The power of Gold

Source: guardian.co.uk

Nothing says wealth and power like gold. So what should we make of Labour's disastrous $3.5bn sell-off of a decade ago and the current national mania for postal cash?On Tuesday 12 January 1999, Britain's chancellor Gordon Brown and the governor of his remodelled Bank of England, Eddie George, met for lunch. They might have had, after selecting their meals, a brisk word about the introduction of the euro, or raised an eyebrow at the impeachment trial of President Bill Clinton. The governor will certainly have smoked a cigarette. And then, as documents released under freedom-of-information laws now show us, they talked about gold."My recollection of conversations with [Brown] and his advisers at the time," writes the BBC's business editor, Robert Peston, "is that they hated what they perceived as the intrinsic laziness of gold. It simply sat in the vaults gleaming, but earning no interest."For that reason, Brown was keen to sell most of Britain's reserves and replace them with interest-bearing assets in other currencies. Like those to whom Dale Winton's television adverts appeal, the chancellor had some old gold lying around, and it made more sense to turn it into hard currency straight away: "Cash my gold."And in principle, with 43% of the Bank of England's reserves then held in gold, it did make sense for Brown to spread the nation's finances more evenly. The metal's value had been flat or falling for nearly a decade, and the Canadian, Belgian, Dutch and Austrian central banks – not to mention the International Monetary Fund – had been disposing of theirs for some time.Even so, the then shadow chancellor, Francis Maude, opposed the plan, and so did many financiers. On 25 May 1999, the treasury select committee also asked some fairly startled questions. "People get emotionally attached to gold, and we have seen quite a lot of emotional reaction to that decision," George conceded when his grilling time arrived. "However, as a portfolio decision, it is perfectly sensible." What George did not say – though he had been asked – was whether he agreed with it. Sadly, what the governor had told his boss over lunch remains hidden beneath a stripe of censor's pen.Between July 1999 and March 2002, the sales went ahead, in the form of 17 open auctions. Altogether, 395 tonnes of gold were sold, representing a volume of slightly more than 20 cubic metres – about the same as a small caravan. The average price realised was $275.60 per troy ounce (the traditional measure for precious metals, thought to be named after the French town of Troyes). And it became, according to Peston, "one of the least well-timed investment decisions of this or any age".For its caravan of gold, the Bank of England received $3.5bn, representing just about the lowest price that anyone could have found in the last 30 years, and ..
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