Chancellor Brown Loses US$700 Million Of UK Assets Through Gold Sales.
minesite.com
Date: April 30, 2002
Let us hope that some keen gofer in the Treasury Office remembers to append the price of gold on a daily basis to the vital information arrayed on the Chancellor's desk when he enters his office in the morning. It will serve to remind him that his obstinacy over selling UK gold assets is costing the country more and more each day as the gold price rises and the US dollar falls. According to the calculations by Minews the sum is now US$ 700 million - a sum which could buy two or three hospitals and pay nurses a bit more.
The calculation is fairly simple. In total the Chancellor sold 12, 698,800 ounces of gold at an average price of US$274.98 during a series of auctions lasting from July 1999 to March 2002. When he had finished a large sigh of relief was heard and several analysts agreed that the overall loss was around US$250 million with the money reinvested in dollar, yen and euro currencies and bonds. Since then the gold price has risen to US$310/oz which is US$35.02 above the average selling price. Apply this to the total amount of gold sold and the loss is just on US$700 million. When, and if the gold price rises another US$20/oz to US$330/oz Mr Brown's preference for paper will have cost the country a cool US$1 billion.
The weakness in the argument for setting a gold auction programme lasting 32 months is that sentiment can change drastically during that time. When the sales started in July 1999 gold was still in a long term bear market and it was viewed by analysts and fund managers alike as "old hat". The future, they reckoned, lay in the new and exciting fields of internet and telecommunication stocks. In investment, however, things are never that simple and what goes around, comes around. In other words it was unwise to write off gold.
By the time the sales came to an end in March Ross Norman of The Bulliondesk.com pointed out, " They were selling that gold against a fantastically attractive backdrop. You've got South African production at its lowest since 1953, figures out yesterday showing Australian production is in decline, mine expenditure in rapid decline, contraction of the supplier base, people unwinding hedging, a stock market going sideways, lower interest rate environment, the Chinese market on the cusp of opening and investment demand at its embryonic stage."
Since then it has been onwards and upwards with sentiment improving by the day. This week started with gold at a twenty six month high at US$311/oz as weak stock markets and a flagging dollar led investors to seek more secure investments. It is no coincidence that last week ended with the Dow Jones Industrial Average at a nine week low and Nasdaq at a six month low with European markets following suit. The dollar remained under pressure on growing concern over the strength and stability of the US economic recovery
Chartists are having a rare old time as support levels ratchet steadily upwards. A previous resistance level of US$308/oz is now a support level with spot gold over US$310/oz. As Rhona O'Connell at the World Gold Council points out, the trading band for most of last week was between US$302 and US$305/oz, but it burst out of this with help from the oil price and increased tension in the Middle East. In the meantime lease rates have continued to fall as traders switched from short to long positions and more producer hedging positions were closed off. Chancellor Brown might argue that he could not have foreseen September 11th, but that misses the point completely. Gold has a position in any portfolio as a safe haven when other markets are in disarray.
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