Brown, Bernanke, Chavez and the price of gold

They say that a fool and his gold are soon parted, and it turns out that was certainly the case when it came to Gordon Brown; squandering not his own reserves, but the nation’s:

Between 1999 and 2002, Mr Brown ordered the sale of almost 400 tons of the gold reserves when the price was at a 20-year low. Since then, the price has more than quadrupled, meaning the decision cost taxpayers an estimated £7 billion, according to Mike Warburton of the accountants Grant Thornton.1

Having settled for such a poor return on our national savings — a decision described in the article as “one of the Treasury’s worst mistakes” (which is putting things mildly) — we also learn (in the same article) that Brown and the Treasury “have repeatedly refused to disclose information about the gold sale amid allegations that warnings were ignored.”

Here is financial journalist Max Keiser trying to get to the bottom of what’s become known as, ah-hum, “Brown’s Bottom”:

Meanwhile, in another part of the world, Hugo Chavez sat tight on his own country’s gold reserves – and now he’s asking for them back:

Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.2

As Venezuela demands its gold back, some commentators are feigning incomprehension. Why on earth would anyone want their gold back at a time like this…? But perhaps the question they should really be asking is this: what if Chavez is refused?

Keiser, a former equities broker, runs a campaign that encourages people to buy up physical silver in an effort to crash JP Morgan; an organisation that he describes as “the biggest financial terrorist on Wall Street”. He says that Chavez’s demands for the return of Venezuelan gold could have a similar effect on JPM:

The fun begins if Chavez demands physical delivery of more than 10.6 tons of physical because as today’s CME update of metal depository statistics, JPM only has 338,303 ounces of registered gold in storage. Or roughly 10.6 tons. A modest deposit of this size would cause some serious white hair at JPM as the bank scrambles to find the replacement gold, which has already been pledged about 100 times across the various paper markets.

Posted at on 17th August.

The price of gold has skyrocketed during the last few weeks, but this doesn’t automatically mean we are witnessing a bubble, at least not in the usual sense. If you look over the longer term, you’ll see that the price of gold has actually been rising steadily for around a decade (about the same time when Gordon Brown decided to sell). That same trend is true for silver, as well as other “physicals”. So is it that the value of gold and silver are rising, or is it that paper currencies (most significantly the dollar) have been devalued?

About a month ago, when the price of an ounce of gold was a mere $1,500, Congressman Ron Paul confronted Federal Reserve Chairman Ben Bernanke in a U.S. House Financial Services Committee. Paul asked Bernanke directly: “do you think gold is money?” Bernanke’s answer: “No”.

But if gold isn’t money, then just what is? The ever increasing supply of virtual ones and zeros orbiting the global markets, or those tattered pieces of paper in your wallet which declare: “I promise to pay the bearer on demand the sum of five pounds” – five pounds, ten pounds, twenty pounds, but pounds of what exactly? Hugo Chavez isn’t waiting to find out, and he’s not alone.

1 From an article entitled “Explain why you sold Britain’s gold, Gordon Brown told”, by Holly Watt and Robert Winnett, published March 24, 2010.

2 From an article entitled “Venezuela Plans to Move Reserve Funds” by Jose De Cordoba and Ezequiel Minaya, published in The Wall Street Journal on August 17, 2011.


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Filed under Britain, Max Keiser, Uncategorized, Venezuela

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