Eight Nations Secretly Pooled Gold to Defend the Dollar
In 1961, the United States and seven European allies formed the London Gold Pool to keep the market price of gold pegged at $35 per ounce. Member central banks agreed to sell their own bullion whenever global demand pushed prices up. But escalating US spending during the 1960s sparked intense speculative runs. In March 1968, after member nations burned through thousands of tons of gold in a futile defense, the pool collapsed.
The Architecture of the Thirty-Five-Dollar Peg
In July 1944, delegates from forty-four nations gathered in Bretton Woods, New Hampshire, to build a monetary framework that could prevent the competitive devaluations and trade wars that worsened the Great Depression. The resulting Bretton Woods system established the United States dollar as the anchor currency of the global economy. Member nations pegged their domestic exchange rates to the dollar, while the United States government made a formal commitment: foreign central banks and monetary authorities could exchange their dollar reserves for physical gold from the United States Treasury at the fixed price of thirty-five dollars per troy ounce.
For the system to function smoothly, the price of gold in private commercial markets needed to hover close to that official thirty-five-dollar benchmark. If the free-market price rose significantly above thirty-five dollars, a destabilizing incentive emerged. Speculators and foreign institutions would convert dollars into official bullion at thirty-five dollars an ounce and resell it in private trading centers for an immediate profit, draining American vaults in the process. In October 1960, this theoretical danger became real when heavy demand on the London bullion market pushed the private price to forty dollars an ounce, signaling deep anxiety over the dollar's future stability.
Founding the Consortium
To counter this volatility, the Kennedy administration proposed a cooperative intervention with European partners. In November 1961, eight central banks agreed to form the London Gold Pool. The group included the United States and seven Western European nations: the United Kingdom, West Germany, France, Italy, Belgium, the Netherlands, and Switzerland. Their objective was to intervene directly in the London gold market to suppress price fluctuations, ensuring the market price remained aligned with the official thirty-five-dollar Bretton Woods parity.