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The Day the World Changed


The Impact 14 March 1968 had on Money,
Gold & Mining Shares
Part 1

Mark J. Lundeen
mlundeen2@comcast.net

14 February 2006

Part 1 of this article will examine the significance of the London


Gold Pool and the global monetary regime from the Bretton Wood's
Accords, to the present time. It also examines the shallowness of
the digital financial archives. In the age of information, investors,
economists and makers of "policy," may not have the necessary
information to properly examine our current age of inflation.

Part 2 of this article will examine the effects of monetary inflation on


the seven decades of recorded price history found in the Barron's
Gold Mining Index (BGMI). Gold mining shares have proven to be a
powerful indicator of future financial trends that everyone with
money in the markets should be aware of.

Part 1
The current bull markets in precious metals and the companies that mine and
explore them have their foundations laid in 1944. In 1944 the Bretton Woods
international monetary conference was convened and then submitted its
recommendations to the world for approval. In 1945 this conference's
recommendations were ratified and signed into law by the United States and
adopted by the United Nations.
The Bretton Woods Accords (BWA) created a workable post war monetary
regime. However the world's central banks and national governments refused to
submit to the monetary restraints provided by this conference. The results, a bull
market of historic proportions for precious metals in the early 21st century. The
world is about to abandon the US dollar, just as the United States abandoned the
Bretton Woods Accords fifty years earlier.
On the evening of 14 March 1968 the following press release was issued from
Buckingham Palace, United Kingdom.
The London Gold Market will be closed today, Friday, March 15. This is at
the request of the United States Government.
At a meeting of the Privy Council held this morning at Buckingham Palace,
Her Majesty the Queen approved a proclamation appointing Friday, 15th
March, to be observed as a Bank Holiday throughout the United Kingdom.

1
The banks are, however, being asked to provide their domestic customers
with normal cash requirements in sterling.
The authorities are requesting that the stock exchanges also be closed.
-End-
What happened? Why did the government of the United Kingdom, upon the
request of the United States, find it necessary to have a Bank holiday, and
suspend the trading of its stock and gold markets for an unspecified period of
time? Why did the United States feel it necessary to make this request?
There is much not said in this press release from Buckingham Palace. To fully
comprehend the great importance of this momentous event of monetary history, I
must first give a brief history of money from 1944 to 14 March 1968.
When this press release was issued, the United States by international treaty,
had promised to pay one ounce of US Treasury Gold for every $35 paper US
dollars presented to the US Treasury by foreign central banks.
In 1944, the post war monetary regime was created at an international
conference convened in New Hampshire, USA. The recommendations of this
conference were called The Bretton Woods Accords. The BWA was submitted to,
then ratified by the United States Senate and then signed into law by the
President. The $35 paper US dollars to one ounce of US treasury gold, was a
statutory requirement pending upon the United States Government after the
Bretton Woods Accords was signed into law.
With the enactment of the BWA, several things happened. The World Bank and
the International Monetary Fund were created to safeguard the post war
international monetary system. Gold was to play an instrumental part in the post
war monetary system, but in a manner only bureaucrats and members of
academia could conceive of. Gold would no longer function as money for
international payments. Rather, the US dollar was to function as money for
international payments, with non monetized gold backing the US dollar.
So, the BWA did not revive the classical "Gold Standard" of the pre August 1914
era. The classical gold standard held that gold was money and nothing else was
money. Paper money in a gold standard is only a callable debt, payable in gold
upon demand, by its issuer to any holder of the paper note. The classical gold
standard, by intent, made inflation with paper currency impossible. This
was not so with the BWA. The Bretton Wood's Accords had a loop hole, I
believe by intent, big enough for an ocean of liquidity to flow through. And
soon, it did.
The BWA made the US dollar the "world's reserve currency", and nothing
else was. This made the US dollar function as gold once did in the
settlements of international payments between national central banks. This
feature of the BWA officially excluded gold from serving as a medium of
international payment. This is true to the present day. To reassure the
international community that the United States would not issue excessive
paper dollars, the dollar was fixed to the price of gold at a ratio of $35
paper dollars for each ounce of US gold held in the bullion reserves of the
United States.

2
This important clause in the BWA was intended to guarantee the honesty of the
issuer of the new "world reserve currency" - the United States and its paper US
dollar. Whenever paper money replaces gold money for payments, honesty is
always the primary issue. When physical gold is used in payments, no one is
allowed to buy more than they have in gold to spend. Gold plays no favorites no
matter who you are.
In a gold standard, when your gold is gone, you must stop your spending and go
back to work to earn more gold. When paper replaces gold for payment, this is
true for everyone, but those people who control of the monetary printing presses.
The only check on the spending of those who control the monetary printing press
is self control. History has proven that self control, when it comes to paper
money, is a much rarer commodity than gold.
In 1945, the government of the United States promised not to print more units of
the world's reserve currency (the US dollar) than it had in gold to back those
paper dollars. This was the critical check against US dollar inflation. In 1945, the
quantity of paper dollars in circulation roughly matched the quantity of
gold dollars held in the US gold reserves. This was not to be so for long.

The above press release issued from Buckingham Palace, marks the point in
time when the British government would no longer assist the United States in
maintaining the fiction of the $35 paper US dollars for an ounce of US gold held
in reserve. Her Majesty's government since 1960 had assisted the United
States Government in a fraud. For the past eight years the UK had redeemed
its own gold to honor American gold obligations. On 14 March 1968, the United
Kingdom had decided that enough was enough, and withdrew from the London
Gold Pool.
Looking at my above chart, we can see the fraud in hard data. By 14 March
1968, the United States had issued 3.97 paper dollars into circulation for every

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one dollar in gold it possessed in its reserves. This was clearly a violation to the
letter and spirit of the Bretton Woods Accords.
In 1968, inflation was defined as an increase in the total stock of money in
circulation; rising prices were understood as the effects of this inflation in the
paper money supply. This concept of gauging monetary inflation in terms of the
inflation's effects on prices was conceived by those who wished to confound the
understanding of the public of what the "policy makers" were doing to their paper
US dollars.
If inflation is understood as an increase in the total supply of money in circulation,
then the effects of inflation would be rightfully placed upon the shoulders of the
monetary "policy makers." However, by changing the definition of inflation to its
effects upon prices, the "policy makers" could now blame union wage hikes,
OPEC, or the corner drug store's greed in rising prices. Shame on Academia for
assisting in this fraud called the Consumer Price Index (CPI). History will record
that CPI measured inflation was a fraud upon the paper US dollar in both its
conception and execution.
Few people understand this in 2006, but enough did in 1960. The word was
getting out. The United States was issuing currency in excess to its gold
reserves. With the mathematical certainty of the law of supply and demand, as
the United States increased its issuance of paper US dollars into circulation, all
existing paper US dollars would lose value over time. Prices were going to rise
because of this. The prudent in the early 1960s understood that the dollar was
still a valuable asset, but the decision of the United States to inflate the reserve
currency would make their paper US dollars a wasting asset in the years to
come.
It was not done in secret; one only had to subscribe to Barron's to get this
information. A run on the US gold supply was on. Paper US dollars were
presented to the US Treasury and their owners demanded that the United States
fulfill its legal obligations of surrendering one ounce of US gold for $35 US paper
dollars. This run on the US gold reserves would continue until August 1971.
The United States itself soon refused to redeem its own paper money for its gold
reserves. On 15 August 1971 "Nixon Closed the Gold Window." Secretary of the
Treasury; John Connally told the world: "the dollar may be our currency but it is
your problem." Had President Nixon not done so, the United States would have
lost all of its gold.

4
President Nixon is blamed for the collapse of the Bretton Woods Monetary
Accords, but as you can see in the above table, much damage was done before
he came to office in 1969. His closing of the US gold window was the predictable
end of a long chain of mendacity and machinations by central banks and
governments internationally. But remember, the dollar is the American dollar.
Gold prices today would still be at $35 an ounce had the United States
Government restricted its issue of paper dollars "Currency in Circulation" (CinC)
to the limits of its gold reserves. They did not as we can see below. This chart
explains why inflation is currently defined by its effects rather than its root cause.

The above chart was constructed using the same data series of dollars paper
and dollars gold we saw in the first chart, but brought up to date for February
2006. This amazing inflation of CinC will prove to be problematic for the future
value of the US dollar. The US dollar is still the world's "reserve currency" but for
how much longer? With the certainty of thousands of years of history supporting
me, I can say that only gold and silver can be trusted as a form of money that will
keep its value over time. I will show in part 2 of this article that wealth is walking
rather briskly towards the dollar exits.
President Kennedy allowed the United States to conduct its "monetary policy"
outside the frame work of the Bretton Wood's Accords. This conduct was in
contempt of the laws of the United States and a legally binding, ratified
international treaty. It would be accurate to state that since the Administration of
President Kennedy, global monetary policy has been one of no monetary policy.
If the modern monetary standard is the dollar standard, whose value is secured
only by the ever growing supply of US Treasury Debt, then the current monetary
standard is one of endorsing monetary inflation with no limits. This is no
monetary policy, but it is an accurate description of the current state of affairs
with the US dollar.

5
As the United States has a two year election cycle where its citizens get to vote
for those politicians who promise the most for their votes, an inflationary dollar
policy will remain an entrenched fixture until economic catastrophe strikes.
This flood of paper US dollars into the economy has to have its impact felt
somewhere. So for decades, the "policy" formulated by the Wall Street /
Washington Axis was to attempt to funnel the inflationary price effects into
financial assets, while stemming the effects of inflation away from cost of living
items. This is why for decades, housing values and stock prices have gone up
while oil and basic commodities have trended down or remained steady. I am
sure that much downward pressure was also applied to gold and silver prices.
Seeing precious metals increasing their valuations is always the big bug-a-boo of
any inflationist.
Today, prices are only the effects of "policy," dictated by entrenched "policy
makers" who have deemed it necessary and appropriate for "sustained growth."
Their motives are as many as there are "policy makers": favorable public opinion
polls, utopian visions of social justice, or the size of their year end bonuses are
all factors in this inflationary "monetary policy."
Today, one seldom hears the old axiom from the early age of computing, where it
was said that "dirt and water in, equals mud out," but this is a valid concept. I
have come to the conclusion that currently all too many "policy" decisions are
made constructed from bricks of mud.
Type in the words "London Gold Pool" to Yahoo or Google and one receives a
massive amount of information. In writing this article I used the internet search
engines at least a dozen times to verify names and dates. In the comfort of my
home, I found facts that years ago would have cost me money for parking to
spend a day of my time at a research library. Not any more. Today, what can be
found with a computer on the internet is simply amazing!
What concerns me about the internet is not what can be found using a computer,
but what cannot be found. The data in a digital format, used in my first two charts
was something I could not find on the internet. I've spent considerable amounts
of time looking for these, and other historical series on the internet, as well as
making phone calls to sources. I could not find this information in a digital format.
I don't believe this data is available in the digital public domain.
To obtain data on the US gold reserves and CinC, I personally had to pay quite a
bit for parking and spend many more hours than I care to remember. Entering
numbers from old issues of Barron's into a spread sheet is a tedious task. As a
consumer of financial and economic research, it seems obvious to me that
financial authors seldom use the historical data series published decades ago in
Barron's. Petty costs and tedium have raised a wall between this data and the
computer. I believe that this is why all too few in finance and economics are
aware of this rich source of information.
I would be pleasantly surprised if I were wrong, but I suspect that most college
professors teaching Economics 101 have neither seen these two charts, or have
the means to construct them. Without this data, what is the point of teaching
Bretton Woods or Nixon's closing the gold window? This expansion of CinC and

6
its effects upon the US dollar were major news stories in Barron's all during the
1950s - 1970s.
The fact is, college professors don't spend much time at all on the origins and
consequences of past inflationary eras. The Failure of Bretton Woods occurred in
the life time of many senior economists. These economists remember what a
home, a hamburger and their college tuition cost them in 1971, and what
students are paying now. What a difference 35 years has made!
It seems to me that current ECON 101 as taught today is only an explanation of
how the current "policy makers" manage our current inflationary age. Any
reference to the time before inflation became a permanent and accepted fixture
in our world rates only a dismissive comment in main stream academia.
With the computer, the world now has fantastic access to information. But the
computer has brought with it censorship of information more effectively than a
totalitarian dictator could ever achieve.
The August 1981 introduction of IBM's Personal Computer (PC) has had
tremendous effects upon the financial industry and schools of economics.
However, the PC has proved to be the bane to the larger body of financial and
economic knowledge that existed previous to 1981.
The digital format of the PC has effectively eliminated an enormous body of
source material for economic research. Decades long, statistical data series
recorded on paper with ink is not the preferred medium in the digital age. Go to
any college and clearly students generally use computers for research, not old
reference books. The compiling of old economic data series from decades ago is
not considered material to complete a course objective in economics. The digital
archives are a wide but shallow pool that does not contain the great body of
information that existed previous to 1981.
Today, what rests undisturbed on book shelves, just feet away from busy
students gazing at their computers, is as far away from these undergraduates,
(and I suspect their professors) as the American continents were to Europeans
before 1492. Until someone makes the effort to digitalize these decades old data
series, this is how it will remain.
Because the digital age was born concurrently with the great American bull
market in stocks, our information age is an epoch of ignorance of past bear
markets. In front of a CNBC camera, it is not hard to be bullish on high tech
stocks and bearish on gold and silver when your digital data sets begin in the
1980's!
To prove my point, lets look at the below chart of the Barron's Gold Mining Index
and the much more modern XAU.

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Most professional opinions on the gold mining industry are based upon the XAU
options index. However, the Philadelphia Stock Exchange did not trade options
on the XAU until 19 December 1983. This means that most opinions on gold
mining are based upon information whose genesis occurred a full three years
after the October 1980 top in the gold mining shares.
A strategic, long term understanding of the gold mining industry is not possible
using the XAU data series. The impact of wars, social unrest and monetary treaty
abrogation are not contained within the XAU's record. The current public
information on the gold mining industry is tightly contained within the digital
information bubble. It is time to add five more decades to the digital record.

Mark J. Lundeen
mlundeen2@comcast.net
The Day the World Changed
The Impact 14 March 1968 had on Money,
Gold & Mining Shares
Part 2

Mark J. Lundeen
mlundeen2@comcast.net

21 February 2006

Part 1 of this article will examine the significance of the London


Gold Pool and the global monetary regime from the Bretton Wood's
Accords, to the present time. It also examines the shallowness of
the digital financial archives. In the age of information, investors,

8
economists and makers of "policy," may not have the necessary
information to properly examine our current age of inflation.

Part 2 of this article will examine the effects of monetary inflation on


the seven decades of recorded price history found in the Barron's
Gold Mining Index (BGMI). Gold mining shares have proven to be a
powerful indicator of future financial trends that everyone with
money in the markets should be aware of.

Part 3 of this article will further examine the seven decades of the Barron's Gold
Mining Index using a charting technique I call The Bear's Eye View (BEV Chart).
Using this technique I will prove my thesis that since 1938, US monetary inflation
alone has driven gold mining shares to their price extremes, both up and down.
Part 2
The Barron's Gold Mining Index (BGMI) is a weekly data series that spans seven
decades from 1939 to the present date. Upon careful examination of this record,
the reaction of gold mining shares to war, political chaos, and currency inflation is
quite different from what current expectations would have us believe.
This should not be surprising. Currently the widely followed XAU data set is the
source data for most professional opinion on the gold mining industry. However,
the XAU was first traded on 19 December 1983. This was three years after the
October 1980 bull market top in the gold mining shares. So it is fair to say that
the XAU is primarily a partial record of the post 1980 - 2001 gold share bear
market.
The XAU is a modern index of gold mining shares that includes volume and open
interest data. But like so much of today's digital data, it is confined within the
digital data bubble I noted in Part 1 of this article. To my knowledge, only the
BGMI records seven decades of history for the gold mining shares.
An interesting point to know about the Barron's Gold Stock Index is that it is the
sole survivor, an antique remnant of the now long forgotten Barron's Stock
Averages. Barron's published for 50 years (1939 to 1988), stock averages for
over 20 industrial sectors. They provide a unique piece of history of the American
stock market from a time when vacuum tubes were high tech to the era of
computer microprocessors.
Except for their Barron's Gold Stock Average, now called The Barron's Gold
Mining Index (BGMI), Barron's discontinued their Barron's Stock Averages in
October 1988. The BGMI has been continuously published since before Hitler
invaded Poland in 1939. The 67 years of data contained in the BGMI data set is
the definitive source of information on gold mining shares price action under all
economic circumstances.
Sorry to say that Barron's allowed five decades of their publication's recorded
history for oil, textiles, steel, auto manufacturing and many other industries to
fade into oblivion. Likewise, Dow Jones discontinued their excellent 20 Bond
Average data just a few years ago. The DJ 20 Bond Average was an important
historical bond data series for utility and industrial bonds that spanned 64 years
from 1938 to 2002.

9
I believe these venerable, decades old market metrics based upon arithmetic
averages were casualties of the digital information revolution. They must have
seemed quaint to the vast majority of market watchers. These old "averages"
were based upon a 19th century method of using a simple average on share or
bond prices to compute market measurements. Indexing market capitalization is
the modern digital method, and I think a superior method. The new indexed
measurements also come with open interest and volume figures, none of the
antique averages did.
Most likely, the Barron's Stock Averages and the Dow Jones 20 Bond Averages
lost their following long before Barron's and Dow Jones pulled the plug on
Grandpa. But pull the plug they did and 50 years of market history was cast aside
and forgotten.
The survival of the old Barron's Gold Stock Average, the current Barron's Gold
Mining Index, says something of the attachment gold once had on people, such
as the past editors of Barron's. The demise of the Barron's Stock Averages and
the Dow Jones 20 Bond Averages also says something about Barron's and Dow
Jones too. Both publications are authoritative publications of record for financial
statistics. I wish they would be more respectful of their decades long, and
quaintly antiquated historic data series.
I would not be surprised to learn that currently only a hand full of people have
been seriously tracking the BGMI for the past few years. I may be the first person
to have made the effort in compiling the BGMI into a digital format. I hope this
article attracts the serious attention that the BGMI rightfully deserves. To do this,
the BGMI needs to be passed around.
As a service to the readers of this article, I am providing a link to Mr. Nick Laird's
Sharelynx webpage. Mr. Laird has many of the historical data series I have
compiled, including the BGMI. People interested in gaining access to this body of
historical weekly closing price data should go to the below webpage. For a very
reasonable fee, MR. Laird will sell you data.
Sharelynx's data page
www.sharelynx.com/chartstemp/FreeCharts.php
Along with the above data on your computer, you will also need a reasonably
priced subscription to Barron's. Investing is like following a soap opera; you need
to watch each episode or the ever changing plot will leave you behind. Barron's
will provide you with current weekly data needed to maintain your weekly data
set. With all this, you can follow the markets like a serious student.
Barron's subscriptions
https://services.wsj.com/Gryphon/jsp/retentionController.jsp?page=1012
The amazing statistical tables published each week in Barron's have been a
wonderful resource of hard statistical data for serious investors since 1921.
Barron's will mail its publication overseas to Asia, Europe and anywhere else. It
is also available online on a subscription basis. Personally, I could not function
without it.
I want to say that I have not in the past, do not now, or have any expectations
that in the future I will be receiving financial payments from Mr. Laird, or Barron's
for any reason. Maintaining historical financial data is my hobby - providing a

10
webpage for data hounds is a hobby for MR. Laird. Barron's doesn't even know I
exist. No one is getting rich making this offer, except maybe you.
Now back to the Barron's Gold Mining Index.
The next chart is a comparison between the BGMI and XAU. This is a chart
containing every data point Barron's has published on these two series from their
first weekly published figures to the present. For your information, the XAU
traded for about a year before being included as a statistic published in Barron's.
So the XAU as seen below is actually four years from the BGMI top of October
1980. As a record of the gold mining industry over time, we can see that the
BGMI is far superior to the XAU.

The BGMI appears to have been in a persistent vegetative state from 1939 to
1963. As we will see below, hidden within this period (1939 - 63) is a record of
great importance for insight on the US Dollar, gold and gold mining shares.
Why does this chart take on this appearance? It is solely due to the effects of
monetary inflation on the paper US dollar's value. Most market measurements
valued in dollars, that spans this same period, have this appearance. The Dow
Jones Industrial Average looks very similar. This annoying effect of inflation,
makes analyzing one decade of a market to another very difficult. Inflation's
distortion to price valuations is another reason why historical data is not fully
appreciated. As we can see in charting the 67 years of the BGMI, the first three
decades contain no information in this chart. We really only see half of the whole
picture.
The Federal Reserve's chronic increases in the total volume of the reserve
currency it manages, creates a base line shift in the fundamental values of the
American market's measurements over the decades. This gradual increase in the
basic stock of money (CinC), has over time created distortions in relative price
values from one decade to the next.

11
The first value listed for the BGMI was 48.75 in the 26-December-1938 issue of
Barron's. I will assume 750 as an average value for the BGMI from 1978 to
present.

A 10% swing in the 1939 value of 48.75 produces a 4.87 point change. A 10%
swing in my assumed 1978 to 2006 average of 750 produces a 75 point change.
Both numbers are based upon a 10% swing in the BGMI. But the results of my
assumed value is almost twice that of the total value of the 1939 listing of the
BGMI.
Monetary inflation is why these decade long charts have assumed this
appearance over time, just as monetary inflation has caused a huge loss in value
of the paper US dollar over time.
Let us look at the BGMI from 1939 to the end of 1968, a span of time that
includes the operation of the London Gold Pool (1960 to 14-March-1968). I have
also included the plot for US Currency in Circulation (CinC), indexed to 1.00 =
26-Dec-1938. We can now easily see how many times the volume of paper US
dollars in circulation increased over this same period.

12
Remember this chart the next time a financial expert expresses his opinion that
gold mining shares are sensitive to massive inflation, wars and political upheaval.
Consider the following facts.
The darkest hours of World War II, for Britain and the United States (where these
shares were traded), occurred from the very start of this chart until 24 June 1942.
This period corresponds with Hitler's obvious preparations to invade Poland to
his actual invasion of the Soviet Union, 3.5 years later in June 1942.
In this 3.5 year period, the world's political structure and economy was torn apart,
while the US CinC doubled. Here is actual global chaos and massive inflation -
yet the BGMI declined in value by more than -60%! This is not my opinion but an
indisputable fact recorded in the BGMI.
After June 1942, the issue of war turned favorable for the Allies, but CinC
inflation roared ahead. Still, the BGMI would not return to its December 1938
high until 1961. That was over twenty years after 1938.
We don't see the BGMI doing anything significant after World War II until 1961.
During the 1950s, some Americans were building bomb shelters to prepare for
the coming Soviet "atomic" attacks, and air raid sirens were installed in every
major US city. The BGMI did not respond to this fear; however the Dow Jones
Industrials were having a very nice bull market all during the 1950s. Current
market logic expressed in the financial media would have these trends of the
1950s reversed.
CinC fell slightly between the inter-war period of December 1945 to June 1950.
After the start of the Korean War in June 1950, CinC slowly started to pick up
again. Let's blame this slight inflation on the Korean War. Here is a second
shooting war with more inflationary acceleration of CinC. Again, here was
another shooting war that had no discernable effect on the BGMI in the above
chart.

13
Everything changes with the Kennedy / Johnson presidencies. After the start of
President Kennedy's term of office, two things happened that the BGMI was very
sensitive to.

1. CinC continued to noticeably increased, however now the US gold reserves


noticeably decreased.

2. The London Gold Pool was formed.

The BGMI started to increase in value as the paper US dollars increased in


numbers, and gold US dollar left the United States.
The world saw the creation of the London Gold Pool as the US Government's
rejection of the Bretton Woods Monetary Accords (BWA). Printing more paper
US dollars than there were US gold dollars to back them would, by the laws of
supply and demand cause the price of gold to rise upwards in price from the
official BWA's price of $35 an ounce.
The London Gold Pool's purpose was to pool the resources of US friendly central
banks. Any time more buyers came into the London Gold Market than there were
sellers, the pool would punish anyone who dared to purchase gold at a price
above the official $35 dollars an ounce. Such purchasers would soon find that
they would be met with massive selling of central bank gold. The London Gold
Pool intended that over $35 an ounce gold purchases would be a losing
proposition.
From the first day of The Pool's operations, the world of money knew that the
United States no longer intended to honor the Bretton Wood's Accords. For
reasons good or bad, printing paper US dollars in excess of its gold reserves was
now the monetary policy of the United States. The world of money being realistic
about such things, understood that the US would never again return to a limited
paper currency.
The paper US dollar became a wasting asset. To see the truth of this, one only
has to go to a library that offers news papers of the 1950-60s and compare the
advertised prices then and what we pay for similar items today.
No doubt this increase in the BGMI was primarily from US investor demand. This
was a time when American citizens needed a license to hold gold or face
imprisonment, stiff financial penalties, or both. From 1933 to 1974, the shares in
gold mining companies proved to be an effective American proxy for gold itself.
Note on the table below. I chose not to use the highest prices for gold and the
BGMI of 1980. As 1980 was a period of extreme volatility in both gold and the
gold stocks, it is pointless to pick a typical price. From the first week in January
1980, (the basis date for the values I used in my below table) gold was to rise
$220 dollars in the next two weeks, and then fall $180 in the week after that. As
$800 gold was but a fleeting moment in 1980, I thought it appropriate to use a 20
year period from the first week in 1960 to the first week in 1980 in the table
below.

14
The BGMI record clearly shows that as long as the US could inflate CinC without
having a corresponding decrease in the US Gold Reserves (1945-58), the BGMI
was indifferent to CinC inflation. However, when the inflation in CinC finally
resulted in calls from foreign central banks upon the US gold reserves (1958 to
1968), the BGMI entered a significant bull market.
It is most important to know that this 1968 BGMI bull market's top occurred less
than a week before the Bank of England's announcement of its withdrawal from
the London Gold Pool on 14 March 1968. The day the Bank of England withdrew
from the London Gold Pool, was the day world changed. The following two charts
are important in understanding the bullish price action of the gold shares in the
1960s.

Who today is aware that the 1960s was a golden decade for the gold mining
shares? Gold stock investors from 1960 to 1968 saw gains of over 1,200% in
eight years while gold itself was kept at $35 an ounce for the entire period!
Another important point for gold shares in the 1960's, is that after the closing of
the London Gold Pool, gold was allowed to be traded freely for prices over $35
dollars an ounce. The increase in gold prices triggered a BGMI crash of minus
60% over the next two years.
This seems confusing, but there is logic to it. I promise, by the end of this article
all will be explained and understood.
The next chart is a side by side comparison of the US gold reserves with the
BGMI from December 1938 to January 1970. The two vertical dashed lines mark

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the start of the run on US gold and the withdrawal of the Bank of England from
the London Gold Pool. There can be no doubt why the 1958-68 BGMI bull market
occurred. It was the gold share's reaction to the run on US gold and the
existence of the London Gold Pool.

Please note that the Vietnam War was concurrent with, but not a factor of this
bull market in the BGMI. As in the case with World War II, the Korean War, and
the Cold War that created constant US domestic fears of Soviet atomic attack
upon the civilian population of the United States, the Vietnam War was an
incidental non-factor to the BGMI price action from 1960 to 1973. (See the below
chart)

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As you can see above, the 1960's BGMI bull market coincided with the London
Gold Pool, * not * the Vietnam War. Without a doubt, for the first three decades
in the history of the BGMI, (1939-68) a period that involved the US in World War
II, The Korean War, the Cold War and The Vietnam War, the BGMI's primary
trend was completely indifferent to American's involvement in armed conflict.
If foreign armed conflicts produced no reaction to the BGMI, what about
American domestic upheavals? The 1960's racial problems occurred during the
1958 to March 1968 BGMI bull market, however Martin Luther King was
assassinated on 04-April-1968, three weeks after the closing of the London Gold
Pool. The BGMI was to crash by -60% in the next two years as the radical "Black
Power" movement grew in influence.
The anti-war riots and political upheavals peaked in the United States, and
elsewhere, after the closing of the Gold Pool and the market top in the BGMI.
The BGMI collapsed 60% during the anti-war chaos of the next two years. In light
of this data, on what basis can anyone claim that the gold mining shares are
sensitive to war, social unrest, or persistent American public fears of sudden
death from domestic or international terror?
The XAU is silent upon these years. One must wait some time before the digital
XAU will be traded.
Considering the gold mining shares market of today, and seeing that the start of
the current bull run of the BGMI closely matches that of the September 11, 2001
(9/11) World Trade Center Terror Attack, can we assume that the US's
involvement in Iraq is somehow buttressing the BGMI extremely strong
performance since 9/11? Many experts' considered opinion may say that this is
so, but to assume this one must be unaware of the 67 years of BGMI history.
The Iraqi conflict is into its third year of combat operations. Of the four major
wars the US has been involved in since 1939, the Iraqi conflict has seen the
fewest human causalities to US troops abroad. To date, there have been

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negligible consequences on the home front when compared to the other three
major wars. World War II and Vietnam were traumatic events to the American
public. The Iraqi War, up to this point in time, has not been.
By the end of the current bull market in the BGMI, it will be very clear that the
factor supporting its bullish primary trend will be monetary inflation and nothing
else.

Mark J. Lundeen
mlundeen2@comcast.net

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