london gold pool aftermath from its collapse

8/8/2019 London Gold Pool Aftermath From Its Collapse

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Forwarded To You By: WBJordan Investments, Inc

The Day the World ChangedThe Impact 14 March 1968 had on Money,

Gold & Mining SharesPart 1

Mark J. Lundeen

[email protected]

14 February 2006

Part 1 of this article will examine the significance of the London

Gold Pool and the global monetary regime from the Bretton Wood'sAccords, to the present time. It also examines the shallowness ofthe digital financial archives. In the age of information, investors,economists and makers of "policy," may not have the necessaryinformation to properly examine our current age of inflation.

Part 2 of this article will examine the effects of monetary inflation onthe seven decades of recorded price history found in the Barron'sGold Mining Index (BGMI). Gold mining shares have proven to be apowerful indicator of future financial trends that everyone withmoney in the markets should be aware of.

Part 1The current bull markets in precious metals and the companies that mine andexplore them have their foundations laid in 1944. In 1944 the Bretton Woodsinternational monetary conference was convened and then submitted itsrecommendations to the world for approval. In 1945 this conference'srecommendations were ratified and signed into law by the United States andadopted by the United Nations.The Bretton Woods Accords (BWA) created a workable post war monetaryregime. However the world's central banks and national governments refused tosubmit to the monetary restraints provided by this conference. The results, a bull

market of historic proportions for precious metals in the early 21st century. Theworld is about to abandon the US dollar, just as the United States abandoned theBretton Woods Accords fifty years earlier.On the evening of 14 March 1968 the following press release was issued fromBuckingham Palace, United Kingdom.The London Gold Market will be closed today, Friday, March 15. This is atthe request of the United States Government.At a meeting of the Privy Council held this morning at Buckingham Palace,Her Majesty the Queen approved a proclamation appointing Friday, 15thMarch, to be observed as a Bank Holiday throughout the United Kingdom.


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The banks are, however, being asked to provide their domestic customerswith normal cash requirements in sterling.The authorities are requesting that the stock exchanges also be closed.

-End-

What happened? Why did the government of the United Kingdom, upon therequest of the United States, find it necessary to have a Bank holiday, andsuspend the trading of its stock and gold markets for an unspecified period oftime? Why did the United States feel it necessary to make this request?There is much not said in this press release from Buckingham Palace. To fullycomprehend the great importance of this momentous event of monetary history, Imust first give a brief history of money from 1944 to 14 March 1968.When this press release was issued, the United States by international treaty,had promised to pay one ounce of US Treasury Gold for every $35 paper USdollars presented to the US Treasury by foreign central banks.

In 1944, the post war monetary regime was created at an internationalconference convened in New Hampshire, USA. The recommendations of thisconference were called The Bretton Woods Accords. The BWA was submitted to,then ratified by the United States Senate and then signed into law by thePresident. The $35 paper US dollars to one ounce of US treasury gold, was astatutory requirement pending upon the United States Government after theBretton Woods Accords was signed into law.With the enactment of the BWA, several things happened. The World Bank andthe International Monetary Fund were created to safeguard the post warinternational monetary system. Gold was to play an instrumental part in the postwar monetary system, but in a manner only bureaucrats and members of

academia could conceive of. Gold would no longer function as money forinternational payments. Rather, the US dollar was to function as money forinternational payments, with non monetized gold backing the US dollar.So, the BWA did not revive the classical "Gold Standard" of the pre August 1914era. The classical gold standard held that gold was money and nothing else wasmoney. Paper money in a gold standard is only a callable debt, payable in goldupon demand, by its issuer to any holder of the paper note. The classical goldstandard, by intent, made inflation with paper currency impossible. Thiswas not so with the BWA. The Bretton Wood's Accords had a loop hole, Ibelieve by intent, big enough for an ocean of liquidity to flow through. Andsoon, it did.

The BWA made the US dollar the "world's reserve currency", and nothingelse was. This made the US dollar function as gold once did in thesettlements of international payments between national central banks. Thisfeature of the BWA officially excluded gold from serving as a medium ofinternational payment. This is true to the present day. To reassure theinternational community that the United States would not issue excessivepaper dollars, the dollar was fixed to the price of gold at a ratio of $35paper dollars for each ounce of US gold held in the bullion reserves of theUnited States.


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This important clause in the BWA was intended to guarantee the honesty of theissuer of the new "world reserve currency" - the United States and its paper USdollar. Whenever paper money replaces gold money for payments, honesty isalways the primary issue. When physical gold is used in payments, no one isallowed to buy more than they have in gold to spend. Gold plays no favorites nomatter who you are.In a gold standard, when your gold is gone, you must stop your spending and goback to work to earn more gold. When paper replaces gold for payment, this istrue for everyone, but those people who control of the monetary printing presses.The only check on the spending of those who control the monetary printing pressis self control. History has proven that self control, when it comes to papermoney, is a much rarer commodity than gold.In 1945, the government of the United States promised not to print more units ofthe world's reserve currency (the US dollar) than it had in gold to back those

paper dollars. This was the critical check against US dollar inflation. In 1945, thequantity of paper dollars in circulation roughly matched the quantity ofgold dollars held in the US gold reserves. This was not to be so for long.

The above press release issued from Buckingham Palace, marks the point intime when the British government would no longer assist the United States inmaintaining the fiction of the $35 paper US dollars for an ounce of US gold heldin reserve. Her Majesty's government since 1960 had assisted the UnitedStates Government in a fraud. For the past eight years the UK had redeemedits own gold to honor American gold obligations. On 14 March 1968, the UnitedKingdom had decided that enough was enough, and withdrew from the LondonGold Pool.Looking at my above chart, we can see the fraud in hard data. By 14 March1968, the United States had issued 3.97 paper dollars into circulation for every


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one dollar in gold it possessed in its reserves. This was clearly a violation to theletter and spirit of the Bretton Woods Accords.In 1968, inflation was defined as an increase in the total stock of money incirculation; rising prices were understood as the effects of this inflation in thepaper money supply. This concept of gauging monetary inflation in terms of theinflation's effects on prices was conceived by those who wished to confound theunderstanding of the public of what the "policy makers" were doing to their paperUS dollars.If inflation is understood as an increase in the total supply of money in circulation,then the effects of inflation would be rightfully placed upon the shoulders of themonetary "policy makers." However, by changing the definition of inflation to itseffects upon prices, the "policy makers" could now blame union wage hikes,OPEC, or the corner drug store's greed in rising prices. Shame on Academia forassisting in this fraud called the Consumer Price Index (CPI). History will record

that CPI measured inflation was a fraud upon the paper US dollar in both itsconception and execution.Few people understand this in 2006, but enough did in 1960. The word wasgetting out. The United States was issuing currency in excess to its goldreserves. With the mathematical certainty of the law of supply and demand, asthe United States increased its issuance of paper US dollars into circulation, allexisting paper US dollars would lose value over time. Prices were going to risebecause of this. The prudent in the early 1960s understood that the dollar wasstill a valuable asset, but the decision of the United States to inflate the reservecurrency would make their paper US dollars a wasting asset in the years tocome.

It was not done in secret; one only had to subscribe to Barron's to get thisinformation. A run on the US gold supply was on. Paper US dollars werepresented to the US Treasury and their owners demanded that the United Statesfulfill its legal obligations of surrendering one ounce of US gold for $35 US paperdollars. This run on the US gold reserves would continue until August 1971.The United States itself soon refused to redeem its own paper money for its goldreserves. On 15 August 1971 "Nixon Closed the Gold Window." Secretary of theTreasury; John Connally told the world: "the dollar may be our currency but it isyour problem." Had President Nixon not done so, the United States would havelost all of its gold.


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President Nixon is blamed for the collapse of the Bretton Woods MonetaryAccords, but as you can see in the above table, much damage was done beforehe came to office in 1969. His closing of the US gold window was the predictableend of a long chain of mendacity and machinations by central banks andgovernments internationally. But remember, the dollar is the American dollar.Gold prices today would still be at $35 an ounce had the United StatesGovernment restricted its issue of paper dollars "Currency in Circulation" (CinC)to the limits of its gold reserves. They did not as we can see below. This chartexplains why inflation is currently defined by its effects rather than its root cause.

The above chart was constructed using the same data series of dollars paperand dollars gold we saw in the first chart, but brought up to date for February2006. This amazing inflation of CinC will prove to be problematic for the futurevalue of the US dollar. The US dollar is still the world's "reserve currency" but forhow much longer? With the certainty of thousands of years of history supportingme, I can say that only gold and silver can be trusted as a form of money that willkeep its value over time. I will show in part 2 of this article that wealth is walkingrather briskly towards the dollar exits.

President Kennedy allowed the United States to conduct its "monetary policy"outside the frame work of the Bretton Wood's Accords. This conduct was incontempt of the laws of the United States and a legally binding, ratifiedinternational treaty. It would be accurate to state that since the Administration ofPresident Kennedy, global monetary policy has been one of no monetary policy.If the modern monetary standard is the dollar standard, whose value is securedonly by the ever growing supply of US Treasury Debt, then the current monetarystandard is one of endorsing monetary inflation with no limits. This is nomonetary policy, but it is an accurate description of the current state of affairswith the US dollar.


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As the United States has a two year election cycle where its citizens get to votefor those politicians who promise the most for their votes, an inflationary dollarpolicy will remain an entrenched fixture until economic catastrophe strikes.This flood of paper US dollars into the economy has to have its impact feltsomewhere. So for decades, the "policy" formulated by the Wall Street /Washington Axis was to attempt to funnel the inflationary price effects intofinancial assets, while stemming the effects of inflation away from cost of livingitems. This is why for decades, housing values and stock prices have gone upwhile oil and basic commodities have trended down or remained steady. I amsure that much downward pressure was also applied to gold and silver prices.Seeing precious metals increasing their valuations is always the big bug-a-boo ofany inflationist.Today, prices are only the effects of "policy," dictated by entrenched "policymakers" who have deemed it necessary and appropriate for "sustained growth."

Their motives are as many as there are "policy makers": favorable public opinionpolls, utopian visions of social justice, or the size of their year end bonuses areall factors in this inflationary "monetary policy."Today, one seldom hears the old axiom from the early age of computing, where itwas said that "dirt and water in, equals mud out," but this is a valid concept. Ihave come to the conclusion that currently all too many "policy" decisions aremade constructed from bricks of mud.Type in the words "London Gold Pool" to Yahoo or Google and one receives amassive amount of information. In writing this article I used the internet searchengines at least a dozen times to verify names and dates. In the comfort of myhome, I found facts that years ago would have cost me money for parking to

spend a day of my time at a research library. Not any more. Today, what can befound with a computer on the internet is simply amazing!What concerns me about the internet is not what can be found using a computer,but what cannot be found. The data in a digital format, used in my first two chartswas something I could not find on the internet. I've spent considerable amountsof time looking for these, and other historical series on the internet, as well asmaking phone calls to sources. I could not find this information in a digital format.I don't believe this data is available in the digital public domain.To obtain data on the US gold reserves and CinC, I personally had to pay quite abit for parking and spend many more hours than I care to remember. Enteringnumbers from old issues of Barron's into a spread sheet is a tedious task. As a

consumer of financial and economic research, it seems obvious to me thatfinancial authors seldom use the historical data series published decades ago inBarron's. Petty costs and tedium have raised a wall between this data and thecomputer. I believe that this is why all too few in finance and economics areaware of this rich source of information.I would be pleasantly surprised if I were wrong, but I suspect that most collegeprofessors teaching Economics 101 have neither seen these two charts, or havethe means to construct them. Without this data, what is the point of teachingBretton Woods or Nixon's closing the gold window? This expansion of CinC and


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its effects upon the US dollar were major news stories in Barron's all during the1950s - 1970s.The fact is, college professors don't spend much time at all on the origins andconsequences of past inflationary eras. The Failure of Bretton Woods occurred inthe life time of many senior economists. These economists remember what ahome, a hamburger and their college tuition cost them in 1971, and whatstudents are paying now. What a difference 35 years has made!It seems to me that current ECON 101 as taught today is only an explanation ofhow the current "policy makers" manage our current inflationary age. Anyreference to the time before inflation became a permanent and accepted fixturein our world rates only a dismissive comment in main stream academia.With the computer, the world now has fantastic access to information. But thecomputer has brought with it censorship of information more effectively than atotalitarian dictator could ever achieve.

The August 1981 introduction of IBM's Personal Computer (PC) has hadtremendous effects upon the financial industry and schools of economics.However, the PC has proved to be the bane to the larger body of financial andeconomic knowledge that existed previous to 1981.The digital format of the PC has effectively eliminated an enormous body ofsource material for economic research. Decades long, statistical data seriesrecorded on paper with ink is not the preferred medium in the digital age. Go toany college and clearly students generally use computers for research, not oldreference books. The compiling of old economic data series from decades ago isnot considered material to complete a course objective in economics. The digitalarchives are a wide but shallow pool that does not contain the great body of

information that existed previous to 1981.Today, what rests undisturbed on book shelves, just feet away from busystudents gazing at their computers, is as far away from these undergraduates,(and I suspect their professors) as the American continents were to Europeansbefore 1492. Until someone makes the effort to digitalize these decades old dataseries, this is how it will remain.Because the digital age was born concurrently with the great American bullmarket in stocks, our information age is an epoch of ignorance of past bearmarkets. In front of a CNBC camera, it is not hard to be bullish on high techstocks and bearish on gold and silver when your digital data sets begin in the1980's!

To prove my point, lets look at the below chart of the Barron's Gold Mining Indexand the much more modern XAU.


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Most professional opinions on the gold mining industry are based upon the XAUoptions index. However, the Philadelphia Stock Exchange did not trade optionson the XAU until 19 December 1983. This means that most opinions on goldmining are based upon information whose genesis occurred a full three yearsafter the October 1980 top in the gold mining shares.A strategic, long term understanding of the gold mining industry is not possible

using the XAU data series. The impact of wars, social unrest and monetary treatyabrogation are not contained within the XAU's record. The current publicinformation on the gold mining industry is tightly contained within the digitalinformation bubble. It is time to add five more decades to the digital record.

Mark J. Lundeen

[email protected]

The Day the World Changed

The Impact 14 March 1968 had on Money,

Gold & Mining Shares

Part 2

Mark J. Lundeen

[email protected]

21 February 2006

Part 1 of this article will examine the significance of the LondonGold Pool and the global monetary regime from the Bretton Wood'sAccords, to the present time. It also examines the shallowness ofthe digital financial archives. In the age of information, investors,


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economists and makers of "policy," may not have the necessaryinformation to properly examine our current age of inflation.

Part 2 of this article will examine the effects of monetary inflation onthe seven decades of recorded price history found in the Barron'sGold Mining Index (BGMI). Gold mining shares have proven to be apowerful indicator of future financial trends that everyone withmoney in the markets should be aware of.

Part 3 of this article will further examine the seven decades of the Barron's GoldMining Index using a charting technique I call The Bear's Eye View (BEV Chart).Using this technique I will prove my thesis that since 1938, US monetary inflationalone has driven gold mining shares to their price extremes, both up and down.

Part 2The Barron's Gold Mining Index (BGMI) is a weekly data series that spans sevendecades from 1939 to the present date. Upon careful examination of this record,the reaction of gold mining shares to war, political chaos, and currency inflation isquite different from what current expectations would have us believe.This should not be surprising. Currently the widely followed XAU data set is thesource data for most professional opinion on the gold mining industry. However,the XAU was first traded on 19 December 1983. This was three years after theOctober 1980 bull market top in the gold mining shares. So it is fair to say thatthe XAU is primarily a partial record of the post 1980 - 2001 gold share bearmarket.The XAU is a modern index of gold mining shares that includes volume and openinterest data. But like so much of today's digital data, it is confined within thedigital data bubble I noted in Part 1 of this article. To my knowledge, only theBGMI records seven decades of history for the gold mining shares.An interesting point to know about the Barron's Gold Stock Index is that it is thesole survivor, an antique remnant of the now long forgotten Barron's StockAverages. Barron's published for 50 years (1939 to 1988), stock averages forover 20 industrial sectors. They provide a unique piece of history of the Americanstock market from a time when vacuum tubes were high tech to the era ofcomputer microprocessors.Except for their Barron's Gold Stock Average, now called The Barron's GoldMining Index (BGMI), Barron's discontinued their Barron's Stock Averages inOctober 1988. The BGMI has been continuously published since before Hitlerinvaded Poland in 1939. The 67 years of data contained in the BGMI data set isthe definitive source of information on gold mining shares price action under alleconomic circumstances.Sorry to say that Barron's allowed five decades of their publication's recordedhistory for oil, textiles, steel, auto manufacturing and many other industries tofade into oblivion. Likewise, Dow Jones discontinued their excellent 20 BondAverage data just a few years ago. The DJ 20 Bond Average was an importanthistorical bond data series for utility and industrial bonds that spanned 64 yearsfrom 1938 to 2002.


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I believe these venerable, decades old market metrics based upon arithmeticaverages were casualties of the digital information revolution. They must haveseemed quaint to the vast majority of market watchers. These old "averages"were based upon a 19th century method of using a simple average on share orbond prices to compute market measurements. Indexing market capitalization isthe modern digital method, and I think a superior method. The new indexedmeasurements also come with open interest and volume figures, none of theantique averages did.Most likely, the Barron's Stock Averages and the Dow Jones 20 Bond Averageslost their following long before Barron's and Dow Jones pulled the plug onGrandpa. But pull the plug they did and 50 years of market history was cast asideand forgotten.The survival of the old Barron's Gold Stock Average, the current Barron's GoldMining Index, says something of the attachment gold once had on people, such

as the past editors of Barron's. The demise of the Barron's Stock Averages andthe Dow Jones 20 Bond Averages also says something about Barron's and DowJones too. Both publications are authoritative publications of record for financialstatistics. I wish they would be more respectful of their decades long, andquaintly antiquated historic data series.I would not be surprised to learn that currently only a hand full of people havebeen seriously tracking the BGMI for the past few years. I may be the first personto have made the effort in compiling the BGMI into a digital format. I hope thisarticle attracts the serious attention that the BGMI rightfully deserves. To do this,the BGMI needs to be passed around.As a service to the readers of this article, I am providing a link to Mr. Nick Laird's

Sharelynx webpage. Mr. Laird has many of the historical data series I havecompiled, including the BGMI. People interested in gaining access to this body ofhistorical weekly closing price data should go to the below webpage. For a veryreasonable fee, MR. Laird will sell you data.Sharelynx's data pagewww.sharelynx.com/chartstemp/FreeCharts.phpAlong with the above data on your computer, you will also need a reasonablypriced subscription to Barron's. Investing is like following a soap opera; you needto watch each episode or the ever changing plot will leave you behind. Barron'swill provide you with current weekly data needed to maintain your weekly dataset. With all this, you can follow the markets like a serious student.

Barron's subscriptionshttps://services.wsj.com/Gryphon/jsp/retentionController.jsp?page=1012The amazing statistical tables published each week in Barron's have been awonderful resource of hard statistical data for serious investors since 1921.Barron's will mail its publication overseas to Asia, Europe and anywhere else. Itis also available online on a subscription basis. Personally, I could not functionwithout it.I want to say that I have not in the past, do not now, or have any expectationsthat in the future I will be receiving financial payments from Mr. Laird, or Barron'sfor any reason. Maintaining historical financial data is my hobby - providing a


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webpage for data hounds is a hobby for MR. Laird. Barron's doesn't even know Iexist. No one is getting rich making this offer, except maybe you.Now back to the Barron's Gold Mining Index.The next chart is a comparison between the BGMI and XAU. This is a chartcontaining every data point Barron's has published on these two series from theirfirst weekly published figures to the present. For your information, the XAUtraded for about a year before being included as a statistic published in Barron's.So the XAU as seen below is actually four years from the BGMI top of October1980. As a record of the gold mining industry over time, we can see that theBGMI is far superior to the XAU.

The BGMI appears to have been in a persistent vegetative state from 1939 to1963. As we will see below, hidden within this period (1939 - 63) is a record ofgreat importance for insight on the US Dollar, gold and gold mining shares.Why does this chart take on this appearance? It is solely due to the effects ofmonetary inflation on the paper US dollar's value. Most market measurementsvalued in dollars, that spans this same period, have this appearance. The DowJones Industrial Average looks very similar. This annoying effect of inflation,

makes analyzing one decade of a market to another very difficult. Inflation'sdistortion to price valuations is another reason why historical data is not fullyappreciated. As we can see in charting the 67 years of the BGMI, the first threedecades contain no information in this chart. We really only see half of the wholepicture.The Federal Reserve's chronic increases in the total volume of the reservecurrency it manages, creates a base line shift in the fundamental values of theAmerican market's measurements over the decades. This gradual increase in thebasic stock of money (CinC), has over time created distortions in relative pricevalues from one decade to the next.


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The first value listed for the BGMI was 48.75 in the 26-December-1938 issue ofBarron's. I will assume 750 as an average value for the BGMI from 1978 topresent.

A 10% swing in the 1939 value of 48.75 produces a 4.87 point change. A 10%swing in my assumed 1978 to 2006 average of 750 produces a 75 point change.Both numbers are based upon a 10% swing in the BGMI. But the results of myassumed value is almost twice that of the total value of the 1939 listing of theBGMI.Monetary inflation is why these decade long charts have assumed thisappearance over time, just as monetary inflation has caused a huge loss in valueof the paper US dollar over time.Let us look at the BGMI from 1939 to the end of 1968, a span of time that

includes the operation of the London Gold Pool (1960 to 14-March-1968). I havealso included the plot for US Currency in Circulation (CinC), indexed to 1.00 =26-Dec-1938. We can now easily see how many times the volume of paper USdollars in circulation increased over this same period.


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Remember this chart the next time a financial expert expresses his opinion thatgold mining shares are sensitive to massive inflation, wars and political upheaval.Consider the following facts.The darkest hours of World War II, for Britain and the United States (where theseshares were traded), occurred from the very start of this chart until 24 June 1942.This period corresponds with Hitler's obvious preparations to invade Poland to

his actual invasion of the Soviet Union, 3.5 years later in June 1942.In this 3.5 year period, the world's political structure and economy was torn apart,while the US CinC doubled. Here is actual global chaos and massive inflation -yet the BGMI declined in value by more than -60%! This is not my opinion but anindisputable fact recorded in the BGMI.After June 1942, the issue of war turned favorable for the Allies, but CinCinflation roared ahead. Still, the BGMI would not return to its December 1938high until 1961. That was over twenty years after 1938.We don't see the BGMI doing anything significant after World War II until 1961.During the 1950s, some Americans were building bomb shelters to prepare forthe coming Soviet "atomic" attacks, and air raid sirens were installed in every

major US city. The BGMI did not respond to this fear; however the Dow JonesIndustrials were having a very nice bull market all during the 1950s. Currentmarket logic expressed in the financial media would have these trends of the1950s reversed.CinC fell slightly between the inter-war period of December 1945 to June 1950.After the start of the Korean War in June 1950, CinC slowly started to pick upagain. Let's blame this slight inflation on the Korean War. Here is a secondshooting war with more inflationary acceleration of CinC. Again, here wasanother shooting war that had no discernable effect on the BGMI in the abovechart.


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Everything changes with the Kennedy / Johnson presidencies. After the start ofPresident Kennedy's term of office, two things happened that the BGMI was verysensitive to.

1. CinC continued to noticeably increased, however now the US gold reservesnoticeably decreased.

2. The London Gold Pool was formed.

The BGMI started to increase in value as the paper US dollars increased innumbers, and gold US dollar left the United States.The world saw the creation of the London Gold Pool as the US Government'srejection of the Bretton Woods Monetary Accords (BWA). Printing more paperUS dollars than there were US gold dollars to back them would, by the laws of

supply and demand cause the price of gold to rise upwards in price from theofficial BWA's price of $35 an ounce.The London Gold Pool's purpose was to pool the resources of US friendly centralbanks. Any time more buyers came into the London Gold Market than there weresellers, the pool would punish anyone who dared to purchase gold at a priceabove the official $35 dollars an ounce. Such purchasers would soon find thatthey would be met with massive selling of central bank gold. The London GoldPool intended that over $35 an ounce gold purchases would be a losingproposition.From the first day of The Pool's operations, the world of money knew that theUnited States no longer intended to honor the Bretton Wood's Accords. For

reasons good or bad, printing paper US dollars in excess of its gold reserves wasnow the monetary policy of the United States. The world of money being realisticabout such things, understood that the US would never again return to a limitedpaper currency.The paper US dollar became a wasting asset. To see the truth of this, one onlyhas to go to a library that offers news papers of the 1950-60s and compare theadvertised prices then and what we pay for similar items today.No doubt this increase in the BGMI was primarily from US investor demand. Thiswas a time when American citizens needed a license to hold gold or faceimprisonment, stiff financial penalties, or both. From 1933 to 1974, the shares ingold mining companies proved to be an effective American proxy for gold itself.

Note on the table below. I chose not to use the highest prices for gold and theBGMI of 1980. As 1980 was a period of extreme volatility in both gold and thegold stocks, it is pointless to pick a typical price. From the first week in January1980, (the basis date for the values I used in my below table) gold was to rise$220 dollars in the next two weeks, and then fall $180 in the week after that. As$800 gold was but a fleeting moment in 1980, I thought it appropriate to use a 20year period from the first week in 1960 to the first week in 1980 in the tablebelow.


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The BGMI record clearly shows that as long as the US could inflate CinC withouthaving a corresponding decrease in the US Gold Reserves (1945-58), the BGMIwas indifferent to CinC inflation. However, when the inflation in CinC finallyresulted in calls from foreign central banks upon the US gold reserves (1958 to1968), the BGMI entered a significant bull market.It is most important to know that this 1968 BGMI bull market's top occurred lessthan a week before the Bank of England's announcement of its withdrawal fromthe London Gold Pool on 14 March 1968. The day the Bank of England withdrewfrom the London Gold Pool, was the day world changed. The following two chartsare important in understanding the bullish price action of the gold shares in the1960s.

Who today is aware that the 1960s was a golden decade for the gold mining

shares? Gold stock investors from 1960 to 1968 saw gains of over 1,200% ineight years while gold itself was kept at $35 an ounce for the entire period!Another important point for gold shares in the 1960's, is that after the closing ofthe London Gold Pool, gold was allowed to be traded freely for prices over $35dollars an ounce. The increase in gold prices triggered a BGMI crash of minus60% over the next two years.This seems confusing, but there is logic to it. I promise, by the end of this articleall will be explained and understood.The next chart is a side by side comparison of the US gold reserves with theBGMI from December 1938 to January 1970. The two vertical dashed lines mark


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the start of the run on US gold and the withdrawal of the Bank of England fromthe London Gold Pool. There can be no doubt why the 1958-68 BGMI bull marketoccurred. It was the gold share's reaction to the run on US gold and theexistence of the London Gold Pool.

Please note that the Vietnam War was concurrent with, but not a factor of thisbull market in the BGMI. As in the case with World War II, the Korean War, and

the Cold War that created constant US domestic fears of Soviet atomic attackupon the civilian population of the United States, the Vietnam War was anincidental non-factor to the BGMI price action from 1960 to 1973. (See the belowchart)


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As you can see above, the 1960's BGMI bull market coincided with the LondonGold Pool, * not * the Vietnam War. Without a doubt, for the first three decadesin the history of the BGMI, (1939-68) a period that involved the US in World WarII, The Korean War, the Cold War and The Vietnam War, the BGMI's primarytrend was completely indifferent to American's involvement in armed conflict.If foreign armed conflicts produced no reaction to the BGMI, what about

American domestic upheavals? The 1960's racial problems occurred during the1958 to March 1968 BGMI bull market, however Martin Luther King wasassassinated on 04-April-1968, three weeks after the closing of the London GoldPool. The BGMI was to crash by -60% in the next two years as the radical "BlackPower" movement grew in influence.The anti-war riots and political upheavals peaked in the United States, andelsewhere, after the closing of the Gold Pool and the market top in the BGMI.The BGMI collapsed 60% during the anti-war chaos of the next two years. In lightof this data, on what basis can anyone claim that the gold mining shares aresensitive to war, social unrest, or persistent American public fears of suddendeath from domestic or international terror?

The XAU is silent upon these years. One must wait some time before the digitalXAU will be traded.Considering the gold mining shares market of today, and seeing that the start ofthe current bull run of the BGMI closely matches that of the September 11, 2001(9/11) World Trade Center Terror Attack, can we assume that the US'sinvolvement in Iraq is somehow buttressing the BGMI extremely strongperformance since 9/11? Many experts' considered opinion may say that this isso, but to assume this one must be unaware of the 67 years of BGMI history.The Iraqi conflict is into its third year of combat operations. Of the four majorwars the US has been involved in since 1939, the Iraqi conflict has seen thefewest human causalities to US troops abroad. To date, there have been


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negligible consequences on the home front when compared to the other threemajor wars. World War II and Vietnam were traumatic events to the Americanpublic. The Iraqi War, up to this point in time, has not been.By the end of the current bull market in the BGMI, it will be very clear that thefactor supporting its bullish primary trend will be monetary inflation and nothingelse.

Mark J. Lundeen

[email protected]

london gold pool aftermath from its collapse

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