NEW YORK: The United States Treasury’s gold stock has fallen by 475 million dollars — the largest drop recorded in a week. The gold stock is down to 12,434 million dollars, the lowest level since July 28, 1937.

The figure gives the first indication of the extent of the recent run on gold through the London Gold Pool. The United States is responsible for 59 per cent of the total contributions to the Pool. Settlement with the Pool is made in the first week of each calendar month for the preceding month.

The 475 million dollar fall in the gold stock, therefore, reflects in large part shipments by the United States Exchange Stabilisation Fund to the London Gold Pool in settlement of debts incurred during the London gold rush. The figure also covers sales to Central banks which requested the United States Treasury to convert some of their dollar balances into gold.

The extent of the United States’ gold loss is considerably greater than some observers had expected. Mr Walter Heller, former Chairman of the Council of Economic Advisers, had estimated that the loss of gold through the London Pool had been at least 500 million dollars, of which the United States’ share would have been 280 million dollars. The figure published later indicates that the loss was considerably greater.

It probably also means that the French have resumed their practice of exchanging some of their dollar reserves for gold,

The gold loss will bring much closer the end of the 25 per cent gold cover for domestic currency in circulation. The Federal Reserve Bank has made it clear for some time that it would not hesitate to suspend the gold cover when necessary. The cover is now down to 28.5 per cent, from 29.9 per cent last week.

Of the total gold stock of 12,434 million dollars, 10,900 million dollars is tied up by the 25 per cent cover regulation. A further 800 million dollars is held by the United States under a repurchase agreement with the International Monetary Fund. Technically, therefore, the United States only has 1,100 million dollars of reserves for foreign transactions — until the gold cover is suspended. — Financial Times

Published in Dawn, December 9th, 2017