VII Gold Production and Prices

International Monetary Fund
Published Date:
September 1958
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Gold Production

TOTAL world production of gold, excluding output in the U.S.S.R. and countries associated with it, amounted to 29.1 million fine ounces in 1957, or about 1.1 million ounces more than in 1956 and about 8 million ounces more than the 1945 postwar low. Valued at US$35 per ounce, the 1957 output was $1,020 million, compared with $980 million in 1956, $944 million in 1955, and $897 million in 1954. Production in 1957 (a new postwar high) was about the same as in 1937, but it was about 19 per cent less than the all-time peak production of about $1,264 million in 1940 (Table 27).

Table 27.World Gold Production, Excluding Output of U.S.S.R. and Associated Countries(In millions of U.S. dollars at US$35 per fine ounce)
Union of South Africa411492463511556596
United States14417065666564
Southern Rhodesia282919181919
Other 116820788888884
Source: International Monetary Fund, International Financial Statistics.

These figures include estimates for missing data.

All-time peak production.

Source: International Monetary Fund, International Financial Statistics.

These figures include estimates for missing data.

All-time peak production.

The increase in total output from 1956 to 1957 was due almost entirely to the continued expansion of gold mining in the Union of South Africa. Output in that country expanded from 15.9 million ounces ($556 million) in 1956 to 17.0 million ounces ($596 million) in 1957, the highest ever recorded in the Union and representing about 58 per cent of total world production. It was about 7 per cent greater than in 1956 and about 43 per cent greater than in 1953, when the current rise began after several years of relatively constant output. A little more than half of the increase in 1957 was due to expanding operations in the Orange Free State, whose production rose by the equivalent of $21.1 million, to $132 million. The output of the Witwatersrand mines also increased, by the equivalent of $19.7 million, to $447 million. The output of the new mines in both these areas is expected to increase further in the next few years. A mining lease has been granted for the first “ultra-deep” mine in South Africa, in which mining will start at a depth of 5,500 feet and will ultimately go to 12,500 feet. The joint production of gold and uranium is becoming an increasingly important factor in South African mining.

Elsewhere in the world (excluding the U.S.S.R.), increases in gold output in some countries in 1957 were approximately equal to decreases in others. The second largest absolute increase was recorded in Ghana, where output increased by $5.3 million, to about $27.6 million. Smaller increases were recorded in Australia, Canada, and Venezuela. In Colombia, on the other hand, output declined by about $4 million, to $11.4 million, and there were also declines in the United States, the Philippine Republic, India, Brazil, and Mexico.

As prices and costs in general continued to rise, the gold mining industry was again affected by a further increase in its production costs. This problem has been a matter of concern to the industry in most major gold producing countries throughout the postwar years. Average working costs per ton milled in South Africa rose from 42s. lid. in 1956 to 45s. 4d. in 1957. Despite this increase, the total working profit from gold and uranium rose by £18 million, to «£91.1 million in 1957. Working profit from gold rose by £9.3 million, to £57.8 million, and profit from uranium increased by £8.6 million, to £33.3 million. Dividends paid by gold and uranium producers during the year amounted to £37.6 million, compared with £29.1 million in 1956. The average grade of ore milled rose from 4.553 dwts. to 5.000 dwts. per ton. The increased profitability of South African gold mining is attributable mainly to the newer mines in the Orange Free State and Western Transvaal and to the expansion of uranium production. Although the general position of the industry in the Union may be regarded as sound, the aggregate figures mentioned above obscure the difficulties of the older mines on the Rand that have no higher grade ore to which to turn during a period of rising costs. Of the 31 non-uranium producers, 17 had working profits smaller than in 1956; and of the £9.3 million by which working profits from gold increased, £ 8 million accrued to only 6 out of a total of 54 mines.

The gold subsidy programs of the Governments of Australia, Canada, and Colombia, discussed in previous Annual Reports, are still in operation. The Philippine program, which was initiated in June 1954, following consultations with the Fund, and was described in the Fund’s Annual Reports for 1955, 1956, and 1957, was allowed to expire on July 18, 1957. At the same time, the Philippine monetary authorities extended the scope of the policy that permits, under certain conditions, the remittance abroad of pesos held in blocked accounts by foreign firms and nationals. This policy, which was adopted on February 19, 1957, permitted the use of blocked pesos for the purchase in the free market of up to 25 per cent of the output of local gold mining companies. This privilege was restricted, however, to any unremitted returns from investments as reported on September 30, 1956. Subsequently, the use of blocked pesos for the purchase of bullion in the free market was extended to all blocked peso accounts, provided that they were reported to the Exchange Control Department. In the second half of 1957, sales took place at prices ranging up to

128 per fine ounce. Bullion purchased by this means must be sold for delivery in San Francisco to the account of the Central Bank of the Philippines at the official price of $35 per ounce, payable in U.S. dollars. The sales outlet for domestically mined gold was later narrowed, when the Monetary Board prohibited the use for the purchase of gold of blocked pesos acquired from the sale of the capital assets of nonresidents.

In September 1957, the Government of Australia announced modifications of its gold subsidy scheme introduced in 1954. The rates of assistance to gold producers were increased, the maximum rate for large producers rising by 15s. per ounce, to £A 2 15s., and the flat subsidy rate for small producers (those whose production does not exceed 500 ounces per annum) by 10s. per ounce, to £A 2, but there was no change in the basic structure of the scheme described in the Fund’s Annual Report for 1955. The maximum expenditure on mine development allowable in ascertaining costs of production for subsidy purposes was also raised from £A 3 10s. to £A 5 5s. per ounce. Large producers are entitled to claim three quarters of their average costs of production in excess of £A 13 10s. per ounce, until the maximum subsidy rate of £A2 15s. is reached. The purpose of these increases is to keep in production marginal mines whose continued operations since the introduction of the gold subsidy scheme has been threatened by increases in costs. The Fund deemed the modified scheme to be consistent with the objectives of the Fund’s statement of December 11, 1947 on gold subsidies.

Governments frequently feel obliged to grant protection of one kind or another to marginal producers in certain sectors of the economy whose operations threaten to become unprofitable as a result of rising costs. The gold subsidies described above and in previous Annual Reports are one such method of protection. However, the Fund has a responsibility to see that the gold policies of its members do not undermine or threaten to undermine exchange stability, and accordingly any member which proposes to introduce or modify a gold subsidy has an obligation to consult with the Fund on the measures to be applied.

Gold Reserves

The growth of monetary gold reserves was substantially greater in 1957 than in any other postwar year. The stock of gold held by the monetary authorities in the world (excluding the U.S.S.R. and the countries associated with it, but including the Fund and the Bank for International Settlements as well as the European Payments Union) is estimated to have increased by approximately $800 million, compared with increases of about $550 million in 1956, $600 million in 1955, and a postwar low of $150 million in 1951. Some 30 per cent of the increase in 1957 is probably to be attributed to increased sales of gold by the U.S.S.R. in Western European countries. At the end of 1957, world monetary gold reserves, as defined above, amounted to $38.7 billion, $5 billion or nearly 15 per cent more than they had been at the end of 1947. All of this increase was absorbed by countries other than the United States and by international organizations; the gold holdings of the United States were approximately the same, $22.9 billion, at the beginning and the end of this ten-year period. The holdings of other countries rose during these ten years by about 50 per cent, from $9.45 billion to $14.25 billion. The proportion of the world’s monetary gold held by the United States at the end of 1947 had been 68 per cent, and at the end of 1952, 65 per cent. By the end of 1957 it had fallen to 59 per cent, so that U.S. gold holdings still substantially exceeded the total holdings of the rest of the world.

Total sales of gold by the U.S.S.R. in 1957 have been estimated at about $260 million. As the value of last year’s gold output outside the U.S.S.R. was some $1,020 million, the amount of gold available to the rest of the world was thus increased during the year by about $1,280 million. A comparison with the estimated aggregate increase in official gold holdings (about $800 million) therefore suggests that the amount of gold going into the arts and industries or to private hoards in 1957 was considerably smaller than in 1956.

In both 1956 and 1957, and especially in 1957, there were substantial shifts in the world’s gold stocks. The largest increase in monetary gold reserves during the past two years was in the Federal Republic of Germany, whose gold holdings increased by $574 million in 1956 and by $1,047 million in 1957. The increase in Germany in each of these years exceeded the estimated total increase in official gold holdings for the world as a whole. The United States, which had increased its monetary gold stocks in 1956 by purchasing $200 million worth of gold from the Fund and about $80 million from other countries, increased them further in 1957 by $799 million, of which $600 million was purchased from the Fund. Other countries whose gold reserves increased substantially in 1957 include Australia, Austria, Italy, Lebanon, Mexico, Portugal, Switzerland, and Venezuela. At the end of the year gold reserves were less than at the end of 1956 by $10 million or more in Argentina, the Belgian Congo, France, the Netherlands, the Philippine Republic, Sweden, and the United Kingdom.

The gold stocks of the United States, the Federal Republic of Germany, and the Union of South Africa declined during the early months of 1958. By the end of April, the decrease in the United States amounted to $815 million, most of which corresponded to substantial increases in Western European countries, and particularly in the United Kingdom, Belgium, and the Netherlands, where gold reserves had fallen during the previous year, and in Switzerland. On April 30, 1958 the gold holdings of the United States amounted to $22.0 billion, or 57 per cent of the world’s monetary gold stock.

At the end of 1957, about 75 per cent, or $28,879 million, of the total gold holdings—$38,700 million—of the monetary authorities of the world (as described above) was physically located in the United States. Gold to the value of about $6 billion was held under earmark in New York by the Federal Reserve Bank of New York for the account of foreign central banks and governments and international banking institutions. Many central banks and governments find it to their advantage to leave a portion of their gold reserves in the United States to meet current and future requirements, since the United States is prepared to buy and sell gold for official monetary purposes at a fixed price. There were substantial transfers on official account in 1957 between the earmarked gold accounts held by the Federal Reserve Bank of New York. These movements of gold between foreign accounts were caused mainly by purchases from and sales to the United States, monthly EPU settlements in gold, and gold transactions facilitated by the services of the Bank for International Settlements and the Fund.

Gold Markets and Gold Prices

The general easing of restrictions and the granting of greater freedom for domestic and international gold transactions by Belgium-Luxembourg, Canada, and the Federal Republic of Germany, as described in the Fund’s Annual Reports for 1956 and 1957, do not appear to have had any significant effect upon the pattern of international gold trading that developed after the reopening of the London gold market in March 1954. Nor have the measures adopted since early 1952 by these and other countries for freeing the movement of gold led to any substantial increase in the amount of gold going into private hoards. On the contrary, the estimated amount of gold that went into the arts and industries or private hoards in 1957 was about $100 million less than in 1956. The willingness of London bullion dealers to engage in gold transactions on a world-wide basis, against dollars or registered sterling and under the supervision of the Bank of England, has made London the world’s main gold trading center. The Union of South Africa and other sterling area producers, together with the U.S.S.R., continued to be the source of most of the fresh supplies in the gold market, where Western European central banks also continued to be active. Private operators purchased gold for export to the Middle East and the Far East. Gold producers and private and central bank gold operators are most immediately concerned with the U.S. dollar price of gold in London, which is linked very closely with the sterling-dollar rate of exchange. As a general rule, the dollar price of gold in London has moved with the weakness or strength of sterling against the dollar. Other factors, such as the inflow of fresh supplies of gold and central bank demands for gold, also have a great influence on the price. The U.S. policy of a buying price of $34.9125 per fine ounce and a selling price for governmental monetary purposes of $35.0875 keeps the dollar price of gold in London within close range of these two extremes (Chart 1).

Chart 1.U.S. Dollar Equivalent of Price of Gold in London Market, As of End of Month, March 1954–April 1958

(In dollars per fine ounce)

During 1957, the United Kingdom imported gold bullion worth £300 million ($840 million), of which £71 million ($198.8 million) came from the U.S.S.R.; most of the remainder was from gold producing countries in the sterling area. These imports were equivalent to about 65 per cent of the total new supply of $1,280 million made available in 1957 to countries other than the U.S.S.R. and the countries associated with it. The marketing of these supplies tended to keep the U.S. dollar price of gold in London below $35 per ounce during most of the year.

The range between the maximum and the minimum dollar prices of gold during the year ended April 30, 1958 was about 21 cents per ounce, compared with 24 cents per ounce in 1956-57. For most of the period from May 1 through December 31, 1957, the U.S. dollar price (converted at the sterling-dollar rate at the time of daily fixing) was below $35, rising above that figure only on June 6 and August 1. In mid-January 1958, the U.S. dollar price rose above $35; it advanced to $35.12 per fine ounce on April 8, 1958, the highest price at “fixing” since the reopening of the London market in March 1954. The monthly average dollar price of bullion during March and April was slightly above the U.S. selling price; thus, for transactions in which shipping costs—about $0.14 per fine ounce—were not involved, central bank buyers found it cheaper to acquire gold in New York than in London. The demand which maintained the price of gold was in large part a result of normal reserve practices of the United Kingdom and other countries with surpluses in their balances of payments, and of some sales of dollars by private individuals to their central banks, which then converted them into gold. During the year under review, the price of bar gold in sterling at fixing fluctuated between a high of 251s. 5½d. per fine ounce in August 1957 and a low of 248s. 8½d. in January 1958, the lowest since April 1954. On April 30, 1958, it was 249s. 2½d., equivalent to $35.10 at the day’s dollar exchange rate.

During the year an official announcement in London stated that 2,072,000 sovereigns had been minted in the calendar year 1957. These sovereigns, together with others recently minted, are to be used to increase the stocks of sovereigns in the gold reserves of the United Kingdom. This minting also enables sovereigns to be released for circulation abroad to meet a demand that had given rise to counterfeiting. The sales of sovereigns are made from the Exchange Equalization Account at current market prices against dollars or other convertible currency. It has been reported that sales were made in the bullion market to authorized dealers whose bids have been accepted at a price of about $9.25 per sovereign, which is equivalent to about $39 per fine ounce and, after allowance for seignorage, gives a profit of about 11 per cent.

The price at which bar gold is traded directly for U.S. dollars in other markets remained within a few cents of the London dollar price during the year under review. In Zürich, for example, it was usually quoted at a few cents per fine ounce above the London price, increasing from a low of $34.93½ per fine ounce in the last week of May 1957 to a high of $35.15½ on April 8, 1958. The price on April 30, 1958 was $35.13 per fine ounce.

In markets where gold is traded in local currencies, the day-today movements of the U.S. dollar equivalent prices often diverge from the movements of London prices because of the special characteristics of each market. However, in Brussels this price did not deviate from the London price by more than ½ per cent, and in Beirut by more than 1 per cent. In Milan, the deviations were sometimes wider but did not exceed 2½ per cent. These prices are probably a result of the stability of the exchange rates used for conversion as well as of the magnitude of the flow of gold through the countries in which the markets operate. Gold imports and exports are not restricted in Lebanon and Belgium; in Italy they remain under the control of the Italian Exchange Office. In Beirut, the U.S. dollar equivalent price of bar gold increased from a low of $35.11 per fine ounce on July 22, 1957 to $35.33 on September 17, 1957, declined to $34.99 in December, and on April 30, 1958 was equivalent to $35.24 per fine ounce. Though Brussels is not a transit center, as Beirut is, the price of bullion there tended to follow the London price more closely. It was about $34.94 per fine ounce at the end of August 1957 and about $35.19 per fine ounce at the end of April 1958. The dollar equivalent price in Milan fluctuated between a high of $35.83 per ounce on September 20, 1957 and a low of $35.14 on March 24, 1958. On April 28, 1958 it was $35.30.

In view of the strict restrictions on both imports and exports of gold imposed in France and India, the U.S. dollar equivalent prices in Paris and Bombay should not be thought of as premium prices to be compared with the prices of gold in London or Zürich. The local currency prices for gold in those countries reflect local habits and customs and are subject to wide fluctuations, depending upon the interplay of local political and economic forces. The currencies of those countries are not freely convertible into U.S. dollars, and the rates used for conversion into U.S. dollar equivalent prices are, for India, the official exchange rate and, for France, the rate for U.S. dollar banknotes in Paris. Movements in the prices of gold in these centers should therefore be regarded primarily as responses to changes in local conditions.

The price of bar gold in Paris rose from the year’s low of 462,000 francs per kilogram on May 2, 1957 to a high of 590,000 francs on November 14, 1957, the highest since March 1952. The price of bullion gradually declined after November 1957 to 513,000 francs per kilogram on April 2, 1958. When converted into U.S. dollars at the day’s parallel market rate for U.S. dollar banknotes in Paris, the price was equivalent on those three dates to $36.29, $36.20, and $36.35, respectively. The U.S. dollar equivalent price of bar gold in Paris, which reflects movements in the franc rate for U.S. dollar banknotes, fluctuated between a high of $37.13 on August 7 and a low of $35.76 on August 22, 1957. The franc rate for U.S. dollar banknotes rose from 396 francs on May 2, 1957 to a high of 507 on November 14, and then fell to 439 francs on April 2, 1958. On April 30, 1958, the price of bullion was 523,000 francs per kilogram, equivalent to $36.47 per fine ounce at the day’s rate of 446 francs per dollar.

In Bombay, the price of bullion rose from the year’s low of Rs 104.87 per tola (equivalent to $58.73 per fine ounce at par value) on July 4, 1957 to a high of Rs 114.62 ($64.19) on April 28, 1958.

In contrast to Paris and Bombay, the Hong Kong gold market may be described as an international entrepôt market where the Hong Kong dollar is freely convertible into any foreign currency or gold. The transshipment of gold not owned by residents is permitted to any destination, and gold may be imported for re-export to countries that permit the import of gold. Accordingly, gold is usually imported into Hong Kong for re-export to Macao (where an import fee equivalent to approximately $2 per ounce is imposed), while at the same time or subsequently gold is also transshipped from Macao through Hong Kong to markets in Southeast Asia. The difference between the London and the Hong Kong prices of gold is largely a result of the cost of diverting gold to Macao and back again and of transporting it from the United Kingdom. The price of bullion in Hong Kong decreased from the year’s high of HK$278.875 per tael (equivalent to $39.14 per fine ounce at the day’s T.T. Hong Kong dollar rate for the U.S. dollar) on May 24, 1957 to a low of HK$252.125 ($38.13) on April 24, 1958.

The principal feature in the markets for gold coins during the year under review was the fall in the price of the sovereign, which contrasted with a rising tendency during the previous two years, and a further rise in the premium for 20-mark coins in the Federal Republic of Germany. The release by the United Kingdom of a substantial quantity of sovereigns for sale abroad was largely responsible for a general decline in the U.S. dollar equivalent price of the sovereign. At the end of April 1958, the price of the sovereign in both Paris (about $41.00 per fine ounce) and Brussels ($39.00) was about $3.50 less than a year before; in Milan the price fell during the year by $3.00 to about $40.50, and in Beirut by $2.50 to $40.85. The market price of the German 20-mark gold piece in Frankfurt rose from DM 47 in April 1957 to DM 52 at the end of April 1958. The price of the napoleon at the end of April 1958, compared with the end of April 1957, declined by the equivalent of about $2.00 per fine ounce to about $45.75 in Paris, and by about $1.50 to about $41.50 in Beirut; in Milan, the price rose by about $0.50 to about $44.00.

Gold Transaction Service

As from March 1952, the Fund has provided its members with a technical service which brings buyers and sellers of gold together. Members intending to buy or sell gold and wishing to use the Fund’s service are requested to furnish the Fund with all the necessary information, as far in advance as possible. For the service of matching buyers and sellers the Fund asks each partner in a completed transaction to pay a charge of 1/32 of 1 per cent in U.S. dollars. The Fund pays the normal charges and out-of-pocket expenses of the gold depository which are incidental to the transfer of gold from the seller’s account to the buyer’s account with that depository. This service has been extended since its inauguration to three international organizations and several nonmember countries.

Since March 1952, the central banks of 24 member countries and 3 international organizations have effected purchases and sales of gold through the facilities provided by this service. During most of the year under review, i.e., from May 1, 1957 through January 15, 1958, when the London dollar price of gold remained for the most part below $35 per fine ounce, supply exceeded demand. Most of the transactions completed by the Fund during the year were accomplished during this period. From February 15, 1958 through April 30, when the London dollar price reached or exceeded the New York selling price of $35.0875, there were no sellers of gold through the Fund’s services, and central bank requirements were met to a great extent by direct purchases of gold from the United States. During the year under review, 15 transactions amounting to a total of about $107 million were completed by the Fund. The total number of transactions since March 1952 is 86, amounting to about $670 million.

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