Abstract

Total world production of gold rose in 1954 by the equivalent of about $49 million to the highest level since 1942. Valued at $35 per fine ounce, total output (excluding that of the U. S. S. R. and the countries associated with it) was approximately $895 million in 1954, compared with $846 million in 1953, $852 million in 1952, and $827 million in 1951.

Gold Production

Total world production of gold rose in 1954 by the equivalent of about $49 million to the highest level since 1942. Valued at $35 per fine ounce, total output (excluding that of the U. S. S. R. and the countries associated with it) was approximately $895 million in 1954, compared with $846 million in 1953, $852 million in 1952, and $827 million in 1951.

The Union of South Africa accounted for most of the increase; total production rose by $45.4 million, to about $463 million. More than half of this increase came from mines in the Orange Free State, whose output increased by $24.1 million, to $39.3 million. The supply of African labor, which has been a problem in the postwar years, was the highest since 1942; if the current level can be maintained, all mines are likely to benefit through more efficient operation and increased production. The second largest increase in production during 1954 was in Canada, where output increased by $10.4 million, to $152.8 million; it was, however, still below the 1952 postwar peak of $156.5 million. Production increased by about $2 million in the Gold Coast, $1.6 million in Australia, $1.5 million in Japan, $1.2 million in Southern Rhodesia, and about $1 million each in South Korea and in Venezuela. Decreases were recorded of about $3.6 million in the United States, $2.9 million in Mexico, $2.2 million in the Philippines, $2 million in Colombia, and $1 million in Nicaragua.

Labor problems and high production costs continue to cause concern to the gold mining industry in most gold producing countries. The virtual disappearance of the premium in free markets has made the continued operation of marginal mines more difficult and, during the year under review, several members have consulted with the Fund on subsidy proposals designed to benefit gold producers without contravening the Fund Agreement. The following subsidy proposals have been deemed consistent with the objectives of the Fund’s statement of December 11, 1947 on gold subsidies.

In June 1954, the Government of the Philippine Republic introduced a subsidy scheme to give financial assistance to above-marginal, marginal, and submarginal gold mines for a period of two years. The amount of the subsidy is related to the presumed economic need of each category of mine. Mines producing gold as their principal product may either sell newly mined gold to the Government through the Central Bank at the official price and receive the appropriate subsidy, or sell gold on the domestic free market without any subsidy.

In October 1954, the Australian Government introduced a plan whereby certain gold producers whose annual output exceeds 500 ounces and who satisfy the conditions prescribed will be eligible during the financial years 1954-55 and 1955-56 for a subsidy per fine ounce equal to three quarters of the excess cost of production over £A 13 10s., provided that the subsidy is not in any case to exceed £A 2 per ounce; and producers whose annual output is less than 500 ounces will be eligible for a flat rate subsidy of £A 1 10s. per ounce. The flat rate subsidy for small producers was adopted for reasons of administrative convenience, in view of their large numbers and of the possibility of imperfections in their cost records.

In January 1955, the Fund also deemed a gold subsidy scheme introduced by Colombia to be consistent with the objectives of the Fund. This plan provided for a temporary subsidy of not more than 20 pesos per fine ounce on not more than 30 troy ounces per month to certain small gold mines and gold pan miners whose production did not exceed 180 ounces of fine gold during the first six months of 1953, and who elect to sell their output to the Bank of the Republic at the official price of $35 per fine ounce, plus the established subsidy. The output of the mines to be benefited by this subsidy is at present about 20 per cent of the total amount of gold produced in Colombia. The total subsidy payable is limited to a monthly appropriation of 80,000 pesos.

In February 1955, the Government of Canada extended the Emergency Gold Mining Assistance Act in a modified form for the calendar years 1955 and 1956. Under the amended formula, a subsidy is provided for eligible mines equal to two thirds of the excess of the costs of production over Can$26.50 per ounce, up to a maximum of Can$12.33 per ounce. The subsidy applies to two thirds of the output of the assisted producers. The new arrangements reduce the subsidy previously available to lower-cost mines, and increase that available to higher-cost mines; the total amount payable is expected to be less than was paid under the previous formula.

Gold Reserves

The total world stock of gold in the possession of monetary authorities (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) is estimated at $36,500 million as of the end of 1954. The increase during the year was approximately $550 million, compared with an increase of $400 million in 1953 and of $300 million in 1952. As in 1953, a small part of the increase can probably be attributed to sales of gold by the U. S. S. R. to other European countries which occurred during the first quarter of 1954. The percentage of newly mined gold flowing into official monetary reserves during 1954 appears to have been larger than in any other postwar year, and the movement of gold into private hoards has subsided. The major shifts in the distribution of gold reserves during 1954 have been described in an earlier section of this Report.

Gold Sales and Gold Prices

During the year under review, several countries took measures in addition to those reported in the last three Annual Reports of the Fund to relax restrictions on the sale of gold and the movement of gold through their territories. Italy abolished its 3 per cent import tax on gold, gold alloys, and gold coins which are not legal tender, though gold imports remain a monopoly of the Italian Exchange Office. Switzerland abolished its 4 per cent turnover tax on private purchases of bullion and gold coins from banks, and preparations have been authorized for the minting of 25 and 50 franc gold pieces. In accordance with a decree of May 14, 1953, the Central Bank of Bolivia has placed an order for the minting of gold coins; it plans to exchange the minted pieces for domestic gold received from the Mining Bank or from private individuals. The same decree permits travelers and tourists to export gold coins without restriction. The objectives of these measures are to provide a medium of saving, to promote gold production, and to give employment to miners and other sectors of the population. Gold trading in Germany, which had been banned since before World War II, was resumed on October 19, 1954, when a gold market was reopened in Frankfurt. The Bank deutscher Länder has decreed that, in future, residents will be permitted to engage in transactions in gold coins currently held in Western Germany. The import and export of gold coins remain subject to authorization. These developments, together with those described in previous Annual Reports, indicate that governments have seen increasing advantages in allowing gold to play a more important monetary role. This tendency has been particularly marked in countries whose gold and dollar reserve positions have improved in recent years.

The weakness of the free market price of gold (about $34.95 per fine ounce), together with the strength of sterling (which was then quoted at about £1 = $2.81½), created a favorable environment for the operations of the London gold market, an account of the reopening of which on March 22, 1954 appeared in last year’s Annual Report. Other favorable factors were the improvement in the reserve positions of several West European countries, and the desire of some central banks to convert part of their increased dollar holdings into gold at a time when gold producing countries were unable to obtain the premium prices to which they had become accustomed. Before the reopening of the London gold market, central banks had normally bought and sold gold against U. S. dollars mainly through the U. S. Assay Office at parity plus or minus ¼ per cent and, to some extent, by transactions with the Bank for International Settlements or through the facilities offered by the Fund. Prices in the reopened London market were, however, usually more attractive, and central banks therefore tended to prefer to deal there. The London market has received its supplies primarily from the Union of South Africa and other sterling area gold producing countries, and thus has been in a strong position to stand ready to trade, as either buyer or seller, on whatever scale might be required, and to deal actively in monetary gold not only with central banks but also with private and institutional operators abroad.

As trading has developed in London, it has become apparent that, with the maintenance of a floor price for gold by the United States, the effective dollar price of gold in international markets and in monetary gold transactions undertaken by central banks in various centers is now influenced to a large extent by the London “fixing” price of gold in sterling (which is determined by six bullion firms that meet daily to fix the price), converted into U. S. dollars at the current sterling-dollar rate of exchange. This price has varied since the market was reopened between 248s. 3½d. and 251s. 11d. per fine ounce; it has generally moved with the sterling-dollar rate of exchange. The dollar equivalent of the fixing price converted at the dollar rate ruling in London at the time of the fixing has fluctuated between $35.03 and $35.11 per fine ounce.

When in September 1954 the London gold price rose above 250s. 7½d. (which corresponds to parity plus ¼ per cent), the Bank of England considered that it was precluded from intervening in the market, since, under Article IV, Section 2, of the Fund Agreement and under Rule F-4, a Fund member cannot buy gold at a price in excess of ¼ per cent above par value or sell it at a price below ¼ per cent under par value, exclusive of certain specified charges. In order to facilitate the maintenance of an orderly market without violating the provisions of the Fund’s Rules and Regulations, the United Kingdom asked the Fund to consider an amendment of Rule F-4 which would make 1 per cent of parity, the margin prescribed in the Articles of Agreement for exchange transactions, also the prescribed margin for gold transactions. On October 15, 1954, the Fund adopted an amendment of Rule F-4 to be effective until November 15, 1954, when member governments would have an opportunity to reconsider it. The rule as amended provided that, for transactions in gold by a member, the margin above or below par shall be, at the option of the member, either (1) ¼ per cent plus certain prescribed charges or (2) 1 per cent, which 1 per cent shall be taken to include all of these charges. On November 5, 1954, the Fund decided that this amendment should continue to be effective after November 15, 1954. The minimum price at which the Bank of England can sell and the maximum price at which it can buy gold in London have thus been changed from 249s. 4½d. and 250s. 7½d. per fine ounce, respectively, to 247s. 6d. and 252s. 6d. The amended Rule, which was circulated to all Fund members, is reproduced in Appendix IV.

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 throughout the year under review. In Zürich, the dollar price fluctuated between a low of $35.03 and a high of $35.13, and at the end of April was quoted at $35.04.

Because of the special characteristics of each market, the prices for bullion elsewhere did not necessarily follow the day-to-day movements of London prices; however, fluctuations were narrower than in recent years. In Paris, the price of bullion rose from a low for the year of 414,000 francs per kilogram on May 3, 1954 to a high of 435,000 francs on August 26 and was quoted at 428,000 francs on April 29, 1955. When converted into U. S. dollars at the parallel market franc-dollar rate, the price of bullion per fine ounce was equivalent to $35.87 on May 3, 1954, $35.60 on August 26, and $36.17 on April 29, 1955. The U. S. dollar equivalent price of bar gold in Beirut declined from a high of $35.44 per fine ounce on May 14, 1954 to $35.04 on December 13 and was $35.31 on April 30, 1955. In Hong Kong, the U. S. dollar equivalent price declined from $38.75 on June 8, 1954 to $37.93 on February 28, 1955 and was $38.11 on April 29.

With the rigid restrictions on imports and exports of gold in India, the price of gold in the Bombay gold market continues to be determined principally by local supply and demand conditions and is therefore not materially affected by the prices at which gold is dealt in elsewhere. The Bombay price rose from Rs 83-4 per tola (equivalent to $46.62 per fine ounce at the official rate of exchange) on June 19, 1954 to a high of Rs 98-12 ($55.30 per fine ounce) on April 30, 1955.

As in the previous year, there was a general decrease in the prices of gold coins in most free markets during the year under review. The U. S. dollar equivalent price of the sovereign fell by about $2.30 per fine ounce in Brussels and about $1 in Beirut, Paris, and Milan, to prices in these four markets equivalent to about $39 per fine ounce. The price of the napoleon also declined in Milan by the equivalent of $3.50 per fine ounce, in Paris by $3, and in Beirut by $1, to prices equivalent to about $36.75 per fine ounce.

Gold Transaction Service

During the year under review, the Fund facilitated the completion of only 3 transactions in gold, amounting to a total of about $4 million (compared with 32 transactions, amounting to a total of about $299 million, during the two previous years). There was a continuous demand during a large part of the year to purchase gold through the facilities of the Fund but, as a rule, the Fund was not able to find offers of gold to meet these requirements. Several members that had previously used the Fund’s facilities to sell gold have since become buyers and, primarily as a result of the reopening of the London market, other members have changed their methods of marketing gold. Central bank requirements of gold have, for the most part, been met by the United States or by the London gold market.