London is the world's great primary gold market, and the bulk of the raw gold mined in South Africa and Australia goes direct to that center to be sold at the best price available. Practically all the leading commercial countries, except the United States, which is an important gold producer, must look to the London market for fresh supplies of gold. Every Monday morning there is a public auction of the new gold, and bullion brokers, representing foreign and local banks, meet to buy and sell bullion. The Bank of England is required by law to buy all the gold offered to it at the rate of 77s 9d per ounce and this fixes the minimum price. How far the actual selling price will go above this minimum will depend upon the needs of the various banks bidding for the gold.

The primary distribution of gold to the various foreign centers needing it, through the weekly auction in London, is, however, only temporary. Berlin may bid high enough to get most of the gold arriving in London in any one week, but within a short time the shifting of exchange may cause Berlin to lose it to London or Paris. A continuous movement is going on along the lines of favorable exchange. In general, gold goes out when exchange is high, and comes in when exchange is low.

1 For a full discussion see Escher: Elements of Foreign Exchange, Ch. III.

London is often referred to as a "free" gold market. It is free in the sense that the auctions of new gold are open to all reliable bidders, but the conditions are such that the Bank of England can generally outbid all others if it needs the gold. It also regulates the export of gold by raising its discount rate. In Germany the Imperial Bank resorts to a somewhat similar method to protect her gold supply, and in France the Bank of Prance protects the gold reserve by paying its notes in silver instead of gold, or by charging a premium for gold.

The only actual free gold market in the world is tin; United States, where anybody who wants gold can get it at the nearest sub-treasury. In the past this has been the only important country in the world that lacked the banking machinery necessary to control international gold movements by changes in the discount rate or otherwise. Under our decentralized and independent system of banks it has been impossible to secure that unity of policy in matters affecting international exchange which European countries exercise through their central banks. It is believed, however, that the Federal reserve system will provide a centralized, cooperative agency with the power and the responsibility of regulating the export and the import of gold.