The CIA Report on the Gold Market in 1971, the Year the U.S. Went Off the Gold Standard.

The United States Sold a Staggering 24,685,714 ounces of gold in 1971, or 767.81 Tons, Prior to Closing the Gold Window on August 15, 1971.

… and another 85,714 ounces or 2.66 tons from August 15 to the end of the year.

France purchased 420 tons of gold from the United State in 1971; Switzerland 155 tons and Belgium 98 tons.

In 1971, U.S. Gold Reserves Dropped to Their Lowest Level since 1935.

The U.S. Hasn’t Added Gold To Her Reserves Since.

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The State of the Gold Market in 1969-1970 According to The CIA

In our last CIA and Gold report “The Year the United States Sold 700 Tons of Gold” we reviewed The CIA’s Memordanum “The World Gold Market in 1970 and prospects for 1971”

The US. sold even more gold in 1971 just prior to closing the gold window 767 tons vs 702 tons ($864m vs. $790m).

The World Gold Market in 1971 and prospects for 1972

The CIA Discusses the Gold Market in 1971 after the Closing of the Gold Window

CIA classification: SECRET

Warning: This document contains information affecting the national defense of the United States, within the meaning of Title 18, sections 793 and 794, of the US Code as amended. Its transmission or revelation of its contents to or receipt by an unauthorized person is prohibited by law.

In March of 1972, the CIA published its SECRET memorandum on the gold market in 1971, the year the United States closed the gold window and unilaterally rejected the Bretton Woods Agreements that provided that foreign central banks could exchange their dollars for gold held at the United States Treasury.

U.S. Gold Sales in 1971

The CIA notes from January to August 1971,the United States sold $864 million worth of gold in 1971 (approximately 24.68 million ounces of gold or approximately 768 metric tons prior to the closing of the gold window. Most of this gold was sold to Western European nations. As a result of these sales, United States gold reserves fell to $9.6 billion (calculated at $35 an ounce) or approximately 274 million troy ounces or approximately 8,530 metric tons.

The Unites States sold another $3 million worth of gold (approximately 85,714 ounces or approximately 2.66 metric tons) between August 15, 1971 and the end of the year, bringing the total amount of U.S. gold sold in 1971 to 24,771,428 ounces or 770 tons and U.S. gold reserves down to approximately 8,527 tons.

In 2016, U.S. official gold reserves were listed at 8133.50 metric tons.

Buyers of U.S. Gold in 1971

France made two purchases of gold from the U.S. in 1971 totaling 13,514,285 ounces or approximately 420 tons. The CIA notes that France made these purchases to pay a debt the IMF. The IMF would not accept dollars in payment because the IMF had over their 75% quota of dollars.

Switzerland and Belgium exchanged dollars for gold because according to the CIA they:

“were convinced their dollar holdings were too large.”

Switzerland purchased 5,000,000 ounces (approximately 155 tons) from the United States in 1971 while Belgium bought approximately 3,142,000 ounces (approximately 98 tons).

Other countries buying gold from the United States in 1971 included Lebanon (31.1 tons), Singapore (26.66 tons), the Netherlands (22.2 tons), Finland (17.7 tons) and Malaysia (8.9 tons).

The IMF also purchased 19.55 tons of gold from the United States in 1971. The US acted as gold broker in selling this gold to the IMF in order to allow other countries who needed to increase their gold holdings at the IMF.

South African Gold Sales in 1971

South African sold $1.3 billion worth of gold in 1971 (approximately 37.1 million ounces or approximately 1,100 tons) or $200 million more than their annual production, but $300 million less than they sold in 1970. Most of this gold the CIA notes was sold through a Swiss consortium into the free market.

The Price of Gold In 1971

The CIA noted that the free market gold price began the year below $38 an ounce and rose steadily during the year, hitting nearly $44 an ounce prior to the closing of the gold window on August 15, 1971. Gold fell about ten percent in the days after the announcement regained its upwards momentum amidst “renewed uncertainty surrounding the future of the international monetary system” and closed the year at $44 an ounce.

The CIA attributed the rise in the price of gold to “commercial demand and traditional hoarding”.

Rising gold prices helped South Africa’s trade imbalance.

Pending U.S. Legislation To Raise the Official Gold Price From $35 an ounce to $38 an Ounce

In 1934 the U.S. Congress raised the price of gold from $20.67 an ounce to $35 an ounce by passing the Gold Reserve Act of 1934. This was done after the United States,through Executive Order 6102 confiscated/nationalized the United States gold supply in April of 1933. The effect of the increase in the price of gold was to devalue the United States dollar.

The CIA noted in its report that there was pending legislation to raise the official gold price to $38.

Declining Gold Mining Out Put

The CIA memorandum notes that annual gold production declined 1-2% in 1971 and may decline further, resulting in higher gold prices and a change in gold mining production practices.

At higher prices, the CIA noted: “lower grade ore will be mined, a development that reduces current production although it increases production over the longer run by lengthening the mines’ lifespan.”

Price Outlook for 1972

The CIA projected that free market gold prices might rise 20-25% above the new proposed $38 per ounce official price – provided there were no major sales from the Soviet Union.

Return to Bretton Woods Lite?

The CIA notes as a significant development for 1972 that “”Foreign central banks are pressing for limited convertibility for new incremental dollar holdings and or some IMF transactions.”

A development that never materialized.

Next Up:The World Gold Market in 1972 and prospects for 1973

Further Reading and Listening:

THE YEAR THE UNITED STATES SOLD OVER 700 TONS OF GOLD

WHEN THE CIA SUSPECTED GOLD MARKET MANIPULATION

The CIA and Gold – You Tube Playlist

Special thanks to Vijay @vijinho and @jameshenryand of JMBullion for alerting me to these documents.

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