A wealth creator writes about gold
Lots of Tories criticise Gordon Brown's decision to sell the UK's gold reserves back in 1999. Iain Dale, for example, writes today that 'this cost the country more than Black Wednesday' (which Iain calls 'White Wednesday', presumably just like he would refer to the 'Winter of Harmony' in 1978/9).
A friend who works as a wealth creator e-mailed me about this:
'Leaving aside that we were selling as part of a G7 arrangement and every other major central bank was doing the same, compare it to the amount that the government lost as a result of selling nationalized industries at ludicrously low prices.
Lets just take BT. Sold for a little under £3bn, current market worth £16.3bn, market worth in 2000 at top of telecom bubble £80bn. You might as well say the thatcher government cost us £77bn on that one. That's just on one of the privatised industries!
Or, you might say if you were a Tory, it is fundamentally right for the state not to own companies. In the same way we can legitimately say we don't think it right or appropriate for a modern government to have billions of pounds of reserves held in a fundamentally useless metal which yields no interest rate and isn't even used to back the currency any more, when the money could be put to better and more productive use.
As for the issue of gold, clearly the Thatcher government should have sold all of our gold around late 1979 above $800. They then could have cunningly bought it back around $300 in 1984. Before selling at $500 in 1985. Brown could then have bought as low as $250 in 1999 and now be sitting on massive profits.
Or this could have be nonsense and the very volatility of the metal over the past 40 years might show HOLDING GOLD AS A FORM OF RESERVES IS STUPID. And government's trying to act as financial traders IS STUPID.
My favourite gold argument is as follows - 'We are going to get lots of inflation therefore you should buy gold as a hedge against inflation'.
People respond 'But gold hit a high over $800 in 1980 and is now around $1,000 - a record price - is it really going to go up much more'
To which the gold bug invariably responds ' yes, but if we inflation adjust the 1980, the price of gold in real terms (i.e 2008 dollars) was more like $2,100 - so it could easily double from here'.
Which surely proves gold is a rubbish hedge against inflation, if in real terms it is half the level it was 30 years ago because of inflation...