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The collapse of the London Gold Pool in 1968 was a pivotal moment in financial history, marking the end of coordinated efforts by central banks to maintain a fixed gold price. With recent reports of rapid gold outflows from London to New York, logistical bottlenecks, and economic uncertainty, it is worth examining whether the conditions exist for another gold market disruption comparable to the 1968 collapse.
The London Gold Pool, established in 1961, was a coordinated effort among eight Western nations to maintain the gold price at $35 per ounce by selling gold reserves into the market. The strategy relied on preventing investors from fleeing to gold as a haven. However, increasing demand for gold and declining confidence in the Bretton Woods system led to unsustainable pressure. France, under Charles de Gaulle, withdrew from the pool in 1968, refusing to deplete its reserves to prop up the system. This withdrawal triggered the collapse of the Pool, leading to a 13-year gold bull market where gold prices rose by over 2,500%.
Recent market dynamics, particularly the significant outflows of gold from London vaults, evoke striking similarities to the conditions that preceded the collapse of the London Gold Pool. Since January 2025, over 20 million troy ounces of gold, valued at approximately $60 billion, have been transferred from London to New York’s Comex exchange, marking the largest outflow since 2012. This trend mirrors the events of 1968 when countries like France demanded gold in exchange for US dollars, indicating a modern-day preference for physical gold over paper assets.
Compounding this situation is the speculation surrounding US trade policies, particularly the potential for tariffs on gold stemming from Donald Trump’s economic initiatives. This has created an arbitrage opportunity between London and New York, leading to physical market distortions. Traders are buying gold at lower prices in London and selling futures contracts in New York, a behavior reminiscent of previous government interventions in the gold market.
Moreover, logistical constraints are becoming evident as the Bank of England's vault staff find themselves overwhelmed with the surge in withdrawals. This situation echoes the struggles faced by the gold pool members in the 1960s to meet the rising demand. To accommodate US Comex contract requirements, gold is being recast in Swiss refineries, akin to the global logistics realignments that played a role in the downfall of the London Gold Pool.
Additionally, central bank demand, particularly from nations such as China, Russia, and those in the Middle East, is rising as these countries look to increase their gold reserves to hedge against the dominance of the US dollar. If this trend continues, Western reserves, especially those held by the Bank of England and the New York Federal Reserve, could face significant depletion, reminiscent of the depletion that ultimately contributed to the failure of the London Gold Pool..
In today's gold market, which operates under a floating price system rather than a fixed exchange regime, several factors could potentially trigger a crisis. Firstly, if gold reserves continue to deplete at a faster rate than anticipated, London may face shortages, complicating the ability to meet further withdrawals. Additionally, the imposition of tariffs or financial sanctions could significantly disrupt gold flows; if US policies create restrictions or uncertainty, it could lead to a loss of faith among investors in Western gold reserves.
Furthermore, a dramatic shift in reserve policies by major central banks, particularly if countries like China aggressively transfer their holdings from US dollars to gold, could result in a surge in demand that surpasses sustainable levels. Lastly, if market confidence in the US dollar begins to weaken, echoing sentiments from the 1960s, a rise in inflation and increasing debt concerns could lead to an overwhelming demand for gold, posing challenges that central banks may struggle to address.
While a direct recreation of the London Gold Pool collapse is unlikely due to differences in monetary systems today, the fundamental pressure, physical gold shortages, central bank hoarding, and geopolitical shifts are similar. If current trends continue or intensify, another major disruption in the gold market, akin to 1968, could unfold, triggering a sustained bull market and further erosion of confidence in fiat currencies.