Gordon Brown's gold sale spectre still haunting after 25 years

Wed May 01 2024

Gordon Brown's political career probably won’t be defined by his decision to start selling the UK’s gold stocks between 1999 and 2002, but 25 years on the badge as the man who called the bottom of the market is not going away.

For those who have forgotten or weren’t around, the then Chancellor decided that as gold had no intrinsic value the UK could use the money better elsewhere.

So, between 1999 and 2002. the Treasury sold 400 tonnes (12.8 million ounces) from the UK’s reserves at prices estimated to be between US$285 and US$300 an ounce, generating US$3.5 billion.

At the time it raised eyebrows, but it must have appeared a seemingly sensible move given that the gold price had gone nowhere for decades.

History (and hindsight) though are cruel mistresses and gold has since risen 1,000% to currently sit at around US$2,350 an ounce and make 12.8 million ounces worth about US$30 billion.

Hal Cook, senior investment analyst at wealth platform Hargreaves Lansdown has done the maths: “After allowing for currency movements between the dollar and the pound, the UK has missed out on a return of 980% in sterling terms on the gold that was sold.

“With Consumer Price Inflation (CPI) of only 85% over that time, that’s a lot of missed gains, even in real (after inflation) terms.”

Cook adds that not only has gold soared in value, it has comfortably outperformed other potential investments.

“The MSCI All Countries World Index is up just under 500%, the FTSE 100 210% and the MSCI USA index 670%.

“At the time, the proceeds from the gold sales were believed to have been invested into US Treasuries. The returns from these depend on exactly what was bought, but the range is from 170% - 300%, well below the return on gold.”

Even with the proceeds of interest or dividends being reinvested Cook suggests that as investment strategies go it could hardly have been worse.

Apple has risen 52,000% over the same period, but Brown would have had to have bought 22% of the company at a time when even Steve Jobs probably hadn’t dreamt of an easy-to-use mobile phone.

Other comparable gains have been seen in Scottish Mortgage (1,377%)  and JPMorgan Global Growth & Income (907%), "Which is lower than gold, but still represents a great return.”

Source: https://www.proactiveinvestors.co.uk/