From the London gold pool to the Zurich gold market

The London gold pool, 1961–1968

Under the Bretton Woods system the United States undertook to convert dollars held by foreign monetary authorities into gold at 35 dollars an ounce. The private gold market in London, reopened in 1954, was not formally part of that system, but a free-market price well above 35 dollars would have signalled that the dollar was overvalued and invited central banks to convert their dollars. When the London price briefly jumped to around 40 dollars in October 1960, the leading central banks decided to act together. In November 1961 eight central banks formed the London gold pool, which sold gold from their reserves when the price threatened to rise and bought when it fell. The United States contributed half of the pool’s resources. Germany contributed eleven per cent, the United Kingdom, France and Italy nine per cent each, and Belgium, the Netherlands and Switzerland four per cent each.¹ The participation of the Swiss National Bank is another illustration of the paradox described in section I: a non-member of the Fund helped to defend the central price of the Fund’s system.

The pool worked for some years, but it depended on a balance between supply and demand that the growing American deficits and the war in Vietnam undermined. France withdrew in June 1967. After the devaluation of sterling in November 1967, private demand for gold surged, draining large quantities of reserves from the pool in the following months. On the evening of 14 March 1968 the United States asked the British government to close the London gold market. The Treasury announced that the market would be closed on Friday 15 March “at the request of the United States Government”, declaring the day a bank holiday.² At a weekend meeting in Washington on 16 and 17 March the central bank governors of the pool countries dissolved the arrangement and created a two-tier market: official transactions between central banks would continue at 35 dollars, while the private market would find its own price.³ The London market remained closed for two weeks and reopened on 1 April 1968, when a second fixing in the afternoon was introduced for the benefit of buyers in the Americas.⁴

The Zurich pool

The two weeks during which London was closed were decisive for Zurich. The three big banks, the Union Bank of Switzerland, the Swiss Bank Corporation and the Swiss Credit Bank, formed an alliance and persuaded South Africa, then the world’s largest gold producer, to sell its output directly to them.⁵ The mechanics of the arrangement were simple. The three banks quoted a coordinated bid price for their purchases. The gold that was bought into the pool was then available to each of them individually, to sell to its own customers at its own offer price. The pool thus combined a collective buying position towards the producer with competition in distribution, an arrangement that suited both the South African Reserve Bank, which marketed the country’s gold, and the three banks.

The Swiss National Bank had not originally favoured the move. The research programme of the Swiss National Science Foundation on relations between Switzerland and South Africa found that the SNB had opposed the transfer of South African gold sales from London to Zurich before 1968, fearing repercussions at home and abroad. The creation of the two-tier market changed that assessment. The Swiss banks, as Sébastien Guex and Bouda Etemad summarise, quickly took London’s place in March 1968 by creating a buying pool, and after some hesitation South Africa began to market major quantities of the metal through Zurich. The authors emphasise that personal relationships between Swiss bankers and their South African counterparts were decisive for the banks’ entry into the market.⁶ The historian Sandra Bott has examined the competition between Zurich and London for South African gold in the whole period from 1945 to 1968.⁷

A contemporary American view of the new arrangement appeared in Time in 1969. The magazine described a syndicate of Credit Suisse, the Union Bank and the Swiss Bank Corporation that had been formed about a year earlier to buy newly mined South African gold, with two aims: to establish Zurich as a challenger to London and to earn a margin on resale. According to the article, the banks sold to industrial users, hoarders and speculators only when demand was strong, so as not to depress the price. When the market weakened they bought additional gold in London, holding the free-market price at around 40 dollars an ounce. Because South Africa’s output in 1969 was worth some 560 million dollars, more than the Swiss banks could absorb, the central bank of Portugal broke ranks with the other central banks by buying South African gold at the official price.⁸ The description shows that the Zurich pool was more than a passive intermediary. For a time it acted as a price-supporting cartel in the private gold market, a role that central banks had just abandoned.

Zurich as the leading gold centre of the 1970s

In the 1970s Zurich became, by general agreement, the world’s most important market for physical gold. While South Africa continued to sell a large part of its output through the three banks, the Soviet Union, the second-largest producer, used Zurich as its principal outlet in the West. The instrument for Soviet sales was the Wozchod Handelsbank, founded in Zurich on 22 June 1966 as the first Soviet bank in Switzerland and owned by Soviet state institutions including the State Bank of the USSR and the foreign trade bank. Under its director Yuri Karnaukh, who led it from 1969 to 1974, the bank became a hub for gold sales, handling total annual sales of Soviet bullion in the order of 200 to 300 tons in cooperation with Western banks including Credit Suisse and Deutsche Bank. After trading losses became public in November 1984, the bank was liquidated in 1985.⁹ The image of Soviet gold arriving in Zurich on scheduled flights and South African gold arriving through the three big banks captures a characteristic feature of the Swiss financial centre in the Cold War: it did business with both sides and with states that much of the world was beginning to boycott.

The figures of the Swiss trade statistics illustrate the scale. Guex and Etemad report that imports of gold coins from South Africa rose from slightly over 400 million francs to more than 1.5 billion francs between 1968 and 1984. Imports of gold bars and ingots grew sharply until 1981 before stabilising at around twenty billion francs a year.¹⁰ Secondary accounts claim that at its peak the Zurich market handled a very large share of the world’s newly mined gold, sometimes put at around seventy per cent, with the Union Bank of Switzerland as the principal financial partner of the South African suppliers.¹¹ Whatever the exact share, the practical consequence was that the world price of gold in the 1970s was formed to a considerable extent in the dealing rooms of three Zurich banks, even though London kept its fixing and its role as the centre of the loco London settlement system.

The Zurich gold business had an industrial side that has outlasted the trading pool. The big banks acquired or built refineries to turn South African and Soviet bars into the smaller bars and coins that their clients wanted. Credit Suisse, for instance, acquired the Ticino refinery Valcambi, which enabled it to produce its own ingots and coins.¹² The American decision to allow private citizens to own gold again from the end of 1974 and the extreme price movements of 1979 and 1980, when gold briefly exceeded 800 dollars an ounce, brought the banks record volumes. The refining business survived the later decline of the pool. Swiss refineries today account for an estimated two-thirds or more of the world’s annual refinery output, and four large refineries, Argor-Heraeus, Valcambi, PAMP and Metalor, dominate the sector.¹³

The political context of the Zurich gold trade also changed. The gold trade with apartheid South Africa became one of the most criticised aspects of Swiss economic relations with that country, which the National Research Programme 42+ of the Swiss National Science Foundation later examined. For the historian of the Zurich financial centre, the episode shows how quickly the three big banks could act when a regulatory vacuum opened elsewhere, how closely their business was intertwined with foreign policy questions that Switzerland preferred to treat as purely commercial, and how an institutional advantage created in a fortnight in March 1968 could shape an entire industry for half a century.

Notes

1. Wikipedia, “London Gold Pool”, with table of contributions, https://en.wikipedia.org/wiki/London_Gold_Pool, citing Bordo, Monnet and Naef (2019) and the Bank for International Settlements chronology. The figure of about 40 dollars in October 1960 and the reopening of the London market in 1954 are standard in the literature but are given here without a separately opened source. ↩
2. World Gold Council, After the Gold Standard, 1931–1999, vol. III, document for 15 March 1968, https://www.gold.org/sites/default/files/documents/after-the-gold-standard/1968mar15.pdf. ↩
3. Wikipedia, “London Gold Pool”, section on the collapse, https://en.wikipedia.org/wiki/London_Gold_Pool. ↩
4. London Bullion Market Association (LBMA), “March 1968 and the London Gold Fixing”, https://www.lbma.org.uk/wonders-of-gold/items/march-1968-and-the-london-gold-fixing. ↩
5. BullionStar, “Swiss Gold Market”, Gold University, https://www.bullionstar.com/gold-university/swiss-gold-market. The article is published by a bullion dealer and gives a detailed account of the pool’s mechanics. ↩
6. Sébastien Guex and Bouda Etemad, “Economic relations between Switzerland and South Africa”, research summary within National Research Programme 42+ of the Swiss National Science Foundation, https://www.snf.ch/media/en/6SfskXAzNq6FUwz9/nfp42p_guex-e.pdf. ↩
7. Sandra Bott, “South African Gold at the Heart of the Competition between the Zurich and London Gold Markets at a Time of Global Regulation, 1945–68”, in Sandra Bott (ed.), The Global Gold Market and the International Monetary System from the late 19th Century to the Present (Palgrave Macmillan, 2013), chapter page and abstract at https://link.springer.com/chapter/10.1057/9781137306715_6. ↩
8. Time, “Money: Where the Gold Has Gone”, 1969, https://time.com/archive/6637230/money-where-the-gold-has-gone/. ↩
9. Wikipedia, “Wozchod Handelsbank”, https://en.wikipedia.org/wiki/Wozchod_Handelsbank. The article relies on contemporary reports in the Financial Times and the New York Times; see also United Press International, report of 30 November 1984 on losses at the Swiss branch of the Soviet Wozchod bank, https://www.upi.com/Archives/1984/11/30/The-Swiss-branch-of-the-Soviet-Unions-Wozchod-Bank/9185470638800/. ↩
10. Sébastien Guex and Bouda Etemad, “Economic relations between Switzerland and South Africa”, NRP 42+ research summary, https://www.snf.ch/media/en/6SfskXAzNq6FUwz9/nfp42p_guex-e.pdf. ↩
11. Wikipedia, “Zürich Gold Pool”, https://en.wikipedia.org/wiki/Z%C3%BCrich_Gold_Pool, stating that by the 1970s Zurich traded some 70 per cent of the world’s total gold production and that the pool, especially UBS, became the main financial partner of the South African suppliers after 1968. ↩
12. BullionStar, “Swiss Gold Market”, https://www.bullionstar.com/gold-university/swiss-gold-market: Credit Suisse acquired 50 per cent of Valcambi in 1967, a further 30 per cent in 1968 and the remaining 20 per cent in 1980. FundingUniverse, “History of Credit Suisse Group”, https://www.fundinguniverse.com/company-histories/credit-suisse-group-history/, on the acquisition of “the precious metals refinery Valcambi S.A., in Ticino, a manufacturer of ingots and coins”. ↩
13. BullionStar, “Swiss Gold Market”, https://www.bullionstar.com/gold-university/swiss-gold-market, which puts the Swiss share at 65–70 per cent of annual worldwide refinery output. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.