Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

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