Gordon Brown's Gold Sell Off Cost Taxpayers 2bn

Adrian Ash - Wed 18 Apr, 2007

Thus the biggest financial story in the United Kingdom today bigger even than our unprecedented bubble in credit is that Prudence "ignored advice" before selling half the nation's gold at rock-bottom prices in 1999. You might wonder why the fuss. Accountants at Grant Thornton reckon that Culpability cost taxpayers 2 billion by selling 400 tonnes at the bottom of the market.

- Shocking news from the Sunday Times this week. Gordon Brown is an idiot.

- More than that, Tony Blair doesn't always speak the truth. New Labour likes to bury bad news. Expert knowledge counts for nothing at Westminster any more.

- Thus the biggest financial story in the United Kingdom today – bigger even than our unprecedented bubble in credit – is that Prudence "ignored advice" before selling half the nation's gold at rock-bottom prices in 1999.

- You might wonder why the fuss. Accountants at Grant Thornton reckon that Culpability cost taxpayers £2 billion by selling 400 tonnes at the bottom of the market. But so what? Central government gets through that much money every 36 hours.

- Two billion here...two billion there...and pretty soon, you're ready to fund a war in the desert or pay disability allowance to one-in-four people of working age.

- Still, it's nice to see the Sunday Times reporting a story that's only 7 years old. Now it reveals that a group of top gold analysts and traders – gathered together by the Bank of England – were shocked at the poor timing of the government's decision even before it happened.

- The paper doesn't ask or comment on whether these experts, given advanced warning of the advanced warning, used the insider information to their own advantage. But "the timing of the decision was ludicrous," says Peter Fava, then head of precious metals at HSBC. "We told them [the BoE] – you are going to push the price down before you sell it." That's just what happened, of course. Gold sank by almost one-tenth on the back of Gordon Brown's decision to announce his sales ahead of time.

- "I was surprised they had chosen the auction method,"
adds Martin Stokes, a former vice-president at J.P.Morgan. "It indicated they did not have a real understanding of the gold market."

- Clueless or not, however, it didn't matter. The Bank of England had no say in the matter. It only got to advise the government on HOW to sell the gold. The fact of the sale itself had already been decided by the Treasury. And since then, says the Times, the government has since defied calls to release minutes and emails written at the time. The Times says it's because the experts warned the government to hang onto its gold. The truth is, however, that holding gold in 1999 looked as dumb to central bankers as Gordon Brown looks to everyone today.

- "The deterioration of Switzerland’s public finances led to a growing awareness of the opportunity costs of maintaining the existing structure of the SNB’s assets,"
says Philipp Hildebrand, now vice-chairman of the Swiss National Bank. "The vast gold holdings increasingly gave rise to concern in the context of bearish market sentiments and of gold sales by other central banks. In November 1997, a partial revision of the Swiss National Bank Law increased the flexibility of the SNB’s reserve management activities. However, further legislative reforms were required to enable gold sales."

- In short, Gordon Brown might have been an idiot, but he wasn't alone in his idiocy. And now? Japan's finance minister said this weekend that the International Monetary Fund should sell its own gold reserves too – an idea floated by Gordon Brown at the turn of the century and backed by Alan Greenspan recently.

- "Japan has told the committee, 'Why not sell gold?'"
says Koji Omi. Why not indeed? The IMF would no doubt find willing buyers in the Kremlin, Beijing, perhaps even Johannesburg. The South African government recently acquired gold direct from one of the country's leading gold miners. Interfax reported last Thursday that Moscow is thinking of buying gold direct from Russian extraction companies, too.

- And China, reports the Sunday Times, was an eager buyer of Britain's gold at Gordon Brown's giveaway auctions.

- "Several Asian countries including China are named by an insider as having bought the gold 'on the cheap' from the Treasury," says the paper. "The Chinese may have made more than £1 billion from Brown’s botched sell- off."

- Meantime in the spot market, gold for immediate delivery continues to rise against all paper currencies – the fiat money pumped out at will, in just the way that gold can't be, by governments in the United Kingdom, Eurozone, Japan, Australia, South Africa, US, China, Russia...

- Gold closed Friday night just shy of an 11-month high.
It completed its sixth gaining week on the run. Gold has now gained 6.5% in Dollar terms this year. It's up 5.2% versus the Euro and has put on 8.8% against Sterling – the same gain that it's delivered against the Japanese Yen.

- Is it time to sell yet? Full disclosure demands that we remind you: Owning the metal – as a defence against monetary inflation, low interest rates, and the destruction of sovereign currency values – might not make you rich. Success cannot be guaranteed, dear reader, only deserved.

- But for as long Gordon Brown remains "short" of gold bullion, owning it can't be too stupid, we guess. At least, not as stupid as Dear Prudence!

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http://www.dailyreckoning.co.uk/article/bullionvaulttustain.html 

Regards
Adrian Ash
for The Daily Reckoning

Adrian Ash is head of research at BullionVault.com- the world's fastest-growing and best-value gold ownership service.

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