38. Memorandum Prepared in the Department of the Treasury0


Immediate Problem

Attached annexes1 give some background on various aspects of our gold situation. The immediate problem is that our gold outflow so far this year has reached a record total of $2.1 billion and could very well continue for some time at an average monthly rate of around $150 million. It seems very likely that the Secretary will be subjected to Congressional questioning on this subject during the next session of the Congress.

Although it is difficult to reach any clear conclusion about the extent to which our recent gold outflow may have been caused by active speculation against the dollar, there can be no doubt that this outflow has created the kind of situation in which troublesome speculation could very easily mount. Congressional questioning of the Secretary in such a situation could stimulate still further speculation.

Although the long range and medium range prospects of this problem are such that the Treasury must seriously consider all its implications and the various alternative courses of action, it would appear that the gold drain at this moment and for the immediate future is not such that immediate direct actions by the Treasury are required.

Possible Courses of Action

The material set forth below represents preliminary thinking on avenues of approach to the problem.

Two possible courses of action in this situation are as follows:


The Treasury may seek various measures with regard to the fiscal year 1960 budget which, when known to the public, would have the effect of allaying public speculation, here and abroad, about our overall economic situation. If public anticipations are sufficiently affected by such action, as announced in the President’s Budget Message and elsewhere, that part of the U.S. gold outflow attributable to active speculation by foreigners might decrease substantially.

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Regardless of whether or not Treasury action with respect to the fiscal year 1960 budget has had an effect on reducing the U.S. gold outflow by the time Secretary Anderson is called upon to testify, he may want to take the line that the outflow is a warning signal, provided by the operation of our gold bullion standard; that we must be on guard against inflationary developments in the U.S.; that for us to interfere with the outflow would deprive us of this useful warning signal; and that we, therefore, expect to address ourselves to means of averting inflation in the full expectation that success in this effort will be attended by a reduction in our gold outflow. The danger in such an approach is that foreigners may discount as relatively ineffective our attempts to control the gold outflow by a tighter domestic fiscal policy and, as a result, may be all the more tempted to withdraw gold from the U.S.

An additional possible course of Treasury action would go a step beyond that outlined in (1) above and also somewhat beyond our previous tactics on the subject. This step would be for the Secretary to find some way of making it clear to Congress—and through Congress to the public, here and abroad—that if the Treasury should at some future date feel called upon to deal directly with a gold outflow through changes in our gold policy, the one thing the Treasury would not contemplate with respect to its gold policy is any increase in its dollar price of gold or any action which would ultimately lead to that result. Even though logically this statement should allay speculation that an embargo on gold transactions is in the offing it may by itself not do so. To avert such possible speculation and the gold drain which would be caused by it, it would be essential for the Secretary to make the main theme of his testimony the point that we are not at present or in the near future confronted with a problem arising out of the gold drain requiring any action in the field of gold policy.

Under either of the above courses of action the Secretary is very likely to be asked by Congress at what point would he contemplate taking direct action to stop a continued gold outflow. We would assume that the Secretary would wish to handle such a question by indicating that there are no a priori guides for such action because any such decision must take into account not only the rate of gold outflow, the size of our gold stock, and the amount of dollar balances held by foreigners, but also the U.S. price situation and the general climate of financial opinion and anticipations here and abroad at the time. In this connection the Secretary might wish to point out that there are a number of motives, other than active speculation, which can lead foreign countries to buy gold from the U.S. and that losses of gold due to such motives might be viewed in quite a different light from losses [Page 93] due to outright speculation. (Secretary Humphrey2 refused last year, despite persistent questioning by Senator Malone,3 to give any definition of the circumstances, other than a war or general upheaval, which might lead us to change our gold policy.)

Possible Future Policy Changes

It would appear desirable for the Treasury to make a tentative determination in the near future as to which of the several possible changes in our gold policy it would be prepared to make at some future date if such changes should become necessary. One important aspect to be considered in making this determination would be the different impacts of various possible actions on U.S. public opinion as contrasted with foreign financial opinion.

  1. Source: National Archives and Records Administration, RG 56, Records of the Department of the Treasury, Robert B. Anderson, Subject Files, Gold. Unclassified. No drafter is indicated on the source text. Under Secretary of the Treasury for Monetary Affairs Julian B. Baird sent the memorandum to Secretary Anderson with a covering note dated November 4.
  2. Annex A, “Factors Affecting Foreign Gold Purchases from the United States in 1958,” with two tables, the only attached annex, is not printed.
  3. Former Secretary of the Treasury George Humphrey.
  4. Senator George W. Malone of Nevada.