Gold rose into record territory today. Parsing the reasons it did so could lead one into rather uncomfortable speculations about future inflation, the strength of the U.S. dollar, and even whether the dollar will long remain the world’s leading currency.
But Gold’s current surge also tells another story. A tale of utterly stupid government policy in response to an utterly stupid theory of a single private analyst. In this case, the sucker was the British government.
This analyst peddled the notion that keeping gold as part of a country’s reserves was an outmoded precaution, and these gold reserves should be sold into the market and the cash received invested in better paying assets such as U.S. Treasuries — then paying about 3 percent and today paying virtually nothing. A few central banks bought into this notion because it sounded so…so…so marketwise, so fiscally au courant, wringing the best returns from publicly owned gold assets that would otherwise just be a store of ultimate real wealth in times of emergency.
Our own Federal Reserve didn’t bite. In part because Alan Greenspan has always been something of a gold bug. But more importantly because federal law actually forbids sales of our gold reserves. England, however, under then head of its own Fed equivalent and currently PM Gordon Brown, bought into this notion big time. It sold half of its reserves between 1999 and 2002 at auction prices between $256 and $296. Right at the bottom or near the bottom of the market.
Today gold was selling at about $1,045 an ounce —about four times or 400 percent what England got for its own gold reserves less than a decade ago, reserves that had been building up in the Bank of England for literally hundreds of years. Deduct the money it received from “better paying assets” in the last decade or so, compounded, and England has managed to lose a 300 percent profit on its gold. Billions of England pounds thrown away because of a single analyst’s brainchild.
Is there a moral here for the U.S. today? Maybe. Look at how Wall Street analysts are now not only diddling the markets but shaping our own government’s policy. And ask yourself if their nostrums really reflect reality, and whether they are really promoting the longer term interests of this country’s and the world’s economies. Remembering — all that seems to glitter in a bull run is sometimes only fool’s gold.