Gordon Brown's sale of part of Britain's gold reserves has once again been a subject of discussion. In his recent book 'Saving the World'? Gordon Brown Reconsidered, William Keegan makes the following observations:
Not only did he ‘sell the gold’ but he sold it at close to the bottom of the market, and against the strong advice of John Nugée, who was the chief manager of the Bank of England’s Reserve management team at the time. For myself, I found that, when I was writing ‘The Prudence of Mr Gordon Brown’ in 2003-04 there was so little interest in the subject that I did not even refer to the episode. Of course, that was before the price of gold had ascended into the stratosphere.
Keynes had described gold as “a barbarous relic” many years ago, and for decades after the Second World War, there was a widespread desire, not shared by the French under General de Gaulle, to downplay the role of gold in the world of international reserve management. Indeed, when the IMF’s currency unit – the Special Drawing Right (whose value is based on a basket of leading currencies) was introduced, it was with the specific purpose of producing a ‘man-made’ asset, reflecting the value of the world’s industrial production, and not dependent on the vagaries of gold production and the sweated labour that often went into it.
However, old habits die hard, and gold has an attraction that paper assets do not – especially paper assets that sound rather artificial. Gold from the UK official reserve had been sold before, and, despite the popular impression that ‘all’ the gold was sold by Brown, in fact the proportion was 55 per cent. But the government went about it in an inept manner, warning the market in advance, at a time when both the IMF and the Swiss National Bank were also planning gold sales. This of course depressed the price of sales, which was at an average of $275 an ounce. By mid-2011 the price had reached $1,800 an ounce.
Critics of Gordon Brown might care to note that:
In Brown’s defence there were few experts who ever thought the price would scale such heights, and the value of the 45 per cent of gold stocks that he did not sell obviously did scale those heights. The Treasury itself, unlike the Bank of England, was also keen on selling part of the gold reserves. Indeed, Kenneth Clarke, the previous chancellor, has accepted the Treasury’s argument that gold should be sold in return for assets that generate a return, but had been dissuaded by the previous governor Eddie George.
Clarke recalled, when speaking to an audience at the London School of Economics, that Bank officials used to tell him: “Chancellor, if we ever have a third world war it [gold] might be the only means of exchange upon which we could fall back.” To which Clarke’s reaction was: “If we had a third world war, there would be bigger problems than that.” But on that occasion ‘Steady Eddie’ triumphed.