Great Britain was once the proud leader of the Classical Gold Standard. A global commercial and economic power, she operated on the gold standard from 1717.
The Standard allowed the free movement of capital which in turn financed and expanded trade. Twenty per-cent of the growth in global trade seen between 1880 and 1910 can be attributed to the stability of the gold standard.
The British people had faith in their money, its value, and the banks they kept it in. How far we have digressed from that confident nation.
The Great War and central banking promptly put an end to the loving relationship we Brits once had with gold. Our governments and central bankers decided over a few short years that we would be better off without our gold money.
Gradually over time we have lost our link to, and our faith in, gold; only to replace it with a faith in governments and the money which they print at their will.
The ultimate defamation to our historical appreciation of gold occurred between 1999 and 2002 when Gordon Brown sold 395 tonnes of Britain’s gold, at the lowest price for 20 years.
Now it is time to bring it back and reinstate our faith in gold. We need to ‘Buy Britain’s Gold Back’.
Britain’s Gold Sales
The motivation behind the gold sales was, according to the Treasury, risk reduction. They believed that with 50% of the net foreign currency reserves invested in gold, the exposure to the single asset was too great.
The proceeds of the gold sales were spent on purchasing further foreign currency assets for our reserves; the split of the assets purchased was broadly 40 per cent dollars, 40 per cent euros and 20 per cent yen.
An average price of $275.60 an ounce was achieved in the gold sales. Since that time gold’s price has increased six-fold. In contrast the values of the dollar, yen and euro have each dropped significantly thanks to inflation and poor monetary policies.
Gold holdings abroad
Was the Bank of England right to allow the gold sales?
The World Gold Council reported last year that central bank buying in the market was highest since 1964, with purchases of 440 tonnes. This is thanks to a lack of sales by Central Bank Gold Agreement (CBGA) signatories and efforts by central banks in emerging markets to diversify their foreign exchange holdings (in an opposite manner to that done by the UK Treasury).
‘With the two dominant reserve currencies beset with issues, interest in gold as the one currency free from the impact of government policy and intervention, has been spurred. The trend in central bank buying is expected to continue given the lack of decisive action in dealing with the underlying issues both in Europe and in the US, as well as low relative allocations to gold among emerging markets.’ – The World Gold Council.
Central Banks are rebalancing their assets in favour of gold.
Gold holdings per country
According to World Gold Council the UK holds 310.3 tonnes of gold. This represents just 17.6% of our reserves; in the US and Germany their gold reserves represent 77% and 74% of their foreign reserves respectively.
The UK has the 17th largest gold holdings by tonnage. But, we drop to 34th out of 98 countries for gold reserves per capita. Had our gold not been sold then we would sit more securely at 22nd.
Our gold holdings per capita are 26 times less than Switzerland’s and 6 times less than the island of Aruba. No other major EU country has less gold per capita than us.
What about private gold investment?
In other countries, private investors’ love for gold is well documented.
In 2011 India and China accounted for over half of total gold demand. The people of India privately hold more gold than US and Europe central banks combined. In 2011 Indians bought 500 tonnes of gold jewellery and 366 tonnes of bullion.
Germany and Switzerland are Europe’s largest holders of gold per capita and this looks set to continue; in 2011 they accounted for the majority of Europe’s seventh annual gain in gold imports in 2011.
Perhaps it is time we started thinking along the same lines?
What are the benefits of gold?
Some investors see gold as a useless asset which just sits idle in a vault. It does not pay dividends. It is not a ‘productive’ investment.
According to the BBC’s Robert Peston, the Treasury under Brown became fixated on the idea of selling the gold; ‘they hated what they perceived as the intrinsic laziness of gold. It simply sat in the vaults gleaming but earning no interest. They wanted assets that appeared to earn their keep, by generating interest payments. They also hoped and believed that rampant global inflation was a thing of the past, and that the days of gold’s soar away success would never recur.’
But as Mark Twain advised, you should be concerned first with ‘the return of your money’, before ‘the return on your money’?
After Japan, the UK is now the most indebted leading economy. It is estimated that it will take at least a decade for UK private-debt burdens to return to levels seen before the Credit Crunch. The banking sector is the largest component of debt in the UK; the sector in whose custody we place our savings.
Fears of inflation are not a thing of the past. We recently learnt that UK inflation, measured by the CPI, currently sits at 3.5%. This is blamed on rising commodity prices, core inflation, which discounts rising energy, food, tobacco and alcohol prices, sits at 2.5%.
The RPI which is a better reflection of our everyday consumption has, according to Simon Rose, increase by 53% since the Monetary Policy Committee was formed in 1997. Mr Rose finds a sliced white loaf cost £0.52 fifteen years ago, but today it costs £1.23.
Inflation is eroding the value of our cash.
Inflation is a tax on the hard working people of Britain. It punishes savers, punishes those who earn or have money.
The Sunday Times reported recently that we need a savings account to pay 4.38% to beat tax and CPI inflation. This is an increase of 0.13% in the last month alone. £41.8 billion a year is confiscated from pensioners and savers as a result of negative interest rates. The Centre for Economic and Business Research estimate the bank rate will stay this way until 2016.
So, how can we secure our savings with the same satisfaction and guarantee felt by previous generations? Perhaps we need to look to our heritage, as the once global economic leader, and remember an important lesson about gold. Many other nations are already doing this, as they strive to protect themselves and come out on top of this financial crisis.
Build your own reserves
A 2002 report from HM Treasury outlined why gold is held in foreign reserves:
1. The war-chest argument – gold is seen as the ultimate asset to hold in an emergency and in the past has often appreciated in value in times of financial instability or uncertainty;
The government are so concerned about this ‘emergency’ that they set up a compensation fund, the FSCS, to pay out up to £85,000 to those whose money is lost in the banking system. Do we really want to store our wealth in a system where this is a possibility?
2. The ultimate store of value, inflation hedge and medium of exchange. Gold has traditionally kept its value against inflation and has always been accepted as a medium of exchange between countries;
This is something which we mention time and time again. Since 1967, the British pound has lost 90% of its purchasing power. This devaluation is mainly down to the inflationary practices of government’s monetary policies.
In the first quarter of 2012 the British pound was down 3.5% against gold is both an inflation hedge and a store of value. Unfortunately our Treasury was too short-sighted to see this and as a result has loaded us up with depreciating and questionable national currencies.
3. No default risk – gold is ‘nobody’s liability’ and so cannot be frozen, repudiated or defaulted on;
An excellent point made by Her Majesty’s Treasury, but unfortunately one which works against them. And one which is serves the strongest argument for keeping your money out of the bank.
As the FSCS state themselves, since it was set up in 2001 they have ‘paid out £26 billion in compensation and helped more than 4.5 million’. All of those individuals needed helping because of counter-party risk, because banks and other financial organisations losing their money.
If the Bank of England had kept our gold we would be better insured against the risk of the financial system.
4. Gold’s historical role in the international monetary system as the ultimate backing for domestic paper money.
Gold is ‘The ultimate backing for paper money’. Paper money is just that; paper. It is worth little compared to the money which once put the ‘Great’ in Great Britain. It is no longer backed by anything real, all that backs it is the confidence we have in the Bank of England. The same central bank that failed to predict the tech bubble, the housing bubble, and the Credit Crunch.
Previous governments may have lost some of our security we don’t have to be the victims. With Britain more vulnerable it’s time for us to take matters into our own hands.
Whilst the government are asleep at the watch, let’s buy some gold bullion to secure our future. Let’s buy back Britain’s lost gold ourselves. For each taxpayer the UK Treasury sold 13.2 grammes of gold. Each person who buys their share of the gold is buying their own little piece of financial security and acting as their own central bank. When you own physical allocated gold, it is yours, no-else may sell it or loan it. Your asset is not dependent on any party’s performance, your investment is ‘no-one else’s liability’.
Let’s Buy Britain’s Gold Back; for our security, for our independence, for Britain.
Buy Britain’s Gold Back.
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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.