Gordon Brown's Gold

After a five day hiatus enforced by work, I am back, to discuss one of the most well-known and contentious economic decisions in memory, namely Gordon Brown's short-sighted and ill-thought out decision ( in my opinion ) to sell 395 tonnes of the country's reserve of 715 tonnes of gold bars between 1990-2002.

The reason that this decision is so short-sighted and costly for the Treasury, and by extension the , is that the price of Gold rose exponentially in the years following, reaching a peak of $1900 per ounce in August 2011. In stark contrast, Brown sold the Gold for between $256-296 per ounce, which even accounting for inflation, is a discrepancy of enormous proportions. Current estimates chart the cost to the taxpayer as being £9 Billion , a figure which, whilst small in relation to Britain's £1500 billion Gross Domestic Product, makes the cost to the taxpayer from Organised Crime, for example, pale in comparison.

One can of course argue that Brown was not palpable to anticipate the rampant increase in price of gold, as he, like most others, could not anticipate or predict the financial crisis of 2007 onwards. The financial crisis was instrumental in raising the price of gold, as financial institutions, governments, and private individuals alike switched to gold-heavy asset portfolios as confidence faltered in alternative financial products such as derivatives. Simple supply and demand theory hence dictates that the price of gold rose accordingly.

However, Gordon Brown broke with accepted convention within the global gold market by announcing the sale of the gold well in advance. As a result, the supply of gold rose , and by extension the price fell. Not only this, but the gold was sold via auction, again reducing the price.

To any sane observer without a detailed knowledge of inter-bank gold trading, Brown's decision sell the gold at the lowest price of the last 20 years would have seen nonsensical . In many respects it was, but in all actuality the depletion of Britain's gold reserves was merely a rudimentary version of the state bailouts that were not only televised with the hundreds of savers queuing outside Northern Rock, but were also symbolic of a system that was beyond control and reproach, a system in which financial firms were given free-reign to act recklessly and gamble with the livelihoods, and indeed lives ( suicides in Greece have risen 40 % since the beginning of the financial crisis, which, whilst not being the greatest of Greece's economic woes, certainly preceded them ) . The Gold Carry Trade needed a bailout in the form of the gold sell-offs, in the same way that reckless lending and mortgage-backed securities necessitated state intervention in 2007-8 onwards.

The truely tragic element in this tale of corporate irresponsibility is not that the taxpayer has been ripped off twice, but that the banks and other financial institutions did not learn from their mistakes earlier.