All those who keep saying 'but he sold our gold' I'm interested in why it bothers you so much, ta muchly.

[Beachcomber]

Thanks to anyone who wants to explain a bit to me about this because I don't really get the point you're making.

I understand that GB sold about half of the UK's gold reserves at a time when the price was quite low. It is easy to say now, with hindsight, that it wasn't a good time to sell (although that would only take into account price and not the reason behind the sale). However the money was invested in currency, right? So it isn't like it isn't there anymore, it is just in a different form (euros, dollars and yen).

Also AFAIK the point of selling some gold was to make a comitted move to an economic policy which would inhibit fluctations in inflation. GB said he was committed to stable inflation (appararantly this is what he was referring to with the 'boom and bust' statement).

So to those who seem upset about this move can you tell me why cos I don't get you. (Please try to present arguments and facts and refrain from personal attacks on the PM about being 'a liar' and 'incompetant'.)

Here is a link to something which explains how I see the gold issue.

I forgot to say that I would be interested in anyone knows what is being done with the currency reserves. For example is it being lent out in order to make interest or is this sort of thing impossible/not allowed?

Just wondering because I read somewhere that gold reserves are increasing seen as a bit pointless because they have a very limited lending capacity compared to currency.

Whoever wrote that Times article should look up the rather important concepts of "time value of money" and "inflation". He would then see that $3.9bn in 2000 is not the same thing aS $3.9bn ten years later.

It is the short sightedness of his decision now proven with the fact the price is rising. Combined with the fact he will not discuss it, it is pointless to discuss it nothing can be done but we should learn from it. Also it is a question that has interested me for years and he was here why not ask.

I worked for a large gold trader at the time the UK sold its gold. It is not only that the market timining was wrong (the gold was sold for a lower price than it would have cost to mine and refine it).

The worst part, was that the sale was pre-announced. Every single trader in the market knew it was going happen. The price fell immediatley after the annoucement. Many traders also went short and pushed the price even lower and just waited for the UK gold to be delivered. They made a fortune. It was the worst possible way to handle such a massive sale.

The whole event was/is known as the 'Brown Bottom' in the market.

It's also the fact that prior to selling the gold he announced he was going to do so, which resulted in the price falling very low. Gold prices are highest when there is a limited supply, so announcing you are going to have 17 auctions and sell off loads of the stuff is a good way to lose money.

There's a good explanation of why it annoys people here.

Announcing the sale was foolish. There may have been good reasons to do so to announce a committed move to an economic policy which would inhibit fluctations in inflation.

The fact that gold prices are now much higher is moot - it couldn't have been predicted, and even as a response to the financial crash etc. the price seems irrationally high.

What I want to know is why gold is worth anything anyway. Is it JUST a historical accident of picking which scarce resource we want to see as the basis of wealth? I mean, you can't eat it, it's not particularly industrially useful, it's not the rarest, it's just pretty.

Ok, thanks. I understand that it wasn't a good time to sell and announcing the sale seems odd although perhaps inevitable in order to conclude the sale.

Can anyone expand on the questions about inflation hedging/the point of keeping gold reserves/why the Conservatives didn't sell earlier/the fact that the reserves are now currency which is more flexible that gold?

It annoys the hell out of me because GB was told by several economists and experts that he shouldn't sell our gold but he did so anyway. It sums up his personality for me - an unwillingness to listen to anyone else or to allow the possibility that he is wrong and others are right.

At the most basic, gold will always be more of an asset than currency. Gold has an intrinsic value that currency just doesn't have and in times of instability (which the world is facing with global energy, water and food shortages) gold will retain its value.

Callisto - WHY does gold have an intrinsic value?

afaik foreign currency and gold reserves are used to try and manage fluctautions in the domestic currency. Gold is a good choice (or was) as it generally holds its value over time, there's always a market for it and it has psycological (sp?) value too (hence people getting upse about gold being sold - they wouldn't say the same about dollar bonds!)

I don't think the reserves are used to hedge inflation.

The reserves aren't all currency - there is still some gold left.

I think if you want to use national assets to speculate and grow your investment you use a sovereign wealth fund rather than your reserves.

Callisto do you know why he was advised not to sell?

He obviously thought he was right and going by how he has managed to maintain stable inflation levels for the UK, it seems that he must be doing quite a lot right, no?

Why is gold more of an asset? In times of instability no one wants to buy it/has the money to buy it. Gold doesn't retain its value, it fluctuates a great deal.

This idea that GB is pig headed and incompetent just doesn't hold any water for me. He is obviously very intelligent. He is being applauded for his handling of the financial crisis and countries which rejected his predictions/proposals at the end of the 90s with regards to the global economy are now agreeing with him.

What would the UK rather have now; stable inflation and currency reserves during a financial crisis or rising inflation and some basically useless gold reserves?

Oooj - gold has always been highly sought after - hence gold medals, golden rule etc etc. It's not just pretty, it's properties mean it has had a wide range of uses. It's a historical fact that gold has always had value to man.
Also gold used to directly underpin currency (our banknotes talk about paying the bearer the sum of"x pounds") - prior to that gold coins were used.

beach gold does retain value over the long term - yes there are short term fluctuations but over time it does (I think).

However as financial markets move on and economies grow I suspect that gold might lose its allure as a reserve?

Igglybuff - yes, but. Most of the historical reasons it was useful have gone (If it was THAT useful it would be being used instead of sitting in vaults anyway). What is it good for now? I don't see that our attachment to gold is any more rational that our attachment to the USD. It is only worth what it is worth because everyone agrees that it is worth what it is worth. Past performance is no guarantee of future returns and all that ;)

Haliborange I have looked at the Telegraph article which I have seen before. I'm still no further forward. I still don't see the problem. OK the price was low but was the currency GB wanted to invest in low at that time to? Does anyone know why he chose to sell when he did?

Where would the UK be now if he hadn't taken the inflation controlling measures he did (of which this seems to be a major one)?

He sold the gold around the same time he was warning of a major global financial crisis. Many experts thought he was exaggerating in his predictions about the crisis, were these the same experts/school of experts who were advising him he didn't need to sell the gold? Maybe it is just as well he didn't listen to them.

I agree with oojimaflip, it would appear that the gold standard is largely psychological. In trying to find out about all this I keep reading that the historical reasons for the gold standard are now largely irrelevant.

A lot of people I talk to seem to think that the gold was sold and the money has been spent. It hasn't, it has been converted from one form of reserve to another. Leaving the price aside (unless one wants to get into an historical discussion of why the Conservatives didn't sell the gold much earlier when prices where better on their watch) why is it a bad thing to have a part of one's reserves in currencies?

He bought yen, euros and dollers all doing fab at the moment!

I think the views here show this is a question people have an interset ,aybe we should ask MNHQ to pass it on to GB?

If you want a global collapse hedge you want to be buying guns, antibiotics, water purification tablets and some more guns. Not gold.

TBH - you could probably do without the antibiotics and water purification as you could use your other purchases to get them.

Good idea megcleary. I would be really interested in GB's comments. There was obviously a reason for all this.

I would be interested to know what the current value of the investment is now compared to what it was at the time.

Much as I don't like Brown, I'm prepared to give him a pass on this one. It was a mistake, an expensive mistake and maybe one that's symptomatic of his behaviour. But politicians do make one-off mistakes.

I'm more concerned about the way in which Labour's spent way too much money by co-opting the private sector in a totally inappropriate way that's resulted in the companies involved being able to take the piss and in public services and infrastructure projects being WAY more expensive than they need to be. Instead of taking a "let government do what it does best and companies what they do best," Labour has mixed the two up in an unholy alliance.

Plus all the other Labour mindsets that have resulted in wasted money. These aren't one-off mistakes, they're a permanent state of mind.

But vesela was it a mistake if it has played the intended role in stabilizing inflation which is quite an achievement really? (and a major factor in riding out the global recession).