The first thing that strikes anyone going through A. C. Gilbert catalogs looking for Gilbert HO trains is that the catalogs are absent for the years 1951-1954. HO trains are not mentioned in the S-gauge catalogs and there are no separate catalogs. The question of what happened is probably answered by what was going on in the world at that time, namely the Korean War.
While the Korean War did not cause a complete diversion of the toy train industry to war production as happened during World War II, it did cause shortages in materials needed for train production. American Flyer S-gauge circus flat cars, for example, were produced using pressed wood, instead of cast metal, but S-gauge production continued nevertheless.
The question then, is what was the key material in short supply that made HO trains impossible to produce, yet allowed production of their big brothers in S-Gauge.
This subject was recently discussed on the Gilberthotrains yahoo group and the general consensus was that it was Alnico, an alloy composed of aluminum, nickel, and cobalt with some copper, titanium and mostly iron. At that time, alnico was the best material available for magnets and was widely used in all applications requiring magnets. Why was alnico required in HO and not in S-gauge production? The answer is permanent magnet DC motors. At that time and as it is today, the standard power supply for HO was DC current, which required DC permanent magnet motors. S-gauge could use universal field wound motors that dont require magnets. Though such motors could be used with DC power in HO, that would have required the development of new smaller motors, as well as reverse units. Polarity reversing would not have been possible in that era because small diodes with appropriate power handling capability were not available.
This theory also finds corroboration in other changes in the toy train industry that took place at that time as a result of the shortage of alnico. One of these was the discontinuation of DC motors in S-gauge "directronic" or "electronic" propulsion locomotives after 1950. Over at competitor Lionel, the new innovation of "Magne-traction," which also required permanent magnets, was discontinued about this time.
While there are no factory records available that confirm this theory, this seems to be the most likely explanation for the absence of HO production and the lack of HO coverage in catalogs between 1951 and 1954.