Gordon Brown and his gold fiasco

I have always believed that Gold is not a way of getting rich – it’s more a way of not getting poor.

I believe that everyone should own some gold because lying, cheating, robbing governments will devalue every other currency until it is completely worthless.

If you wanted to buy your son something that would still be valuable in one year, in ten years, in fifty years time – it would not be an Ipod or a PSP.

It would be gold.

Every ounce of gold ever mined still exists today, and there isn’t very much of it.

In fact there is only 158,000 tonnes in existence. Enough to cover a football field to a depth of four feet. It is a very small market indeed.

For thousands of years gold has been a reliable store of wealth. Why? Simply because it carries no debt for what it is worth. It is not so much what gold is, that makes it valuable, it is more about what gold isn’t. And what it isn’t – is easily replaceable.

Paper currencies are all very well, provided they have some sort of backing, other than a handful of promises from lying politicians. When paper money was backed by gold there was less for us to worry about than today. Today, there is a lot to be worried about.

We have a credit crisis now because people have been borrowing money they should have never been lent in the first place. Where did that money come from? Why the Americans printed it of course.

Recently the French President was in the United States trying to prevent the US dollar problem becoming a global dollar problem.

Over 40 years ago, the French were there with a different approach altogether.

In February 1965, President De Gaule, said “What the United States owes to foreign countries, it pays, at least in part, with dollars that it can simply issue if it chooses to”.

De Gaule fully understood the implication of having the dollar as the reserve currency and, in true French tradition, responded accordingly.

Since dollars could still be exchanged for gold at the time, De Gaule instructed the Banque de France to increase the rate at which new dollars were converted to gold bullion.

Get this.

De Gaule sent the French navy across the Atlantic to hand over dollars and pick up gold bullion in exchange. In 1965 alone, the French navy ferried back over $150 million of gold bullion. De Gaule had no time for paper currency that the Americans could print whenever they felt like it.

Note the time scales here – this is only forty years ago.

Three years later De Gaule pulled out of the London Gold pool, a government-run cartel that worked to keep the gold price down (something you will be reading more and more about in the years ahead). As the run on gold continued (so much so that gold was being airlifted from Fort Knox to New York to try and satisfy demand, America played the ultimate card and closed the “gold-window” which meant governments could no longer swap their dollars for something of real value. Since 1946, under what was known as the Bretton Woods Agreement, paper money could be swapped for gold. That luxury had just been taken away and now the US had established the dollar as the reserve currency and they owned the printing presses.

Has a better deal ever been struck in the history of the world?

For the past forty years, dear reader, you have lived through this experiment with paper money. Now you know how we got to be where we are today. And it isn’t pretty.

“How will America ever pay off its debts?” I hear people say. Well, they’ve got the printing presses is the answer.

De Gaule called the dollar “America’s exorbitant privilege”. How right he was.

And you wonder how the Americans have enjoyed such a high standard of living for so long.

Today the world has the dollar as the reserve currency and has no choice but to accept it.

I buy gold because I do not think that this situation will last for ever.

Meanwhile this week is a good time to lament the loss of our very own gold reserves.

Gold is currently hovering around the $1,200 mark, meaning it is now worth almost FOUR TIMES the average price that Gordon Brown sold our own gold for back in 1999.

Read that again – FOUR TIMES the price that prudent Brown sold our gold reserves for. What other investment do you know has returned that much profit (or in Brown’s case LOSS), in such a short period of time?

In a series of auctions between 1999 and 2002, 395 tonnes of the 715 tonnes in the Bank of England’s reserves were sold at a rock bottom price. Around $275 an ounce to be exact. It took our gold reserves down from 17 per cent to 7 per cent of assets and was done, according to some reports, against the advice of then Bank of England governor, Eddie George.

It is without doubt one of the biggest errors of judgement that Brown has made in his entire career.

He achieved what experts can only ever dream about – he spotted the bottom of a market. Unfortunately instead of yelling BUY he told the treasury (against their wishes according to various reports) to SELL. In doing so he dumped 400 tonnes of British gold reserves at the very bottom of the market.

The World Gold Council chief executive, Haruko Fukuda, said at the time. “This is a political decision, in preparation for joining the Euro. This move appears to be pre-empting the promised referendum.

But what was the cost to the British taxpayer?

Well, the proceeds of this gold sale were reinvested in foreign currency deposits, most notably in the euro. By the time gold hit its to-date record of $1,214 in late 2009, the estimated loss to the British taxpayer was in the order of £5 billion”.

Gold has special characteristics.

It has been held as a reserve for thousands of years. Its value does not rely on anybody else’s promise to pay, unlike cash, and it builds public confidence.”

This has all happened in our life time – we have all been too busy to notice or care.

Instead of watching “X-Factor” or “I’m a celebrity, get me out of here”, take some time out to reflect on your own investment strategy.

And if you come up with a better scam than having paper money replace gold as the reserve currency, then I beg you, please let me in on it, eh?

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