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Gold and Gordon Brown

Robert Peston | 09:57 UK time, Tuesday, 4 March 2008

Gold closed yesterday at just over $981 per ounce and seems set to continue its remarkable upward path towards the magic $1,000 number.

Gold barsIn nominal terms, it reaches new highs on a daily basis – though adjusting for inflation it remains significantly below where it was in the inflationary world of almost 40 years ago (its nominal high back then was $850, which was briefly touched in January 1980).

What’s going on is that investors are again seeking out gold as a putatively inflation-proof store of value in uncertain times.

It looks oh-so solid and reliable compared with all those poisonous securities manufactured by brainy bankers out of defaulting US sub-prime loans.

But it is the Federal Reserve’s current mission to slash interest rates that is giving the big push to the gold price right now.

Many investors fear that the Fed has – at least for now – abandoned any notion of keeping a lid on inflation, in its apparently desperate attempt to revive the ailing US economy (which was described yesterday by the great Buffett as in recession “by any common sense definition”).

So there has been a flight out of the dollar, which has been tumbling in value, and into the shiny yellow stuff.

Which brings me to one of the least well-timed investment decisions of this or any age, Gordon Brown’s sale of 395 tonnes of our gold in 17 auctions between July 1999 and March 2002.

The average price achieved in those disposals was $275.6. Gold has since risen in value by 256% – a rate of return which would bring pride to even the cockiest of hedge-fund superstars.

Or to put it another way, 395 tonnes of gold from our official reserves that was sold for $3.5bn would now be worth $12.5bn.

So we appear to have lost out on $9bn of gains – or about $300 per taxpayer.

However, that’s a slightly simplistic view of the scale of our loss.

The $3.5bn of revenue raised in the sales was invested in interest-bearing assets denominated in dollars, euros and yen to the extent of 40%, 40% and 20% respectively.

So to calculate the true net loss to the taxpayer, I would have to adjust for the yield on these assets and movements in the value of those currencies. And I don’t have enough information on precisely what was bought and when to make that calculation.

It is probable, however, that the effective net loss on Gordon Brown’s great gold sale would be a bit less than $9bn – but it would still be a very significant loss.

So why did Gordon Brown as chancellor dispose of all that gold? Well, my recollection of conversations with him and his advisers at the time is that they hated what they perceived as the intrinsic laziness of gold. It simply sat in the vaults gleaming but earning no interest.

They wanted assets that appeared to earn their keep, by generating interest payments.

They also hoped and believed that rampant global inflation was a thing of the past, and that the days of gold’s soaraway success would never recur.

To be fair to them, they weren’t alone in reducing their gold holdings. The Swiss, the Belgians and the Dutch also sold very significant amounts.

Also, the gold loss is spilt milk – and, as any great investor will tell you, it’s fatuous to weep over it.

But the stewards of our wealth would surely try to learn from their mistakes. And, in this case, Gordon Brown’s error was probably to place too low a premium on gold’s bothersome habit of retaining its intrinsic value over the very long term.

Comments   Post your comment

Or it could just be that Brown is hopeless with money.

How else can we be in a position where we have no reserves despite 10 good years?

  • 2.
  • At 11:44 AM on 04 Mar 2008,
  • David Simmons wrote:

Presumably someone bought the gold we sold - perhaps whoever it was should be running our economy..??

  • 3.
  • At 11:55 AM on 04 Mar 2008,
  • JDJ wrote:

This is straying into Schadenfreude territory but it seems the 'clunking fist' will soon be remembered as the 'clunking idiot'! And I would be a lot more forgiving except there was such a song & dance about 'economic prudence'. Whilst the UK economy has performed well in recent times how much of this has been on the back of spiralling personal debt and massive public expenditure? This doesn't appear very prudent to me!

  • 4.
  • At 12:00 PM on 04 Mar 2008,
  • John Constable wrote:

History has indeed shown that gold retains its intrinsic value over the long term.

Beware all that glitters is not gold ... and that is so true of certain politicians, with their newly dazzling smiles.

In the end, we English can only blame ourselves, we voted for these people or more accurately, did not bother to vote for any independent alternatives, and now must suffer the consequences.

  • 5.
  • At 12:06 PM on 04 Mar 2008,
  • john wrote:

Why have you put the currency as dollars? To make us think the figures are higher than they are?

Your criticism would have more meaning if the uplift in value could be crystallized - in essence we wouldn't be selling gold to-day, would we? It would just be sitting there, waiting to go down in value again.

Presumably the interest on the subsequent investment of 3.5bn produced interest income that has been spent on public services - spending which would not have occurred if we had kept the gold. I suggest the accrued interest would have reduced the (notional) "loss" substantially.

If it's the case that we're now buying gold again - at a much higher price - then so be it. Your criticism of "losses" is notional.

Have you found the space recently to confirm that Northern Rock has not "cost" the taxpayer £110bn?

  • 6.
  • At 12:07 PM on 04 Mar 2008,
  • Simon Stephenson wrote:

Are you sure you're not indulging in a bit of hindsight bias here?

Can you demonstrate that Brown's decision was different from a normal commercial one, to the extent that, at the time, for the UK treasury, the sale of gold did not make good sense? If so, please detail these differences, because you haven't done so yet.

If not, and Brown's decision can be compared to all the other commercial decisions that were going on between 1999 and 2002, then I really don't think there is cause for much criticism. If one accepted the rationale of the time, the holding of gold rather than interest-bearing securities was seen as a major wasted opportunity. No doubt most other Chancellors would have chosen not to sell gold, but I'd suggest that their decisions would have been from a lack of courage to be imaginative rather than from a strong belief that maintaining gold holdings was the correct route. If, at the time, gold was unquestionably the correct investment, why was there not a general exodus from paper stocks into gold?

Brown's made plenty of errors of judgment since 1997, and maybe this was one of them. But, without the use of hindsight, I don't think it's that obvious that it was.

  • 7.
  • At 12:10 PM on 04 Mar 2008,
  • Julian wrote:

"It is probable, however, that the effective net loss on Gordon Brown's great gold sale would be a bit less than $9bn."

Assuming that GB invested in 10 year government bonds, we can make an estimate of his return.

Average FX: $/E = 1.08; $/Y = 115
Average yield: $ = 5.6%; E = 5.2%; Y = 1.6%

40% of $3.5bn ($1.4bn) invested in US Treasuries would have returned $0.5bn over 6 years.

40% of $3.5bn (E1.5bn) invested in Euro gov't bonds (I have used France, Germany and Italy) would have returned E0.5bn over 6 years. In addition, the Euro has strengthen to 0.66 per Dollar giving a total return of $1.7bn.

20% of $3.5bn (Y80.6bn) invested in Japanese gov't bonds would have returned Y8bn over 6 years. In addition, the Yen has strengthened to 103 per Dollar giving a total return of $0.1bn.

So the total return on GB's investments is c. $2.4bn, which would reduce the $9bn loss to $6.6bn. Still pretty horrific, but then hindsight is a wonderful investment tool.

Nice article though.

  • 8.
  • At 12:12 PM on 04 Mar 2008,
  • John of Ipswich wrote:

This article is a great reminder of what an appalling decision Gordon Brown made in selling off what was a large part of our national heritage (the hard work of previous generations)at rock bottom prices. If the CFO of any large PLC had made such a similar investment mistake he would have been fired very quickly. Instead GB gets promoted to the top job (well until 2009/10!!).

I bought 1kg gold when worth $635 an ounce . I is laughing now . But try to inform others to do the same and they think you is a strante bod , even though the case proves itself .
But I never laugh to loud who knows what is coming .

  • 10.
  • At 12:15 PM on 04 Mar 2008,
  • Terry wrote:

Crikey - it amounts to Norman Lamont's Black Wednesday (£3.4m lost) 3.5 times over! Realistically, of course, it's impossible to have been able to tell how markets would have gone when the sale was made. A major difference between the gold sale and Black Wednesday is that whereas all parties, the CBI and TUC too, were behind the Tories in going into the ERM (which led to Black Wednesday), everyone was not in favour of the gold sales. So there is blame to attach.

  • 11.
  • At 12:27 PM on 04 Mar 2008,
  • Matt wrote:

Just show's what a bumbling fool our PM is.

  • 12.
  • At 12:31 PM on 04 Mar 2008,
  • Alan Davis wrote:

Golden Brown, Useless as they come.
Sold half our gold, for a tiny sum.
Throughout his time, taxing away, borrowing more, that's Golden Brown

  • 13.
  • At 12:34 PM on 04 Mar 2008,
  • David Williams wrote:

A far worse mistake was for him to publicise in advance that he would be making these sales. He published the volumes and dates in advance. As a result the price fell, even as he was selling it.

Surprise, surprise.

You also need to do the correlation between gold price and Dollar exchange rate/index to complete the picture.

Of course they weren't interested in what they perceived to be a lazy investment. This lot always need to have something to show, irrespective of its value or merit.

Now if there was a market for hot air .....

  • 14.
  • At 12:35 PM on 04 Mar 2008,
  • Kv wrote:

$275 from 99-2005 wasn't a bad price and the earned interest over that period would've made it a reasonable investment. Gold was still in the 300s in 2005 so the only real mistake is that they didn't buy some back after that 6 year period, but as with any cycle, there weren't many investment professionals and advisors who would've been telling him to jump in.

  • 15.
  • At 12:35 PM on 04 Mar 2008,
  • adam wrote:

Gordon Brown really is the worst possible person we could have as PM given the present economic climate.

  • 16.
  • At 12:43 PM on 04 Mar 2008,
  • Alan Davis wrote:

Golden Brown, Useless as they come
Sold half our gold, for a tiny sum
Throughout his time, taxing away, borrowing more, that's Golden Brown

  • 17.
  • At 12:44 PM on 04 Mar 2008,
  • Donald Dunford wrote:

The magnitude of that loss in only 8 years would require a return of at least 17% pa whatever the currency.

  • 18.
  • At 12:44 PM on 04 Mar 2008,
  • Jean wrote:


Investments go up or down... c'est la vie mon amis!

It is well known that you didn't write anything to the contrary at the time...

Hindsight can make us look like "financial experts"

Needed a good laugh at the pointless non-analysis in your blog

keep it up.

  • 19.
  • At 12:45 PM on 04 Mar 2008,
  • Paul wrote:

Ah, hindsight, a wonderful way to point out other people's poor financial decisions!

Rather surprised you still have to work for a living as I would have thought you would have realised what a great buy gold would have been back then. Maybe you haven't cashed yours in yet or maybe you also missed out on a 456% return.

Don't suppose you can predict how high gold is going to go now? Or when it will reach its peak? Or how low the Dollar (that gold is priced in) is going to fall?......

  • 20.
  • At 01:03 PM on 04 Mar 2008,
  • Clive Watson wrote:

Wasn't he forced to sell it under EU rules as part of the preparation for joining the Euro ?

Didn't he also contrive to make the losses even worse by announcing how much he was going to sell in advance, thereby pushing the price down further ?

  • 21.
  • At 01:12 PM on 04 Mar 2008,
  • Andrew Knight wrote:

Brown also wants to sell of our stake in Urenco Uranium production (also partly owned by the Netherlands and Germany) to raise another £2 billion, lets hope he doesn't as it becomes an important power source Urenco is in a good position to supply the UK needs so long as we retain the shareholding.

  • 22.
  • At 01:13 PM on 04 Mar 2008,
  • Simon R wrote:

Since 2000 I have thought Gordon Brown was the worst Chancellor ever. The way he grinned as he exported all our manufacturing and farming (outsourcing). Taxed our savings and pensions then squandered the money(prudence). He borrowed to give third rate pen pushers massive pay rises (investment in people). He got our schools and hospitals into debt (PFI). Sold the gold (sound fiscal planning). Forced our young people into debt (Top up fees and student loans).

Until the last few weeks everyone kept telling me he was the Best Chancellor ever! So finally Britain has seen through the lies and spin.

He has punished savers and has made massive debt the acceptable norm, almost a must have accessory.

Mr Debt Brown has cursed our nation.

  • 23.
  • At 01:15 PM on 04 Mar 2008,
  • G Thompson wrote:

Hindsight is 100%! Of what use is gold? It no longer backs the currency, and its only other major use is jewellery and high grade electronics. Just sitting there, even if it appreciates in value, does nothing. To realise that value, you have to sell the stuff. Otherwise, you act like
Kings Croesus and Midas and much good it did them.
Therefore, its all down to timing.
So then, smart Alecs, when should we buy/sell?? Would you all be howling if the value had gone down instead?

  • 24.
  • At 01:26 PM on 04 Mar 2008,
  • John A (UK) wrote:

Paper burns to worthless ash, gold will just melt then harden again. Will Gordon Brown do what Roosevelt did during the Great Depression and make it illegal for anyone but the Federal Reserve to hold the shiny stuff. Oh, and it's GLISTERS, not GLITTERS as someone posted earlier.

  • 25.
  • At 01:29 PM on 04 Mar 2008,
  • jim wrote:

Its easy to be smart after the fact isn't it.

If you want I can tell you the exact lottery numbers for last week, or the week before - just take your pick.

  • 26.
  • At 01:48 PM on 04 Mar 2008,
  • Martin wrote:

'However, that’s a slightly simplistic view of the scale or our loss.'

Of course it is, that's how you blog.

You always do this Robert, take an opinion heavy negative line at the start of an article to create disapproval in the mind of the reader and then, just before the end, squeeze just enough fact in at the end to ensure it complies with BBC guidelines without weakening your earlier assertions.

The truth is that you don;t know what the loss is so the whole article is pointless speculation.

  • 27.
  • At 01:54 PM on 04 Mar 2008,
  • Jon I wrote:

If Brown and others (some who have commented here) understood the nature of economic cycles then we would indeed be 9 bn better off today.

The fact of the matter is that gold is currency. Why do governments; despite telling us that it is NOT currency store it in their vaults?

Our financial systems used to function on money supply linked to gold stored. Now we are in fiat mode it is just based on mere confidence. This confidence is unwinding fast (and will end up in a Kondrateiff style winter) and in five years time the loss will be that much greater not to mention a massive inflation problem because we have only half our gold left. Well done Mr Brown you called the bottom of the market and sold! He needs to get himself over to the Austrian school to understand what is happening - unfortunately it is too late.

Mr Penton, you are far too lenient!

  • 28.
  • At 01:54 PM on 04 Mar 2008,
  • matthew wrote:

I expect that all those people who knew at the time that gold would go up so much bought a stash then? No. If the market had known, the price wouldn't have been the same. Nobody knew.

We might as well calculate the loss of our money due to the Tories doubling the rate of VAT in 1980. Or the loss to us of North Sea oil revenues frittered away and wasted by the Tories, or the lost revenue from the undervaluing of the privatised industries. Something of a pattern there.

This kind of wise after the event commentating is actually useless.

  • 29.
  • At 01:58 PM on 04 Mar 2008,
  • Sue Brown wrote:

Oh for sensible measured politicians rather than these Johnny Come latelys who know everything about nothing.

  • 30.
  • At 02:01 PM on 04 Mar 2008,
  • chetas patel wrote:

Seemed like a good idea at the time- selling the gold and using the money to bring in income.

However Gordon Brown should really have thought- ' I'm in the middle of a economic cycle. Gold prices tend to go up at the end of the cycle. Is this really the best time to sell?'

Personally i think he took a risk that he should'nt have taken.

  • 31.
  • At 02:07 PM on 04 Mar 2008,
  • Pete wrote:

A minor miracle ; for once I find it hard to disagree.

  • 32.
  • At 02:12 PM on 04 Mar 2008,
  • Philip wrote:

Underlying this story, of course, is the notion that Gordon Brown believed he had found a way to beat the business cycle, that economic cycles were a thing of the past and that we had now entered a golden-age of sustainable growth, free of the inconvenience of inflation. Well he was wrong about cycles, he was wrong about inflation and - very expensivley - he was wrong about the future value of gold. History will also show that Brown has been fudging the books for years in an attempt to make the picture fit his frame: his fiscal 'golden rules' have been breached time and again, saved only by revising the start dates of the very cycles he was supposed to have vanquished. And in a final twist, Northern Rock's nemesis (complex structured finance) has been the very vehicle by which Brown has managed to hide liabilities 'off balance sheet' for years (billions of pounds of PFI). Isn't it about time that someone called Brown's bluff? And isn't that the job of the National Audit Office? Not only is Brown's management of national finances questionable, his track record looks very suspect indeed. Let's hope he makes a better fist of being Prime Minister, although so far so bad.

  • 33.
  • At 02:13 PM on 04 Mar 2008,
  • rob wrote:

Poor old Robert. Instead of writing a good story, and digging the knife into Gordon, on the grounds that
1) this is another example of Gord's gross mis-management of the economy
2) any CEO that missed out on an opportunity cost of $9bn would be hounded out by his investors ...,

his lefty tendencies mean that he writes a "..Gord has made a mistake, but actually its not that bad a mistake, as everyone else did the same thing etc..." story, which is frankly, whimisical, wet and totally uncompelling.

Get a spine, Robert

  • 34.
  • At 02:22 PM on 04 Mar 2008,
  • René Cohrt wrote:

Never believe in human endeavor.

If the price of gold drops next year, will you be lambasting Alistair Darling for not having sold our remaining gold whilst the price is high?

If the price of gold goes the other way and doubles, will you be calculating the amount that was lost through not buying it now?

Rather than telling us what should have been done in the past, can you tell us what the Bank of England should do today: buy or sell?

Not so easy without hindsight.

The loss is to put at debit of lord Keynes/:gold is a barbar relick The profit,? What did the buyers with their profit? Maybe,finance bombs in London a few years after.

  • 37.
  • At 02:46 PM on 04 Mar 2008,
  • Sergei Dobrinevski wrote:

I don't buy Mr. Browns' striking incompetence and think it's quite the opposite. He new what he was doing and he was doing it on purpose. Was it to rid the country of its financial reserves or to simply share the benefits when price appreciates?

  • 38.
  • At 02:47 PM on 04 Mar 2008,
  • Bix Weir wrote:

Gordon Brown made the only decision he could have made to keep the fiat money system in tact. When Long Term Capital Management went under they were short hundreds of tons of gold which if covered would have exposed the gold market rigging operations of the central banks (see The selling of the UK gold kept the "flexible monetary system" in tact for 8 more years. The ONLY reason central banks and governments sell gold is to keep the price down and the only reason to do this is to retain confidence in the fiat money system. Gordon Brown saved your entire monetary system with that sale...but in the end all fiat money systems return to their intrinsic The a global fiat monetary system has reached that tipping point and it is obvious from the comments that most of you are not prepared. Do yourselves a favor and educate yourselves on gold and might just save your souls.

  • 39.
  • At 02:50 PM on 04 Mar 2008,
  • Jim wrote:

Is the gold in Northern Rocks cellar , which is why GB is propping it up ?

  • 40.
  • At 02:50 PM on 04 Mar 2008,
  • patrickleonard wrote:

I told my wife in 1997 not to vote New Labour as there track record was to blow all the money and have little to show for it.She now heeds my reminder but alas too late - UK plc is in debt for years to come - the gold sell off was an example of
New Labour's lack of business sense and a taster of things to come over their next few years of government

  • 41.
  • At 03:04 PM on 04 Mar 2008,
  • Thobe Perram wrote:

Sadly our erstwhile Chancellor has not yet admitted that he had no choice but to sell the gold and to do so in the most financially inefficient way possible.
He, along with Governor Eddie George and the rest of the administrators of the Bank for International Settlements, was aware of the massive scale of the unhedged "short" positions that resulted from the "Carry Trade" and the the disasterous "financial engineering" indulged in by the finance director of one of West Afica's largest gold producers.
Together they became terrified of an explosion in the gold price, caused by the at-market unwinding of these huge positions, that would shake the international financial system and decided to smooth the market by loudly selling central bank gold holdings. His advisors then invented an unnecessary new sales mechanism to create as depressing an effect as possible on the price.
US$9 billion is a rounding error when you look at Godon Brown's spending patterns, is insignificant compared to the sub-prime disaster and is a mere trifle if it props up the system.

  • 42.
  • At 03:35 PM on 04 Mar 2008,
  • RF wrote:

I wonder if there's a way to invest with hindsight as well as using it as a tool for writing articles?

I think a key question is not what was a raised by selling the gold but what he spent the money on.

Was it invested in the economy? Was there a payback? Was the payback greater than what the gold would have been worth now?

I don't know the answers but it might have made for a more interesting article.

  • 43.
  • At 03:35 PM on 04 Mar 2008,
  • Peter wrote:

The truly scary thing is how little value our gold reserves had (either when sold, or notionally today) relative to the so-called GDP of the UK. I also doubt that the aggregated global gold reserves are significant compared with the amount of fiat money in circulation. Which should indicate solid foundations for a gold bubble in the very near future!

  • 44.
  • At 03:51 PM on 04 Mar 2008,
  • Albert. M. Bankment wrote:

Well, you could chart the cross-rates of Sterling, US Dollar, Euro and Yen since the [frankly, lunatic] announcement of the gold sales. Although the Euro's hardened, the dollar's performance will have exacerbated the wretchedness of the policy of gold sales.

It wasn't the sale of gold that was spectacularly inept; it was the idiotic announcement of the policy. That created an immediate buyer's market, informing the spot price, with every gold-trader in this arm of the galaxy rubbing his hands with glee and disbelief at the Iron Chancellor's wooden-headed stupidity. It was bonkers at the time, and doubly bonkers now.

  • 45.
  • At 03:51 PM on 04 Mar 2008,
  • Cecil Stroker wrote:

John on post 5. I suspect Preston has put the figures in USD because gold is in fact proced in dollars.

  • 46.
  • At 04:01 PM on 04 Mar 2008,
  • Ian wrote:

I am sorry to sound all conspiratorial, but I truly believe that Gordon Browns decision to sell Great Britians gold reserves is part of the Neo Labour Scottish Conspiracy to not only end the Nation State in Great Britain, but to also drag us ever closer to a federalist Europe.

I for one am feeling far more inclined towards "revolution" than "evolution" right now where our Westminster Parliament is concerned.

  • 47.
  • At 04:06 PM on 04 Mar 2008,
  • Lester wrote:

Mr.Weir and Mr.Dobrinevski are the only correct ones here. G. Brown is not a fool or an idiot. The man was told by his superiors to save the bullion banks, who were caught in a short squeeze by their carry-trade operations.
Somebody high up there admitted in an interview that "we looked into the abyss, and saw that the whole affair would bring the system down with it".
Presumably it was the British bullion banks that were short, so it had to be British gold to settle the affair. More precise info is not available to the public. Read on the carry trade.

  • 48.
  • At 04:44 PM on 04 Mar 2008,
  • Phil Hoy wrote:

So Gordon bought yield bearing securities - in yen? Some yield...

Anyway, where's the proof it was really spent this way? If Mr Peston can't work out what the yield was then presumably there are no publicly available records of these investments. Unlike the gold reserves which were public knowledge. Meanwhile the government has managed to get itself into £500bn of debt, so the "interest" on the £3.5bn of foreign securities would not have made a big dent in our interest payments of that debt (currently costing us £35bn). So much for prudence.

The purpose of the gold reserve was never to act as an "investment". It was there to act as a "floor" under the value of the pound to ensure that a run on the pound could not end in complete financial ruin for the UK. Since a run on the pound is now pending due to our debt situation we are standing on the edge of an economic precipice, with no safety net to catch us when we fall.

  • 49.
  • At 04:45 PM on 04 Mar 2008,
  • Tony Bryer wrote:

Hindsight is a wonderful teacher.

RP: "And, in this case, Gordon Brown’s error was probably to place too low a premium on gold’s bothersome habit of retaining its intrinsic value over the very long term.".

Is this true? From a chart I've just looked at, gold peaked in 1980 at around $700 per ounce and 20 years later was less than half this - and that's before inflation is taken into account. The amount Gordon Brown lost by selling is as nothing compared to what we lost by not selling in the early 1980s.

  • 50.
  • At 04:56 PM on 04 Mar 2008,
  • tony wrote:

Another oops moment! At least the Tories turned it around with Black Wednesday!
On top of being too clever as with pensions tax relief on equities' divdends - he forgets about the law of unintended consequences.

Anyway - IRAQ may be the reason for all our economic woes if any.

  • 51.
  • At 05:11 PM on 04 Mar 2008,
  • Chris Worsley wrote:

Hello Mr. Peston,

It is well to remember, that they whom posess the gold, ultimately, make the decisions.



  • 52.
  • At 05:33 PM on 04 Mar 2008,
  • ian wrote:

My long held belief is different.I think that Gordon Brown,despite his public stance,still thought that Tony Blair would force Britain to accept the Euro.So he sold gold to buy Euros in the hope that he would be in a position to transfer them to the treasury as UK currency in time for a tax giveaway to boost his premiership bid.

  • 53.
  • At 05:33 PM on 04 Mar 2008,
  • John wrote:

"or about $300 per taxpayer"

Cecil Stroker, I pay my taxes in Sterling. That's around £150 per taxpayer (and I note you don't argue that the "loss" is not a notional one)

Interesting thread, though. i wonder if Peston ever reads and responds to intriguing posts like Lester @ 44?

  • 54.
  • At 05:43 PM on 04 Mar 2008,
  • marc wrote:

Why was it his to sell in the first place? Who actually 'owns' the gold since it was originally a back-up for sterling? The nation? The Crown? Isn't this another example of Labour's gerrymandering of the Constitution so that he who enjoys a transient majority in Commons can ride rough-shod over all?

  • 55.
  • At 05:58 PM on 04 Mar 2008,
  • Steve wrote:

He announced up front when he was going to sell! That's the point of it! What 'prudent' person would do that? ALSO - Haven't heard of scale trading?? Many people make a living out of hedged scales.Gold was begging to be bought around that area.

You also fail to mention that Gordon Brown compounded his error to sell gold by announcing it to everybody first, immediately reducing the price even before the first auction. No other country that you mention as also having sold gold was so stupid.

  • 57.
  • At 06:10 PM on 04 Mar 2008,
  • Semmes wrote:

The gold sold by Mr. Brown belonged not to the government but to the people of the UK as a whole. It is what gives in the last resort the currency and metal tokens you spend any value at all. The knowledge that the gold reserve exists lends credibility to the paper they print whether linked directly to the currency or not.
We in the US have not had our gold physically audited since 1955. We do not know if much of it even exists anymore.
The private central bankers hate gold like an ugly woman hates the lovely. Gold restrains the vote buying and war making of profligate government and central bankers representing the true powers.
The people who run this world, you may rest assured own plenty of gold much of it from Mr. Brown's fire sale and the US Treasury.

Profit is private, Loss is public.

  • 58.
  • At 06:20 PM on 04 Mar 2008,
  • DF wrote:

Shouldn't you mention that at the same time, the Government managed to sell the wireless spectrum for 3G phones for around £22 billion ($44 billion) which more than balances out any calculation of the notional loss from gold sales.

You win some...You lose some

  • 59.
  • At 06:43 PM on 04 Mar 2008,
  • Scott wrote:

For all those who defend Brown on the basis of hindsight. Would a competent financial manager sell any commodity holding at or near it's cost of production. The sale of the 395 tons at $275 per ounce was undertaken when the estimated World average cost of production was in the region of $250 per ounce.
As for the interest rates available since the sale, they have been very low in almost all major currencies.
Lastly as pointed out above, the sale had nothing to do with the prudent management of reserves and everything to do with LTCM and massive short Gold positions which had to be covered.

  • 60.
  • At 06:49 PM on 04 Mar 2008,
  • jon I wrote:

28 - OK! lets see what the situation is in five yrs time then!

  • 61.
  • At 06:53 PM on 04 Mar 2008,
  • Graham wrote:

Robert, Keep up the good work. There are a couple of well thought through comments on here, but the vast majority seem to be about shooting the messenger.

We think you are fantastic.

  • 62.
  • At 06:55 PM on 04 Mar 2008,
  • Hyder Ali Merchant wrote:

This another one by Peston. If Gordon had not sold the, hewould had to sellentire north sea oil before Alex Salmon would have got his hand on it. Now he is safe. He can print as much fiat money as he like on the strenth of his oil. Cant you see this 'prudence'

  • 63.
  • At 07:20 PM on 04 Mar 2008,
  • Chris T wrote:

Perhaps though, Gordon Brown was not so dumb or naive as most people now say.

Perhaps he had a reason for his sale, that he simply could not articulate, so he had to give a plausible, even if now generally believed to be idiotic, justification?

There is enough evidence out there, that the sale was made to yield a low price, and undertaken in by auction, that would ensure help ensure this even more.

Some say that was to suppress the price of gold to deflect the fear of inflation of fiat paper, but when one couples the rumour of one or two large British banks possibly going belly-up due to unwise gold shorting, that puts these sales in a different light.
Not in any way less nefariously (because then, the people's gold bailed out special interest), but certainly not stupidly.

  • 64.
  • At 07:46 PM on 04 Mar 2008,
  • Hyder Ali Merchant wrote:

Is it true then Pound notes are just printed paper (worthless paper w/o gold support) I am collector of pound notes worthless or not. Mr. P can give as much as he likes?

  • 65.
  • At 07:47 PM on 04 Mar 2008,
  • Jonathan wrote:

The selling of this gold is old news and whenever there is a surge in the gold price these articles are reprinted with different numbers.

Was the Chancellor wrong to sell the gold in 2002? Only if he were to sell his gold today.

  • 66.
  • At 07:53 PM on 04 Mar 2008,
  • FatSteve wrote:

Isn't the theme of Gordon Brown's whole career simply "Not as clever as he thought he was..." ? We're seeing this in lots of ways, and judging by his demeanour, He's beginning to realise it too.

  • 67.
  • At 08:55 PM on 04 Mar 2008,
  • Joseph Zama wrote:

I am afraid this horrendous result of poor timing is what you Brits get for voting socialist...and it may happen to us as well this November.
Joe Zama, USA

  • 68.
  • At 10:47 PM on 04 Mar 2008,
  • pete wrote:

I dont have much of an issue about the actual sale of gold - although it does look rather bad at current levels.
I have more of an issue with the WAY it was done - ie the treasury announced some 2 months before the first ounce was sold by which time the price had already come off over 20 dlrs.
To announce a large sale of gold like they did was inexcusable to not only the taxpayer , but to the gold market in general. it created an awful lot of instability at the time. I should know ive been trading it for 15 years.

  • 69.
  • At 10:54 PM on 04 Mar 2008,
  • George Shepherd wrote:

Gordo is a financially naive fool. It's not just gold - look at his real record - no build up of reserves in good times, nationqalisation of Rail Track, and Northern Rock - both unnecessary, 5m people on benefits when we are supposedly so wealthy, the FSA (not needed and clashing with B of E, CSA riddled with errors and fraud, 2m immigrants and all taking UK citizen targetted jobs - need I say more?
Give me an election - and as said in history - will no one rid us of this tiresome man?

  • 70.
  • At 10:54 PM on 04 Mar 2008,
  • Jeremy wrote:

The money changers will be thrown out, Northern Rock first and then all the rest. It's only a matter of time because the revolution in the minds of the people has already started.

  • 71.
  • At 11:08 PM on 04 Mar 2008,
  • Jon Spencer wrote:

Where are the actual data for UK gold and foreign currency reserves? I can find out what the Chinese and Russian reserves are fairly easily, but am finding it impossible to get the data for the UK. The Bank of England site is a confusing maze where, whichever way you turn, you seem to end up in the same place without making any progress.

  • 72.
  • At 11:15 PM on 04 Mar 2008,
  • Andrew wrote:

I read with dispear some of the defenses that are put forward about Mr Brown's gold sale. They say such guff as it's easy to know with hindsight etc. Do you really belive that the government do not know the state of the debt market? Anyone with a brain could see that we are coming very close to the end of the current currency system if its now it will be soon. After the dotcom crash people doubted the ability to pay of others so moved to fixed assets, the price spike caused a number of bullion banks to risk bankrupty. So in order to "improve" the market for debt they needed to bring the gold price down. That is why it was sold nothing more nothing less. Free markets haha you have never and will never have them unless you understand how it all works. Basically banks create money from nothing! Read Mises or Rothbard.

  • 73.
  • At 11:31 PM on 04 Mar 2008,
  • Donald Douglas wrote:

The main reason that the gold should not have been sold is that a portfolio of bonds in different currencies will have higher risk than a portfolio which also contains gold (and not just the small amount that is left). Gold has a low correlation with bonds of the main currencies available to a central bank: and note that central banks have little choice in what they can buy and hold. This is elementary portfolio theory - in its more advanced form it's efficient frontier analysis (which tries to maximise return and minimise risk). What Mr Brown can be charged with is that despite friends such as Gavyn Davis (I hope I spelt his name correctly) and a penchant for the work of US economists, he seems to have been blithely unaware of a simple investment policy that would have been beneficial to the UK.

  • 74.
  • At 04:29 AM on 05 Mar 2008,
  • robb wrote:

'I expect that all those people who knew at the time that gold would go up so much bought a stash then? No. If the market had known, the price wouldn't have been the same. Nobody knew.
This kind of wise after the event commentating is actually useless.'

Matthew, what total rubbish you and other finacially unwashed talk about here.
'noboby knew' of course they knew, thats why it went up, 'cos they bought it! he sold it to get money so he could keeping kidding sheep like you that all was ok! just as he's printed a rain forrest of fiat money and moved the nations debts onto the citizens personally, as it doesn't show up that way! but it is doing now! history will see him as the bubble blower he was.
oh, and it's known in the gold trade as 'Browns Bottom', how apt!
i am frequently stunned by the amount of bleating done about Robert Peston's articles. he's providing you with info the gov't is never going to publicise freely. he's a journalist, that's his job, it's what he's supposed to do! we could do with a legion more like him to keep the purveyors of what makes the grass grow deep down in Texas, in check. but you would rather listen to and believe all the blah of those who don't do their job or are incompetent, as is the case with gordon(got the job at last, now what!) brown

  • 75.
  • At 09:29 AM on 05 Mar 2008,
  • Alex P wrote:

The decision to sell off some of the gold reserves has been more costly to the Government than Black Wednesday 1992 was to the Conservatives.

The Treasury estimates that about £3.4 billion (direct and opportunity costs) was lost by the Government during the currency market events surrounding Black Wednesday 1992. If Robert Peston's figures are correct, the present Government has lost about £1 billion more.

  • 76.
  • At 11:59 AM on 05 Mar 2008,
  • Alan Davis wrote:

Golden Brown, Useless as they come.
Sold half our gold, for a tiny sum.
Throughout his time, taxing away, borrowing more, that's Golden Brown.

The other Strangers song that comes to mind is "Nice 'n' Sleazy Does it"

  • 77.
  • At 12:23 PM on 05 Mar 2008,
  • Jon I wrote:

Point 72 - 'Andrew'. Oh, how it is so refreshing to see someone talking the same lingo! Jon I - 27

  • 78.
  • At 02:28 PM on 05 Mar 2008,
  • ac wrote:

I have a graph of gold prices vs Treasuries over & 150 year period,

Treasuries have had big declines during the wars when gold outperformed but in other times Treasuries have performed better.

From 1980 to 2000 gold was much worse.

  • 79.
  • At 03:34 PM on 05 Mar 2008,
  • Pete Oxon wrote:

The real issue here is the fact that our esteemed chancellor at the time actually announced his intention of selling 2 or 3 months BEFORE he actually sold an ounce , thus getting an even worse price for the taxpayer. It is inconceivable that anyone in the market place would announce an intention of selling 395 tonnes of gold in the market months before they were - its absolute folly. Not only did it disrupt the market at the time but it also ensure funds and trade houses managed to go 'short' ahead of over 12.5m ozs gold being flooded on the market.

  • 80.
  • At 05:17 PM on 05 Mar 2008,
  • John Portwood wrote:

I can see in december 2005 the Government held about $5 billion in Gold (at prices then in force) which was about 11% of total foreign reserves of $46 billion assets.

There were, however $27 billion liabilities leaving net assets of $19 billion.

So at that time 25% of our net assets was in gold.

See http: // /media /C /9 /bud06_dmo_282 .pdf for more details

  • 81.
  • At 12:57 AM on 06 Mar 2008,
  • jon barker wrote:

a monster gold rush is starting !anyone who subsribes to the peak oil 'theory' -as i do would would feel utterly confident in the fact that as gold price bears a strong relation to the oil price and all the other turmoil that is around us at present - there is only one outcome - a colosall rise in the gold price . i'm heavily invested but fear for the long term consequences of what lies ahead .

  • 82.
  • At 10:06 AM on 06 Mar 2008,
  • J B Partington wrote:

I always thought that Brown was a poor economist.He inherited a good balance of payments,economy from the tories.Like all good socialists,he spent more than he earned.He made a very poor decision on selling a good part of our reserves at knock down prices.He borrowed too much money and now has us all propping up Northern Rock.
When this country goes to the polls in 2 years time,the country will be skint!

  • 83.
  • At 11:57 AM on 06 Mar 2008,
  • david holgate wrote:

I wonder what the "Family Silver" is worth today, that the Tories sold off; eg the land in the Lake District that the water companies got.

  • 84.
  • At 12:20 PM on 06 Mar 2008,
  • Alex Hartner wrote:

Maybe instead of complaining about GB doing such a poor job and getting is all into debt, we should have bought the gold and would now be happily out of debt. We can hardly blame him for not having the foresight neither of us seemed to have had.

I am not a fan of the labour gov't, but if anybody had know what gold would do at this point in time, they definitely would not be complaining right now.

  • 85.
  • At 01:05 AM on 07 Mar 2008,
  • Tony wrote:

Gold is just shiny stuff that gets dug out of the ground. It has little in the way of practical utility and so it seems to me that any value it has is attributed to it in much the same way as paper money - i.e. it is only valuable because everyone agrees it is.

If there is a global crisis of confidence in currency, I don't see why confidence in gold should be maintained.

Perhaps someone could explain?

  • 86.
  • At 10:30 PM on 07 Mar 2008,
  • CA wrote:

To #85

I am not professing any knowledge of economics, nor any opinion on this particular article. However, the way I see it is that gold is a limited resource, whereas any fiat currency is arbitary and its value is in investors faith in any particular administration at the time of purchase. Please correct me if I'm wrong, as I've found this whole thread fascinating.

  • 87.
  • At 09:09 AM on 08 Mar 2008,
  • GH wrote:

Different from every other political position, a chancellor should only be judged on the state of the economy he/ she leaves behind, not the situation they inherit. 'Poor' Alistair Darling has finally reached the pinnacle of his career and is being labelled an idiot and as an incompetent. Maybe he is (he was a sub-ordinate of Brown in the Treasury), but the seeds of the problems were all sown when his predecessor was at the helm.

'We've had 10 years of uninterrupted growth' is the Brown mantra. Why then have we been running budget deficits since 2000? Why has he had to revise his golden rule? What are we going to do when the recession finally hits? Why have we had the first run on a British bank for 150 years? Why are people still complaining about poor public services? Was the money wasted?

In the fullness of time Brown will undoubtedly go down as one of the worst chancellors in British history.

  • 88.
  • At 11:48 PM on 13 Mar 2008,
  • C MERIT wrote:

Why would Gordon Brown care, it was not his gold, it was ours. Where did he learn to ruin an economy ?

  • 89.
  • At 07:21 PM on 18 Mar 2008,
  • Yummy Carol Kirkwood wrote:

Re: #6 Simon Stephenson:

Can you demonstrate that Brown's decision was different from a normal commercial one, to the extent that, at the time, for the UK treasury, the sale of gold did not make good sense? If so, please detail these differences, because you haven't done so yet.

The basic investment mantra is "buy low, sell high". It was clear at the time of the sales that the price of gold was severely depressed, and therefore Gordon Brown is guilty of SELLING LOW. Perhaps it was hard to tell that the price was finally bottoming out, but it was plainly NOT THE TIME TO SELL. And now, with massive inflationary pressures beginning to translate into currency devaluation, gold is appreciating. The Treasury will remain in a state of denial of their mistake and no doubt, in the fullness of time, once Sterling has suffered CONSIDERABLE damage, the importance of bullion reserves will once again be realised, and Brown's original error will be compounded by BUYING HIGH.

Re: #32 Philip

Here, here! Very well said! Pride comes before a fall, as they say, and Gordon Brown isn't half as clever as he thinks he is, as another poster remarked.

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