Indirect Gold Shipments
Indirect Gold Shipments

Indirect Gold Shipments

It was also not uncommon for bankers to purchase gold in one market to satisfy their obligations in another.

Indirect Gold Shipments - Beside the "direct" gold exports and imports described above, there is still another kind of gold movement which, for lack of a better term, may be styled "indirect." Reference is made to the kind of operation which takes place, for instance, when New York ships gold to Paris, has the resulting balance transferred from Paris to London, and then draws and sells drafts on London. Another kind of indirect operation is where some market like London, for example, owing large amounts in South America and happening to have large balances in New York, arranges to have payment made direct from New York in the form of gold.
The above must suggest that the form and variety of these "indirect" operations in gold are almost unlimited. New York may send gold to Japan at the solicitation of London, or London may send gold to South America at the solicitation of Paris - any market, in fact, may send gold anywhere because directed to do so by some other market. It is a cold matter of rates of exchange and of the cheapest way of making the remittance. Some London bank, we will say, has to make remittance to Buenos Aires. The rate in London for drafts on Buenos Aires being high, the manager sits down with his pad and pencil and starts figuring whether he cannot discharge his obligations to South America more cheaply by directing his New York correspondent to ship the gold direct. If the London bank's balance with its New York correspondent is not sufficient, the New York bank can be advised to draw on London in order to raise the money with which to buy the gold.
If it appears, in the case above, that the London bank's South American obligation can be discharged at an expenditure of less pounds sterling by having the gold sent from New York, the chances are that it will be done that way. And so it is with all these indirect gold transactions. Each time it is simply a case of taking all the appertaining conditions and exchange rates into account, and the figuring out in which way it can best be done.1

Methods of moving gold. - Turning from the discussion of reasons why gold moves from one country to another, shipments may be divided into two broad classes, direct and indirect. In the first case the gold is shipped straight to the point to which it is desired to transfer the balance. In the other case the gold is shipped to some third place for the purpose of buying exchange upon the place to which the balance is actually to be transferred. ...
Indirect methods of moving gold. - Indirect shipments are of great variety but are all founded on the idea of sending gold to some point where it can be used to buy, cheaply, exchange on some other point. Of these transactions, the one best known is the so called "triangular operations" in which the gold is shipped to Paris for the purpose of buying exchange on London. ...
[Emphases supplied.]

Banking Practice and Foreign Exchange
Jefferson and Escher, Modern Business, Vol. VI
De Bower-Elliott Company, Chicago and New York, 1910, Pg. 376-378.

But enough has been written to indicate the laws that control the movement of gold in settlement of international balances. The gold, however, is not always shipped directly to the country to which we owe it. For instance, we may be indebted to Germany, but ship to France, because Germany owes a balance to that country, and a shipment to France thus satisfies two debts at once. Or we may owe England, but ship to France, because England is willing to lend money there. Thus we hear of a "triangular transaction" in exchange, which is a movement involving three countries.2 [Emphasis supplied.]

Common and contemporaneous examples of triangular transactions and indirect gold shipments were the frequent exports of U. S. gold coin from New York to Argentina for English account.

Gold Shipments to Argentina

Of the many other ways in which gold moves, one way seems to be becoming so increasingly important that it is well worthy of attention. Reference is made to the shipment of gold from New York to the Argentine for account of English bankers who have debts to discharge there.
Owing to Argentine loans placed in the English market
[Emphasis supplied.] and to heavy exports of wheat, hides, and meat from Buenos Aires to London, there exists almost a chronic condition of indebtedness on the part of the London bankers to the bankers in the Argentine. Not offset by any corresponding imports, these conditions are putting Buenos Aires each year in a better condition to make heavy demands upon London for gold, demands which have recently grown to such an extent as to make serious inroads on the British banks' reserves. Unwilling to comply with the demand for gold, the powers in charge of the London market have on several occasions deliberately produced money conditions in London resulting in a shifting of the Argentine demand for gold upon New York. The means by which this has been accomplished has been the raising of the Bank of England rate to a point sufficiently high to make the dollar-exchange on New York fall. Able, then, to buy cheaply, the London bankers send to New York large amounts of such drafts, with instructions that they be used to buy gold for shipment to Argentine. [Emphasis supplied.]

Elements of Foreign Exchange, 2nd Ed., Franklin Escher
The Bankers Publishing Company, New York, 1911, Pg. 122, 123.

And, an example transaction of this indirect shipment . . .

An engagement of $500,000 gold coin on Thursday [January 7, 1909] from New York to Argentina was announced this week; later $1,000,000 gold coin was engaged to Paris [as a part of the January 8th engagements]. The London cables reported a withdrawal of $5,000,000 for shipment [from London] to Argentina, which had the effect of imparting a firm tone to the London discount market. It appears that an Argentine bond issue of 17 1/2 million dollars is pending in London, as the result of which, and also of London's participation in the Russian loan, discounts may possibly be advanced next week at least to 3%.

The Commercial and Financial Chronicle, Jan. 9, 09, 71:1.

A slightly later transaction:



$1,000,000 Worth of American
Eagles for Buenos Ayres

Goldman, Sachs & Co. and Muller, Schall & Co. each shipped $500,000 worth of United States gold coin on a steamship leaving this port to-day for Buenos Ayres, Argentine Republic, upon telegraphic orders this morning from their London correspondents. To-day's shipment of $1,000,000, which was withdrawn from our Sub-Treasury, makes a total of $2,250,000 of our gold coin which has been shipped this year from here to Buenos Ayres on account of London. In the three-cornered transaction London has found it more economical to ship United States coin from this country than gold bars from London because our coin passes current in the Argentine Republic, being in general circulation down there. ...

New York Evening Sun, January 27, 1909, 1:4


... Far and way the most important of such "indirect movements" are those in which gold is shipped from New York to Paris for the sake of creating a credit balance in London. ...

Elements of Foreign Exchange, 2nd Ed., Franklin Escher
The Bankers Publishing Company, New York, 1911, Pg. 120.

English bankers had gold shipped from New York to Argentina to offset the indebtedness which they had incurred as a result, in part, of Argentine loans placed in the English market.

A Russian loan closed on January 22, 1909. French bankers, too, as a result of the Russian loan placed primarily in Paris, would have had to ship gold to Russia. In fact, the gold purchased by French banking interests in New York, discussed in detail later, was, by their own press release, engaged for this specific purpose.


1Foreign Exchange Explained, Franklin Escher, MacMillan Co., New York (1917), pgs 81-82.
2The Work of Wall Street, Sereno S. Pratt, D. Appleton and Company, New York, 1910, Page 234.