Welcome to illuminati Silver, we tell you the truth about silver.
Today is Sunday 18th October 2015 and we are asking the question why did Gordon Brown sell
half of Britain’s Gold reserves when he was Chancellor of the Exchequer at an historically
low level?
Let’s address exactly what actually happened The sale of UK gold reserves was a policy
pursued by HM Treasury over the period between 1999 and 2002, when gold prices were at their
lowest in 20 years, following an extended bear market.
The period itself has been dubbed by some commentators as ‘Brown's Bottom’.
The period takes its name from Gordon Brown, the then UK Chancellor of the Exchequer (who
later became Prime Minister), who decided to sell approximately half of the UK's gold
reserves in a series of auctions.
At the time, the UK's gold reserves were worth about US$6.5 billion, accounting for about
half of the UK's US$13 billion foreign currency net reserves.
What was surprising to many, and warned against by many commentators, advisers and officials,
was that Gordon Brown announced in advance the level of gold he was selling at each auction,
thereby driving the price lower, as opposed to obtaining the best price possible.
The UK government's intention to sell gold and reinvest the proceeds in foreign currency
deposits, including euros, was announced on 7th May 1999, when the price of gold stood
at US$282.40 per ounce.
The official stated reason for this sale was to diversify the assets of the UK's reserves
away from gold, which was deemed to be too volatile.
The gold sales funded a like-for-like purchase of financial instruments in different currencies.
Studies performed by HM Treasury had shown that the overall volatility of the UK's reserves
could be reduced by 20% from the sale.
The advance notice of the substantial sales, drove the price of gold down by 10% by the
time of the first auction on 6 July 1999.
With many gold traders shorting, gold reached a low point of US$252.80 on 20th July.
The UK eventually sold about 395 tons of gold over 17 auctions from July 1999 to March 2002,
at an average price of about US$275 an ounce, raising approximately US$3.5 billion.
Labour Treasury Minister Ian Pearson attempted to defend the gold sale.
He said: "The gold sales between July 1999 and March 2002 reflected a prudent decision
to reduce over-exposure to a single asset in the net reserves portfolio."
Brown later tried to justify his actions in an answer to a House of Commons question in
January 2009.
Let’s listen ………….. David Heathcote Amery MP, Conservative Party
asked a similar question in the House and again, this was Brown’s response…………………
However, by contrast, Andrew Slaughter a Labour MP for Hammersmith London, when
questioned by LBC Radio on the 7th April 2010 had greater difficulty protecting his leader,
when dealing with this question,, let’s listen ……………
In 2012 The Conservative Chancellor of the Exchequer encapsulated what Brown had done
very succinctly in the House of Commons – this is what was said ……………
Despite these reasons given, an article written in the Telegraph by Thomas Pascoe on 5th July
2012 alerts us to perhaps a different reason as to why Brown was so intent on selling half
of the UK’s gold reserves at such a low price:
‘One globally significant US bank in particular, is understood to have been heavily short on
two tonnes of gold, enough to call into question its solvency if redemption occurred at the
prevailing price.
Goldman Sachs, which is not understood to have been significantly short on gold itself,
is rumoured to have approached the Treasury to explain the situation through its then
head of commodities Gavyn Davies, later Chairman of the BBC and married to Sue Nye who ran
Gordon Brown’s private office.
Faced with the prospect of a global collapse in the banking system, the Chancellor took
the decision to bail out the banks by dumping Britain’s gold, forcing the price down and
allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.’
Peter Hambro, Chairman of Petroplavosk PLC (formerly known as Peter Hambro Mining PLC)
said “I think that Mr Brown found himself in a terrible position…..
He was facing a problem that was a world scale problem where a number of financial institutions
had become voluntarily short of gold to the extent that it was threatening the stability
of the financial system and it was obvious that something had to be done’.
To some extent, this latter reason makes far more sense that the official reason given,
which was to balance the portfolio.
If Brown was serious about that, he would have attempted, to have obtained the maximum
he could from the sale of gold reserves, which would have meant, not pre-announcing the sale,
and not selling them by auction, but by agreeing to the gold fix level which were quoted at
the time.
In fact, even Alan Greenspan in warned Brown “Germany in 1944 could not buy materials
during the war but only with gold”.
So you may ask, what is our view on why he conducted the sale in the way that he did?
Well unsurprisingly it’s a mixture of the reasons given plus another.
Firstly, gold had been basically in a bear market for nearly 20 years and was producing
little income for the Exchequer.
Secondly, A balancing of Reserves made sense, as they were heavily dominated by Gold holdings
Thirdly, Tony Blair, the then Prime Minister was at odds with his Chancellor in joining
the Euro.
Blair wanted to join his Chancellor did not.
So to some degree, there was a slight surrendering by Brown, to pacify his leader by supporting
the Euro from the sale proceeds of the gold.
Fourthly, and in our view, the most important reason why he sold it the way he did, was
to drive prices down to enable certain banks to satisfy their ‘short positions’ thereby,
to some extent, protecting their balance sheets and possibly preventing a ‘run on the banks’.
Finally, and we cannot quite rule this out, Brown, in our view was generally arrogant
and to some degree financially incompetent, and his hubris, prevented him from listening
to others who offered wiser council.
We hope you have found this video helpful and informative, and would appreciate it if
you would give it a thumb up, comment and if you haven't already done so please subscribe.
Disclaimer:
Silver Illuminati owners come from a background of Banking, International Wealth Management
and Economics.
Having now retired from these worlds we are not qualified to give investment advice.
Therefore, this and other productions must not be deemed to be giving such advice and
merely represent the personal views of its owners.