Arctic Goldfinger

Between 1999 and 2002, Gordon Brown, who is now Britain’s Prime Minister but who was Chancellor of the Exchequer at the time, sold 400 tons of the Queen’s gold bullion. That is a LOT of gold and was about half of Britain’s gold reserve. Gold at the time traded in a range roughly between $250 and $300 an ounce. Since then, as anyone who glances at the gold chart on this blog would know, the price of gold has doubled, and then some.

Now let’s suppose you or I had 400 tons of gold that we wanted to sell. Obviously our objective would be to obtain the best price possible under circumstances where we knew we would be flooding the market with supply. Don’t you think you or I would go about it quietly, slowly feeding the gold into the market in order not to drive down the price?

The British government, however, is not you or I. With trumpets blaring Mr. Brown announced, in advance of any sale, that Britain would be auctioning off 400 tons of gold over the next few years. The result, not surprisingly, was that the gold price, during the course of those sales, remained in a price range that was the lowest in twenty years. If the gold had been kept until today rather than sold, it would have increased in value by more than two billion pounds (four billion dollars).

Needless to say, Mr. Brown did not announce that the reason for his selling orgy was to suppress the price of gold. He gave the usual litany of reasons that Central Banks gave then, and continue to give now, for selling gold. Here is the short list:

1. Retaining the gold serves no purpose since, in this modern age, gold is what Dr. Keynes called a “barbarous relic.”

2. Gold is a pain in the neck to maintain and store.

3. Gold earns no income, but the proceeds of a gold sale can be invested in assets that provide a stream of income.

None of these arguments is even vaguely plausible. The “barbarous relic” canard is both wishful thinking and begs the question. And the “income stream” argument ignores the fact that when a Central Bank needs an income stream all its needs to do is print it. Obviously there are always other factors at work in Central Bank gold sales.

There have been some recent revelations about that 1999-2002 British gold sale. It appears that some gold traders were quietly consulted by the British Government before the sales were announced and they advised the government, in no uncertain terms, that the result would be to guarantee that Britain would sell its gold at the worst possible price.

Of course the worst possible price was exactly what Brown wanted. With smoke pouring out of the overworked printing presses at Her Majesty’s mint, suppressing the gold price was like taking the battery out of a smoke detector.

The British gold sale made no sense whatsoever except in terms of gold price suppression. Brown has taken some heat over the years for costing the British taxpayers a couple of billion pounds, but not enough to prevent him from becoming Prime Minister. He must have done one hell of a job of polishing up the handle on the big front door.