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in the capitalist and developing countries, special centers where gold is bought and sold on a regular basis. Organizationally, most of the gold markets are consortia of local banks and specialized firms, which, in addition to trading in gold, purify (refine) the metal and make ingots in different sizes. The principal sellers are gold-producing countries and private holders of reserves. The principal buyers are private firms; individuals, including jewelers, industrialists, investors, hoarders, and speculators; and, in some cases, central banks.
There are gold markets in all the capitalist and developing countries. Most of the markets are legal, but in countries where the government prohibits citizens from carrying out transactions in gold there are illegal black markets. The majority of the gold markets serve the demand of industrialists and hoarders within a particular country. However, there are some international gold markets, through which most gold is sold. On the international markets gold is freely imported and exported.
From the 19th century to the 1960’s, London was the center of the world gold trade. The London market handled the sale of gold mined in most countries, especially the Republic of South Africa, which accounted for more than 75 percent of the gold mined by the capitalist countries. In the late 1960’s, London became the world’s second-ranking gold market, yielding first place to Zürich. The Republic of South Africa, having established direct relations with Swiss commercial banks, began to sell up to 80 percent of its gold through Zürich.
The two principal international gold markets, Zürich and London, are closely interconnected. They send gold from the producers to the final consumers through regional international gold markets, which are located in various parts of the world, as well as directly through the large, internal gold markets in certain countries. The chief regional international gold markets are Dubayy, Beirut, and Kuwait City (al-Kuwayt) in the Middle East and Singapore and Hong Kong in the Far East. They supply the internal gold markets of neighboring Asian and African countries, to which most gold is smuggled. Until the early 1970’s the principal regional international gold markets in the western hemisphere were Toronto and Winnipeg, where gold mined in Canada was sold. The Canadian markets served the USA and the Latin American countries. An international gold market opened in the USA in New York and Chicago on Jan. 1, 1975, after US citizens regained the right to hold and to trade in gold. This right had been eliminated in 1933.
The largest internal gold market is in Paris. The importation of gold into France is prohibited, but gold is smuggled in, primarily from Switzerland. Other major internal gold markets in Europe are located in Milan and Frankfurt am Main. Large internal gold markets in Asia are Tokyo, Bombay (a black market), Dacca, and Karachi; in Africa, Casablanca, Alexandria, and Cairo; and in Latin America, Buenos Aires, Rio de Janiero, and Montevideo.
Gold is sold in different forms. On the international markets, it is sold primarily in the form of old or new coins and in standard, 12.5-kg ingots containing 995 or 999 parts of pure gold per 1,000 parts of alloy. The ingots are stamped by a refinery or mint. On the internal markets gold is sold in ingots weighing from 1 kg to 5–10 g; in sheets, plates, disks, and dust; and in coins. Small ingots of special weights and purities are made for the eastern internal gold markets.
The prices established in Zurich and London are almost the same and are known as the world price of gold, which is expressed in US dollars per troy ounce (31.1 g) of pure gold. On the regional international gold markets the price of gold is expressed in US dollars per ounce. On the internal markets it is figured in the local currency per local unit of weight. For example, in Europe the price of gold is figured per kilogram, and in India, per tola (11.7 g). The prices on the regional international gold markets are generally higher than prices on the London and Zürich markets, and the prices on internal gold markets are significantly higher than the world price, because of the cost of delivering gold from London and Zürich, as well as insurance costs, risk, and other considerations.
The price of gold is set according to supply and demand. The gold pool, established in 1961 on the initiative of the USA in an attempt to regulate the price of gold, was a failure and was abolished in March 1968. Under the Washington Agreement of Mar. 17, 1968, which was concluded by the central banks of the members of the gold pool and joined by most of the other capitalist and developing countries, the single gold market serving the needs of central banks, private firms, and individuals was subdivided into two separate markets—an official and a free market. The official market handles mutual transactions by central banks at the official price of $35 an ounce. (The US Treasury has been buying gold at this price from all sellers since 1934 and selling gold only to foreign central banks and currency agencies.) The free market handles all other transactions, at a price established in conformity with supply and demand. Central banks that joined the Washington Agreement undertook not to buy and sell gold on the free market or to deal directly with producer countries, but they retained the formal right to buy gold from the USA at the official price. Of the gold-producing countries, only the Republic of South Africa was authorized in 1970 to sell a limited amount of gold to the International Monetary Fund (IMF) at the official price, when the market price did not exceed $35 an ounce. This guaranteed the Republic of South Africa a low selling price. On Dec. 8, 1974, the agreement between the Republic of South Africa and the IMF was cancelled.
On Aug. 15, 1971, the USA stopped selling gold to foreign central banks at the official price in dollars, and the official gold market ceased to exist. On Nov. 13, 1973, the Washington Agreement on the two-tier market was cancelled, but this did not induce central banks to resume private-market transactions, for the future role and price of gold remained uncertain. In January and June 1975, at two auctions, only the US Treasury sold 35 tons of gold from state reserves, hoping to restrain an increase in the price of gold, which was anticipated in connection with a possible increase in the demand for gold among American citizens, who had regained the right to hold and trade in gold.
In August 1975, the IMF adopted a decision, later to be ratified by member countries in January 1976 in Jamaica, that left the official gold market with virtually no basis for existence. According to the decision, gold was not to be used to establish the parity of currencies and to settle payments with the IMF, thus eliminating the official price of gold; one-sixth of the IMF gold reserve assets was to be returned to member countries and sold on the market in the course of four years; and the remaining two-thirds of the IMF gold reserve assets could possibly be returned later or sold.
K. A. SHTROM