Neshant wrote:Why isn't India (the largest or second largest buyer of gold in the world) setting gold prices instead of banking crooks sitting in London or now Singapore?
Paper gold investments sound like a Madoff scheme in the making however.
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Singapore Continues Push To Become Asian and Global Gold Hub
http://www.commoditytrademantra.com/gol ... -gold-hub/
The very negative treatment of gold by the government in India is encouraging companies involved in offering gold and gold related investments in India, to consider moving to Singapore.
long reply here
The 1922 Genoa conference they decided its cumbersome to move gold from Europe to US, so they made paper promissory notes to be used in lieu of real gold. The paper promissory notes were approved by US federal reserve and Bank of England.
What the 1922 Genoa Conference did was to institutionalize the "sterilization" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) was used as an equal reserve upon which credit can be expanded. What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the IMF and it's financial system.
In 1922, they officially changed the old gold standard into the new "gold exchange standard". The stated purpose was "the stabilization of the general price level" which you can feel free to read as code for sterilizing the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and Monetarism (est.1956).
With the gold mostly staying put in London and New York, and paper promises of gold flowing as equal base money elsewhere, the monetary base was effectively duplicated. Credit could now expand without ever having to contract, at least not because of the unwanted flow of gold. But of course that's not how it actually works in practice. The "unwanted" flow of gold is not the cause, but the effect of real imbalances (physical, not monetary ones) between international production and consumption. So, obstructing the adjustment mechanism of real gold settlement set the world up for periodic busts, economically destructive punctuations and regular currency devaluations.
To use a modern buzz word, they expanded the 500 year-old international monetary base into a more flexible "basket" that included US dollars, British pound sterling, and gold. They needed Britain as USA did not have the big colonies. As dollars began to accumulate abroad, they would be deposited back in the New York banks in exchange for a book entry reserve on the foreign country's balance sheet. In this way, the unbalanced flow of trade acted only as an occasional spur, and never as a brake. The only brake would now come in the form of destructive crises and abrupt monetary resets.
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The London Gold Pool was a covert consortium of Western central banks, a 'gentleman's club' of sorts, that agreed to pool its physical gold resources at predetermined ratios in order to manipulate the London gold market. Their goal was to keep the London price of gold in a tight range between $35.00 and $35.20US.
London had become the world's marketplace for gold. For more than a half century nearly 80% of the world's gold production flowed through London. The "London Gold Fix" daily price fixing began in 1919 and only happened once a day until the London Gold Pool collapsed in 1968 and an "afternoon fix" was added to coincide with opening of the New York markets.
In 1944 the Bretton Woods accord pegged foreign currencies to the US dollar and the dollar to gold at the exchange rate of $35.20 per ounce. At that time gold was not traded inside the US, but in London it continued to trade between $35 and $35.20, rarely moving more than a penny or two in a day.
Through the first decade of the Bretton Woods system there was generally a shortage of US dollars overseas which lent automatic support to the fixed gold peg. But the US was running a large trade deficit with the rest of the world and by the late 1950's there was a glut of dollars on the international market which began draining the US Treasury of its gold.
Then, in one day in October 1960, the London gold price, which would normally have made headlines with only a 2 cent rise, rose from $35 to over $40 per ounce! The Kennedy election was just around the corner and in Europe it was believed that Kennedy would likely increase the US trade deficit and dollar printing.
That October night, in an emergency phone call between the Fed and the Bank of England, it was agreed that England would use its official gold to satiate the markets and bring the price back under control. Then, during Kennedy's first year in office the US Treasury Secretary, the Fed and the BOE organized the London Gold Pool consisting of the above plus Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg.
The goal of the pool was to hold the price of gold in the range of $35 - $35.20 per ounce so that it would be cheaper for the world to purchase gold through London from non-official sources than to take it out of the US Treasury. At an exchange rate of $35.20, it would cost around $35.40 per ounce to ship it from the US to Europe. So the target range on the London markets acted as a shield against the US official gold which had dwindled substantially over several years.
The way the pool was to work was that the Bank of England would supply physical gold as needed into the public marketplace whenever the price started to rise. The BOE would then be reimbursed its gold from the pool according to each countries agreed percentage. If the price of gold fell below $35 an ounce, the pool would buy gold, increasing the size of the pool and each member's stake accordingly. The stakes and contributions were:
50% - United States of America with $135 million, or 120 metric tons
11% - Germany with $30 million, or 27 metric tons
9% - England with $25 million, or 22 metric tons
9% - Italy with $25 million, or 22 metric tons
9% - France with $25 million, or 22 metric tons
4% - Switzerland with $10 million, or 9 metric tons
4% - Netherlands with $10 million, or 9 metric tons
4% - Belgium with $10 million, or 9 metric tons
Remember this- the gold that these countries owned came from 3 centuries of raping/pillaging the rest if the world.
And since they, as a group, were doing this in secret, it turned out that they were able to make a substantial profit in the first few years of the pool. Since they were buying low and selling high within a fixed trading range that only they knew was fixed, they reaped substantial profits and even increased their reserves as much as FIVE-FOLD by 1965!
But with the cost of US involvement in Vietnam rising substantially from 1965 through 1968, this trend reversed and the dollar came under extreme pressure. From 1965 through late 1967 the gold pool was expending more and more of its own gold just to keep the price in its range. Seeing this, France (who was one of the insiders and knew of the price fixing operation) began demanding more and more gold from the US Treasury for its dollars.
And as this trend progressed, the world was flooded with more and more dollars that were backed by less and less gold, creating an extremely volatile situation. Public demand for gold was rising, the war was escalating, the pound was devalued, France backed out of the gold pool, and in one day, Friday March 8, 1968, 100 tonnes of gold were sold in London, twenty times the normal 5 tonne day.
The following Sunday the US Fed chairman announced that the US would defend the $35 per ounce gold price "down to the last ingot"! Immediately, the US airlifted several planeloads of its gold to London to meet demand. On Wednesday of that week London sold 175 tonnes of gold. Then on Thursday, public demand reached 225 tonnes! That night they declared Friday a "bank holiday" and closed the gold market for two weeks, "upon the request of the United States".
That was the end of the London Gold Pool. The public price of gold quickly rose to $44 an ounce and a new "two tiered" gold price was unveiled; one price for central banks, and a different price for the rest of us. Even today official US gold is still marked to only $42.22 per ounce, $2 LESS than the market price in 1968!
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Singapur or Shanghai or Dubai or London or New York or whatnot can become gold hub for all I care. The problem is in the future the trade imbalances will be settled outright. Long term Deficits will be things of the past. When there is system already supervised by BIS, who needs Singapur government to give an helping hand to do the same job.
All this gold hub talk is passe.