Major Historical Events Relating to the Monetary Role of Gold
Pre Nineteen Sixties

Gold has been used as a means of exchange for over 3,000 years. The Gold Standard was gradually evolved to become the basis of Britain’s monetary system in 1717 and was more widely adopted in Europe in the last years of the 19th century. The United States went onto the Gold Standard in 1900. Internationally, free import and export of Gold meant that balance of payments deficits were settled in the metal; Gold flowed out of a country in deficit, into a country in surplus.


On the outbreak of World War One, Britain itself officially suspended the Gold Standard in 1919, but returned to a Gold Bullion Standard in 1926 under which notes could only be exchanged for 400 ounce good delivery bars. However, the economic turmoil of the early 1930s forced most nations off Gold (Britain in 1931, the United States in 1933). Only movement of Gold between central banks and governments was permitted. This created the Dollar Exchange Standard under which dollars could be traded for Gold at the Federal Reserve. This system was confirmed by the Bretton Woods Agreement in 1944 and lasted until 1971.

In 1934, President Roosevelt raised the official price at which the Federal Reserve would buy and sell Gold to $35.00 an ounce, a level which the United States and European Central Banks struggled to maintain until 1968.

In Nineteen Sixty
Due to growing demand in the free market for gold for jewellery and investment, the Gold Pool was formed by the USA together with Britain, Belgium, France, Italy, Netherlands, West Germany and Switzerland, with the intention of keeping the free market price close to the official parity of US$35.00 an ounce. This new set up was effectively an extension of the Exchange Stabilization Fund giving the Treasury the authority to increase the supply of Gold in order to depress the free market price if necessary.
In Nineteen Sixty Eight
Central Banks suspended operations of the Gold Pool and the London Gold Market was closed for two weeks. This was a direct result if increasing worldwide speculation in Gold due to an uncertain international monetary market and pressure on the US dollar after the TET Offensive in Vietnam.
During the closure of the London Gold Market, Credit Suisse, Swiss Bank Corporation an Union Bank of Switzerland formed the Pool in Zurich to undertake Gold transactions. South Africa started regular Gold sales through the Zurich Pool.
The Two-tier System was launched under which Gold transacted in the private and official monetary sectors was handled separately.
In Nineteen Sixty Nine
Singapore liberalized the Gold market for non-residents.
Restrictions covering imports of Gold coins minted before 1934 were lifted in the USA.
In Nineteen Seventy One
Russia resumed selling Gold to London, the first time since 1966.
The USA suspended Gold convertibility of US dollar.
President Nixon agreed at the Acoren Meeting to devalue US dollar. The Group of Ten agreed on the re-alignment of the parities with a devaluation of 7.89% for US dollar which turned the new official Gold price to US$38.00 an ounce with variation of 2.25% each side.
In Nineteen Seventy Three
Japan liberalized Gold imports.
The US dollar was devalued for the second time and the official Gold price was set at US$42.2222 an ounce.
The official Two-tier System was discontinued.
Singapore liberalized the Gold market for residents.
In Nineteen Seventy Four
Hong Kong liberalized the Gold market following the dissolution of the Sterling Area in 1972.
EEC Finance Ministers reached the Zeist Accord under which Central Banks may trade Gold between themselves at market related prices. If Central Banks buy gold from the free market, the effect of these operations should not be to increase their net Gold holding.

Finance Ministers of the Group of Ten agreed that Central Banks may use their Gold reserves as collateral at market related prices for foreign loans.
President Ford of the USA and President Giscard Estaing of France agreed that Central Banks may revalue their Gold reserves at market related prices.

In Nineteen Seventy Five
The USA liberalized the Gold market.
US Treasury auctioned and sold 2.5 million ounces of Gold.
UK suspended imports of Gold coins issued after 1837 including Krugerrands.
The Group of Ten agreed that the Bank for International Settlements (BIS) can participate in the IMF auctions.
Members of IMF reached agreement to abandon the official Gold price and to restitute 50% of Gold to members at US$42.2222 an ounce. It was further agreed that Central Banks can buy and sell Gold in the free market and that 1/6 of the IMF Gold reserve was to be auctioned with the proceeds received used for helping under-developed countries.
In Nineteen Seventy Six
The Group of Ten agreed not to buy Gold in the free market before the revision of the IMF Articles of Association. However, they agreed that BIS can buy Gold on their behalf.
Germany and Switzerland granted credit of US$250 million to Italy against collateral of Gold. South Africa announced the overseas loan granted to them against collateral of 5 million ounces of Gold.
The IMF commenced monthly auctions of Gold which would continue for 4 years and 25 million ounces of Gold would be offered for sale. They would also restitutes a further 25 million ounces of Gold to the member countries in the Fund.
In Nineteen Eighties
The price reached the historical high of US$850 an ounce in 1980 but declined to the low of US$284 an ounce in 1985. The level of trading activities declined considerably in the decade but the physical off-take continued to accelerate, particularly in Asia. The status remains currently unchanged in major Gold markets.
Central Banks and central authorities were buyers and sellers of Gold periodically in the 1980s and 1990s. The IMF "All Countries" Gold holdings were 905.1 million ounces at end February 1995.
In Nineteen Nineties
The average dollar price remained almost unchanged between 1994 - 96 and then had a sharp fall to US$250.00 from 1996 to the end of 1999.
The other significant changes were the decline in investment interest, which resulted in a sharp fall in coin and bar hoarding demand, and a switch from modest European and North American investment in 1995 to more substantial disinvestment in 1996.
 Hong Kong Gold Market History

Inception of the Chinese Gold and Silver Exchange Society dates back to 1910 when we began operation as the "Gold and Silver Exchange Company". In 1918, the Exchange formally registered in the name of the Chinese Gold and Silver Exchange Society.
About a century ago, there were only odd lot gold and silver trading in the territory. Small scale banking counters appeared later, which gradually led to the emergence

of bank houses and modern banks. The Exchange was established in wake of the thriving development of Hong Kong’s banking industry. Members of the post-war management were founders of leading Chinese banks in Hong Kong.
Since its establishment, the Exchange has adhered to a stringent and effective set of rules. Although constantly tested, the integrity of industry members is always upheld. Moreover, it plays a vital role in Hong Kong’s gold market. The Exchange provides local and international investors with a gold market of continuity, liquidity and depth, in which they can exploit gold as a vehicle of investment, speculation, hedging and arbitrage.

The Exchange, except for the Pacific War years of 1941 to 1945, provides services to investors on every trading day. In January 1980 when the Soviet army invaded Afghanistan, the price of gold soared to a record high of HK$4,855.00 per tael on 18 January, before plunging down to a low of HK$3,590.00 on 23 January, marking a sharp volatility of $1,200.00 in only a few days. Unable to cope with this severe fluctuation, all major gold markets suspended trading. Thanks to great versatility and a sound market system, the Exchange was the only market in the world where trading continued as usual.
In early February 1983, plummeting oil prices, tightening of the US Federal Reserve’s monetary policy and rising rates brought great volatility to the price of gold again. Gold markets in the US and Singapore suspended trading but the Exchange remained open. The above incidents fully demonstrate the Exchange’s ability to ensure trading continuity.

As for liquidity, investors have realized their gold bullion and closed out gold positions smoothly and swiftly over the past decades. Not one complaint has been reported. One significant example is that on 15 January 1970, the Exchange abandoned the then prevailing 945 fineness and adopted 99 fineness as the standard for pure gold. It was a step to meet demand of the gold jewelry industry. At that time, the people of Hong Kong had more than 100,000 taels of 945 fineness gold between them, and the Exchange bought all 945 gold by paying a price based on the 99 fineness standards. Consumers got the full value of their gold investments, and there were no disputes. This piece of history illustrates our members’ integrity and the high liquidity of the Exchange. Note: 945 fineness is a 94.5% gold bullion; 99 fineness is a 99% gold bullion.

Depth is best used to describe our strength. While the Exchange is subject to varying market situations due to fluctuation in gold prices, the strength we display in market strong runs is impressive. In the early 1980’s when the gold market staged stellar performance, more than 2 million taels of gold were traded on the Exchange daily. History shows that our member firms are establishments of great strengths. They can cope well with large trade volumes in a bullish market.

Hong Kong has secured a key position in the international gold market. This important role is attributed to a number of factors. They include political stability, free trade, a respect for private ownership, a sound and established legal system, good communications networks, sophisticated telecommunications facilities, a strong financial system and a stringent regulatory system. Yet another important factor worth noting is that Hong Kong spans across the Asia time zone and it provides pricing information for the gold market after the close of New York market and before the opening of the London market. Because of this connection, international investors can continue their trading, hedging or arbitrage activities in Hong Kong. Effectively, the emerging of Hong Kong gold market turns the trading of gold around-the-clock.

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