May 9, 1955 and a low of $34.94 on October 25, 1955, and at the end of April was quoted at $34.98. With the intensification of political tension in North Africa, the dollar price of transit gold in Tangier has been consistently quoted at a few cents per fine ounce lower than the gold prices in Zürich and London. At the end of April 1956, it was quoted at $34.87½ per fine ounce. Much of the gold previously held in Tangier for safekeeping is reported to have been moved to Switzerland, and the importance of Tangier as an international gold trading center has diminished.

The price of bar gold in Paris rose from the year’s low of 420,000 francs per kilogram on July 15, 1955 to a high of 470,000 francs on March 15, 1956, and on April 30 was quoted at 457,000 francs. When converted into U. S. dollars at the parallel market franc-dollar rate, the price of bullion per fine ounce was equivalent to $35.89 on July 15, 1955, $35.92 on March 15, 1956, and $35.89 on April 30.

The U. S. dollar equivalent prices for bar gold in Beirut, Brussels, Milan, and elsewhere did not necessarily follow the day to day movements of the London price because of local conditions and the special characteristics of the local market. Arbitrage operations between London, Switzerland, and Paris, and perhaps other centers, helped to narrow the range of the local currency price of gold in the various markets.

The price of bullion in the Far East tended to be higher than in 1954. In Hong Kong, the price of bar gold increased from HK$250.375 per tael (equivalent to $38.09 per fine ounce at the day’s T.T. Hong Kong dollar rate for the U. S. dollar) on June 23, 1955 to HK$263.25 ($38.82) on February 24, 1956 (the highest since September 21, 1953), and was quoted at HK$255.125 ($38.48) on April 30, 1956. In Bombay, the average price of bullion was higher than in the previous year; it rose from Rs 89–8 per tola (equivalent to $50.12 per fine ounce at par value) on May 14, 1955 to Rs 106–11 ($59.75) on April 25, 1956 (the highest since January 20, 1952).

A sharp increase in the demand for gold coins, particularly in France and to a smaller extent in West Germany and elsewhere, pushed free market prices up to the level attained in October and November 1953. In the Paris market, demand increased as a result of capital flight from North Africa and other developments in France. Although during the year under review imports and exports of gold coins were subject to authorization in West Germany, the market was not entirely isolated from other markets, for considerable quantities of 20-mark pieces which had been held abroad were reported to have been returned to Germany, and higher prices from time to time attracted imports through clandestine channels. The U. S. dollar equivalent price of the sovereign rose by about $3.00 per fine ounce in Beirut, Brussels, and Milan and by about $3.75 in Paris, so that by the end of April 1956 the prices in all these centers were equivalent to about $42–43 per fineounce. The largest increase in the price of the napoleon, equivalent to about $5.00 per fine ounce, took place in Paris, where on April 30, 1956 it was quoted at the equivalent of $42.07 per fine ounce. In Milan, the napoleon rose by the equivalent of $3.10 per fine ounce, and in Beirut by the equivalent of $0.93.

Gold Transaction Service

Since the inauguration of the Fund’s gold transaction service in March 1952, the central banks of 16 member countries and 2 international organizations have effected purchases or sales of gold through the facilities of this service. Six of these institutions have used the Fund’s services on several occasions, and 4 of them have been sellers of gold as well as buyers. During 1952–53, the extent to which gold transactions could be matched by the Fund depended primarily upon central bank requirements for monetary gold located in New York. There were occasions when the supply of gold offered through the Fund exceeded the demand, or vice versa. If on such occasions the time factor was not essential for either buyer or seller, the Fund was successful in completing most of the transactions. As most of the transactions were effected at par value, i.e., $35 per fine ounce, for gold located in New York, the price of gold was not a major factor in bringing buyers and sellers together. Since the reopening of the London gold market in March 1954, the elements of price and time, especially the former, have become more important in determining whether a transaction can be concluded. Central banks normally submit bids and offers at a price very close to the prevailing dollar price of gold in London, and usually wish to reach agreement as quickly as possible in view of possible fluctuations in the market price of gold. During the year under review, the Fund was successful in facilitating the completion of 20 transactions, amounting to a total of about $145 million, compared with 35 transactions, amounting to a total of about $302 million, during the previous three years. On several occasions, small price differentials between bids and offers prevented the Fund from bringing a potential buyer and seller of gold together. In some cases, the Fund’s charge of 1/32 of 1 per cent to each party in a transaction may also have been a deterrent factor. However, for the most part the charge is not an impediment to these transactions, and a number of members continue to use the facilities provided by the Fund.

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