In 1999 Brown as Chancellor of the Exchequer sold 400 tons of gold at the bottom of a 20 year slump in the gold market. He sold at $275 an ounce and could get closer to $700 now.
Conservative Home’s Left Watch argue that, by being patient and waiting for the price of gold to more or less triple, the French have made 50% more than Gordon Brown on gold sales having only to sell half as much.
Tim Montgomerie asks “Is there a more powerful example of Brown’s incompetence?”
When it comes to the matter of how the Gold was sold I think that is fair comment, it really does seem that Brown didn’t know how to best sell gold – and more damningly – didn’t try to find out the best way either.
By announcing the sale in advance it is reckoned that he depressed the market by around 10%. Record numbers of investors took up “short” positions on Gold in anticipation of the sale.
By way of illustration, whereas he sold gold through auctions Australia and Switzerland sold through the normal and more profitable channels and then announced the sales after they had taken place.
But the decision to sell the gold in 1999 seems far more difficult to judge than is often presented.
When it comes to partisan point scoring it seems Tim leaves his pro-market credentials at the door. Even Guido Fawkes cannot help himself lamenting the “billions lost” by Brown.
There are a number of caveats on Brown’ bungling so rarely mentioned some would think that they didn’t exist. Robert Peston points out that we didn’t just ditch gold, we purchased interest-bearing assets instead.
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 a poor defence for Brown, but a defence nonetheless. Brown’s logic was that Gold would not recover in value to the extent that it would out earn these assets.
He was wrong, but if Tim Montgomerie and Guido Fawkes knew Gold was to triple in value in a decade why do they not live in houses made out of it?
Its very difficult to beat the market and utterly impossible to assimilate all the information needed to do so on a consistent and intentional basis.
Brown did a marvellous job of making as little money in a weak market as he could, but its a little disingenuous to suggest Brown has lost us billions of pounds.
This behaviour seems to have little to do with an interest in the best practice of Government or deeply held beliefs but a great deal to do with political gesturing.
AMMENDUM: This is quite interesting on Gold as an investment.