2) The Golden Blunder
Gathered around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told. Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present warned that Brown, who was not at the meeting, could barely have chosen a worse moment. In the room, just behind the governor’s main office, they cautioned that gold traditionally moved in decades-long cycles and that the price was likely to increase. They added that even if the sale were to go ahead, the timings and amounts should not be announced, as the gold price would plunge.
“The timing of the decision was ludicrous. We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.” Martin Stokes, former vice-president at JP Morgan, who was also present, said: “I was surprised they had chosen the auction method. It indicated they did not have a real understanding of the gold market.”
According to other sources, however, Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told”. This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
Eight years on, the price of gold has almost trebled and the loss to the taxpayer has been calculated by one leading firm of accountants at more than £2 billion. The decision to sell 400 tons of gold is seen in City circles as a financial bungle worse than “Black Wednesday.”