The Business: Did Gordon Brown Blunder by Selling Gold Too Cheaply? Not as Much as Tory Chancellors Did by Failing to Sell When the Price Was High

By Hosking, Patrick | New Statesman (1996), June 10, 2002 | Go to article overview

The Business: Did Gordon Brown Blunder by Selling Gold Too Cheaply? Not as Much as Tory Chancellors Did by Failing to Sell When the Price Was High


Hosking, Patrick, New Statesman (1996)


Gordon Brown is looking a bit of a mug. He stands accused of selling the bulk of Britain's gold reserves too cheaply. Selling at all was heinous, according to gold fans, who see near-magical financial properties in the yellow metal. Selling at rock-bottom prices then magnified the sin.

Each day that the gold price goes up, the notional loss mounts. In March, the World Gold Council, the mouthpiece of the gold industry; calculated that the Chancellor had "squandered" [pounds sterling]175m by selling when he did.

By the end of last month, the cost of Brown's timing had ballooned to [pounds sterling]500m, according to a report from the precious metals news service thebulliondesk.com. Sabre-rattling in Kashmir, banking jitters in Japan and a sliding US dollar -- all are adding to gold's allure and value, and to Brown's discomfort.

It is all very inconvenient for the Chancellor, who sold 395 tonnes of the stuff -- a chunk the size of a small caravan -- in a series of auctions between May 1999 and March 2002 and bought foreign government bonds with the proceeds.

He received an average price of $275 an ounce. You have to go back to 1979 to find the price languishing that low. The price today has bounced back to $325.

The shadow chancellor, Michael Howard, calls it "gross incompetence which has cost the British taxpayer dear". This is a bit cheeky. If Brown was a mug for selling when the price was low, it follows that his Tory predecessors were double mugs for not selling when the price was high. Step forward Ken Clarke, Norman Lamont and John Major, past chancellors who all failed to offload so much as a doubloon in the 1990s, when they could have got more than $400 an ounce. Before them, Nigel Lawson wasn't tempted by $500 an ounce.

Then there was Geoffrey Howe, who was chancellor in 1980, when the gold market succumbed to its own form of dotcom madness, spiking at $850 an ounce (worth far more than that in today's money). Howe clung on to every bar.

Arguing about timing rather misses the point. If gold reserves have any purpose, it is as insurance against an emergency of barely imaginable proportions -- for example, a collapse of the international financial system so calamitous that conventional money has no meaning.

Gold -- Keynes's "barbarous relic" -- long ago lost its role as a backer of the currency. Its supposed value as a prop to the exchange rate is also bogus. The pound's strength and stability depend on the health of the economy and the public finances, not on a few ingots gathering cobwebs under Threadneedle Street.

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