A Welcome Calm

The two-tier system of gold prices last week withstood the first important test of its ability to survive.

London's gold market, hitherto responsible for 80% of the world's gold trading, reopened after a two-week shutdown aimed at stifling the gold-buying stampede that threatened the dollar. Now the question was whether the free-market price of the metal, no longer supported by the disbanded seven-nation gold pool, would climb so far above its $35-per-oz. official monetary level as to rekindle speculative frenzies.

Though some Europeans had predicted that the price might double on the free market, nothing of the kind occurred. Trading was comparatively light, and the price of gold fell from $38 per oz. at the opening to $36.70, then edged up to $37 at week's end. On the Continent, where gold brought as much as $44 per oz. at the height of the March gold rush, the price dropped last week in phase with that in London; nowhere did it vary more than 50-c- per oz. from the British quotations.

Tougher for Speculators. The welcome calm was fostered both by Viet Nam peace hopes and by the previous weekend's international agreement in Stockholm on the creation of paper gold to bolster the world's monetary system. Three new restrictions imposed by the Bank of England, which regulates British financial dealings, also made trading tougher for speculators. The bank forbade sales of gold for future delivery, barred banks or gold dealers from lending foreign currency to nonresidents to finance gold buying, and even prohibited them from accepting gold as collateral for loans in foreign monies. For their part, London's five bullion dealers raised their commissions from 1-c- per oz. of gold traded (charged to both buyers and sellers) to 10-c- per oz. (charged only to buyers). The change is intended to induce South Africa the world's leading gold producer, to continue to sell through London.

Even if the South Africans do so, Swiss bankers last week insisted that they can challenge London's long supremacy in the market. Their customers siphoned off some $2 billion worth of gold from London between the mid-November devaluation of the pound and the mid-March closing of the gold pool, when the U.S. and six other countries stopped selling gold to the private market. That huge supply, equal to about two years' South African output, must remain the key source of bullion for free-gold trading for some time.

Swiss Pool. The three largest Swiss banks--Credit Suisse, Union Bank of Switzerland and Swiss Bank Corp.--have formed a joint gold pool to share purchases, sales and profits. In place of the London dealers' twice-daily meetings (10:30 a.m. and 3 p.m.) to fix the price of gold, the Swiss-bank traders confer about prices every few minutes throughout the day over direct phone lines. Instead of collecting a commission, the Swiss charge buyers of gold more than they pay sellers. That "spread" started out as high as $3 per oz. in the first days after the London gold pool's demise; last week it narrowed to 25-c- per oz.--a competitive move that helped Zurich gold sales to reach 65 tons, v. 40 tons in London.

The new rivals even went so far as to test the strength of London gold supplies directly. Convinced one day that the London dealers had fixed their price too low, the Swiss banks ordered 21 tons of bullion, found London able to supply only 60% of the order.

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