Gold moved above US$3,000 per troy ounce this week.

That’s the equivalent of £2,314.

In honour of accomplishment, we’re grateful to the Telegraph for this week “celebrating” it with an essay under the headline, “Pity Gordon Brown – the man who sacrificed Britain’s riches”.

If you pay even a glancing interest in gold, you’ll know about the infamous “Brown Bottom”. That’s the time from 1999 to 2002 when Gordon Brown, as Chancellor of the Exchequer, sold 395 tonnes of Britain’s gold.

As the Telegraph story notes, that was at an average price of US$295… or one-tenth the current value.

We’re sure folks could argue history is being unkind. We’re all using the benefit of hindsight. After all, over the previous 20 years, the gold price had halved. Who’s to say it couldn’t fall further?

So perhaps we should give Mr Brown a break… or not.

A 20-year downtrend for a government and central bank that is supposed to preserve the value of its currency and national wealth, isn’t the same as an investor managing a portfolio for retirement.

One of the excuses the apologists give (including the Bank of England and Treasury themselves) is they wanted to diversify the country’s reserves. At that time, around half the Bank of England’s non-Sterling reserves were in gold.

For a regular investor, we would agree that is an over-exposure to a single asset. Most professional financial advisors would probably suggest 5% or 10% maximum in gold. Your editor would say 20-25% is fine… in our humble opinion.

But the Bank of England isn’t saving for retirement.

Its potential “lifetime” is infinite. So, by that measure, a 20-year fall in the gold price is meaningless. Besides, from the 1930s to the 1970s, officially the gold price stood at US$35 – albeit a government-manipulated price.

Did that make it any less worthy holding it for the long term?

Of course not.

An asset like gold is best suited for long-term wealth building and for intergenerational wealth. For the investor who plans to leave assets to descendants, gold is perfect for that.

In the same way that whether you believe in the notion of central banks or not, gold is the perfect asset for a central bank to own.

After all, what could be more intergenerational than an institution established in 1694?

And so, in short, Mr Brown doesn’t get the benefit of the doubt. He and the Treasury, instead of focusing on the long term, they focused on short-term speculation. Speculating that the currencies replacing its gold holdings would hold their value better than gold.

It was a terrible speculation. And the decision to sell the Bank’s gold at that time is rightfully scorned.

Links to last week’s essays below.

Hope you’re having a great weekend.

Cheers,

Kris Sayce
Publisher, Southbank Investment Research

What you missed this week…

Mind the gap

In recent months I’ve written frequently about how US “Big Tech” is vulnerable to a major market correction. That may now be playing out. But there is another market sector – one that is more out of the spotlight yet quite close to home – that is vulnerable, in my opinion, to a sharp correction over the coming months: UK banks. Read more here…

Don’t get carried out (on a stretcher)

What’s Sir Keir Starmer’s real problem? Is he spending too much, or taxing too much? Economists have long debated this question. Read more here…

Undervalued stocks in an undervalued industry priced in an undervalued currency

Why UK investors should consider Australian coal stocks. There are several compelling reasons for UK investors specifically to consider buying ASX-listed coal miners. Read more here…

Your invitation to the stock market’s free lunch

Can you increase the returns of your investment portfolio, without increasing its risk? Most will tell you it’s impossible. But John Butler did just that. Read more here… 

Are quantum chips the future of AI?

Quantum computing is heating up. Are we on the verge of an AI revolution? Find out why big tech is all in on quantum chips. Read more here…