Bodicoteblue said:
People are always referring to labour selling off the gold reserves at way below its supposed market value, but never seem to want to mention the Tories flogging off the gas , water , electricity and most recently the Royal Mail for spectacular undervaluations.
The Tory fan Bois on here could do with taking their heads out of their arses and read this about Brown and the sale of Gold.
From The Times, a Murdoch Tory supporting rag too.
Ed Miliband had a tough time on Question Time last week. “This country did suffer because Gordon Brown sold gold to prop up the social services,” an irate questioner said.
It’s odd that Mr Miliband had no prepared answer. Perhaps he didn’t recall the Conservative poster from 2010, depicting Mr Brown saying: “I lost £6 billion selling off Britain’s gold. Vote for me.”
It’s a potent image of recklessness, but it’s wrong. Mr Brown’s decision in 1999 to sell part of Britain’s gold reserves was prudent. Though Mr Miliband won’t defend him, I will.
Between 1999 and 2002, the Bank of England sold about 395 tonnes of gold. This represented just over 55 per cent of its gold reserves. The average price realised was slightly more than $275 per troy ounce and the proceeds amounted to £3.5 billion.
Then the gold price went up. And up. It peaked at $1,921 an ounce in 2011. Mr Brown, it turned out, had sold at the bottom of the market. Doesn’t that prove his incompetence?
No. As Mr Miliband might have pointed out, Mr Brown did not sell gold to finance spending, he did it to diversify the reserves, of which more than 40 per cent were held in gold. The proceeds weren’t frittered away on gin and lottery tickets. They were invested in foreign currency assets, in a proportion of 40 per cent dollars, 40 per cent euros and 20 per cent yen. That was sound financial management.
The traditional case for holding gold is that it is a hedge against inflation and a store of value. Both claims are contentious and I’d call them superstitions; demand for gold may be driven by things that have nothing to do with the wider economy, such as dentistry. Even if you’re swayed by them, though, they don’t imply that you should allocate 40 per cent of a portfolio to gold.
How much an asset is really worth (its “intrinsic value”, in the jargon) depends on the cash that it will generate: interest, dividends or (for property) rental income. Investors who manage long-term funds, such as pension and life funds, put money in a range of assets. Their asset allocation aims to maximise expected returns for a given level of portfolio risk. The returns will depend on how much cash the chosen assets will pay out over the long term. Gold might be useful as a hedge, but it pays nothing; it just sits in the vault.
Hence Mr Brown’s decision. Unlike gold, the Bank’s foreign currency assets are interest-bearing. Eddie George, then governor of the Bank, argued in 1999 that “as a portfolio decision, it is perfectly sensible”. And he was right.
Yes, the Bank could have sold gold for a higher price by waiting — that’s the benefit of hindsight — but it is inappropriate for a central bank to be, in effect, taking a punt on commodity prices. Revealingly, George Osborne never instructed the Bank to sell dollars and euros and buy gold. If he’d done so, he would have been following the example of Hugo Chávez, who, as president of Venezuela after the global banking crisis of 2007 to 2009, made a huge bet on gold to free his country from “the dictatorship of the dollar”. The central bank of Venezuela stockpiled 70 per cent of its reserves in gold, a position that it’s now trying to unwind with gold prices around a third lower than their 2011 peak. With the domestic economy collapsing, Venezuela desperately needs foreign currency. Last week, the central bank sold $1 billion of its gold reserves through Citibank, that well-known revolutionary institution.
It’s the task of government and central bankers to deliver economic and financial stability so that consumers, businesses and investors can afford to take long-term decisions. Punting on gold has no place in that approach. Politicians of all parties should belatedly acknowledge that Mr Brown got that right.