Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gordon Brown's 415 tonnes Gold Sale Blunder, 10 Years On

Commodities / Gold & Silver 2009 Jan 09, 2009 - 01:49 PM GMT

By: Adrian_Ash

Commodities
Best Financial Markets Analysis ArticleTHIS COMING MAY will mark 10 years since Gordon Brown chose to sell well over half the UK's national gold reserves – some 415 tonnes all told – at what would prove rock-bottom prices.

Never mind his politics. With the Euro about to compete with the Dollar for central-bank vault space, everyone else was selling the stuff too, led by Canada, France and even the Swiss...


Never mind the nation's capital loss either, now judged above £4 billion (US$6bn). Because that's peanuts compared to the mortgage-bond losses now hitting London's commercial banks (guessed at £123bn) or next year's public sector borrowing requirement (£118bn)...

Never mind his method...announcing the sales a full two months before the first actual offer, giving the market time to dump in anticipation. And forget about Brown's rationale, too.

Almost two decades after gold's then-record top of $850 an ounce, the Nasdaq index would end the year 80% higher, discounting tech-stock earnings until A.D. 2129. Cue the FT , Economist and BusinessWeek to announce the "death of gold" as a store of value.

Because who needed gold when you had Boo.com?

But those British investors who saw life in the metal, however, have now tripled their money. Last year alone, the Gold Price in Sterling rose by 40%, beating all other investments bar the Japanese Yen and an early punt on Portsmouth winning the FA Cup.

So is it too late to buy?

Well, global Gold Mining supply, which peaked in 2003, fell yet again last year. Growth from China (now the world's No.1 producer) was more than offset by declining ore grades, shrinking margins and energy instability in South Africa, where annual output has halved from a decade ago.

Thanks to the financial crisis, meantime, junior gold miners – always a high-risk proposition – continue struggling for finance, and many are mothballing young projects. The last true "elephant" find came more than two decades ago at Peru's Yanacocha. And all this while, the industry continues to miss a "lost generation" of geologists, mine engineers and metallurgy experts whose mathematical skills earned them far more in the City of London than hard-hats could pay.

On the other side of the trade, gold investment demand leapt in 2008 as the financial crisis deepened, with a significant shift (particularly by high-net worth individuals) from paper certificates and derivative schemes to owning physical metal outright.

Why? Because amid the banking collapse and stock-market wipe-out, holding a high-value asset – free from the risk of default – only became more attractive. The apparent threat of "deflation" may only make gold more attractive again. Because a deflation of wages and prices in fact makes credit-default the investor's No.1 terror.

Whereas the obverse risk...the threat of soaring inflation? We'll get to that in a moment.

At the retail end of the market, a surge in Gold Coin demand came as the dollar-price first slid from its peak of $1,032 per ounce in March – the top not coincidentally reached when Bear Stearns collapsed into the warm, tax-funded arms of a takeover by J.P.Morgan. And then, as the dollar-gold price began to struggle – and even while the gold futures market shrank by one-half (shrunken by hedge funds and other leveraged speculators having their credit lines pulled by the ailing investment banks) – the surging bid for physical gold caught refineries and mints napping once more.

Shortages continue worldwide today, with new buyers now having to wait six to eight weeks for delivery. The premiums charged on retail products have jumped accordingly, averaging 6% and above in the US and Europe. Yet jewellery buying in the key markets of India and south-east Asia also remained strong in the back-half of last year, slipping back only to 2006 levels despite the month-on-month records in Rupee gold prices.

Scrap supplies from Middle East owners meantime dried up in the summer, exacerbating the shortage of ready material for fresh investment supplies. Yes, scrap supplies picked up (and strongly) in the back-half of '08. But gold sales from central banks meantime sank to a 10-year low, as "prudence" – the watchword used (without irony) by Gordon Brown when he first came to power – made a shock return to official policy, if only in central-bank reserves management.

You see, the fifteen members of the Central Bank Gold Agreement ( CBGA ) sold a mere 357 tonnes of the stuff in the year-to-Sept. 2008...almost 30% below their agreed ceiling. World No.2 gold hoarder the German Bundesbank even went as far as to publically refuse a call to help balance the country's federal accounts by selling gold from its vaults, restating instead gold's key role in building "confidence and stability" in official currency.

It's tough to sell gold when banks are collapsing and depression looms. Even Gordon Brown might guess that today. Sadly for cash savers, however, interest-rate policy now wants to annihilate both "confidence and stability" in all government paper. And looking ahead to Gold in 2009 , last year's collapse of official interest rates worldwide – down to an average nudging 1.0% for cash savers in the G7 top economies – might prove a tough hangover to shake.

So what next?

Well, if gold only gains during inflation, then that's what we must have been suffering since the "Brown bottom" of 10 years ago – an inflation in house prices, consumer debt and credit derivatives that finally burst into the consumer price data in 2008. The Gold Price in Sterling , for instance, has since returned 13% per year on average. Bank of England base rate, in contrast, has held just 1.9% above inflation on average – less than half the level of real returns paid during the 1980s and '90s.

Now as 2009 begins, real interest rates have been slashed well below zero in the UK, Japan, Switzerland, Taiwan and United States...and it's here you'll find the one common factor between this decade's bull market in gold and the 20-fold rise of the Seventies. Because low returns paid to cash remove the one big disincentive to using gold to store wealth: the fact that it doesn't pay you an income.

Nor do US Dollars, Japanese Yen or British Pounds today. Can the Eurozone's bank deposit rates be far behind?

If the race is on to pay zero to cash savers, then ever-more cash savers might want to reach the finish line first...and jump straight into that non-paying, non-defaulting investment asset – the same asset which Gordon Brown thought had no further use back in May '99:

Physical gold bullion.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules