One of the bigger stories in the UK over the past several days, has been the increasing pressure on Prime Minister Gordon Brown to justify his sale of 395 tons of gold in 17 auctions in the period from 1998 through 2002, when Brown was Chancellor of the Exchequer, a role identical to the one Tim Geithner now performs in the US as Treasury Secretary. The issue is that in the abovementioned period, gold was trading at the rock bottom prices of the past two decades, and as such his rush to sell is estimated to have cost UK taxpayers £6 billion. One reason previously given to Parliament, to explain the transactions from Treasury ministers and Tony Blair was that the sale was made 'on the technical advice of the Bank of England.' Today the UK Treasury has released long-withheld FOIA documents which disprove this claim, and indicate that in fact the BOE was if not completely against selling the bullion then certainly waiting until the price improved. Furthermore, as the Daily Mail reports, "A source close to the Bank of England said last night: 'It was not our decision. It was their decision and we simply provided technical advice. Then it was up to them.'" Yet, in light of recent LBMA manipulation revelations by GATA, it was most likely the association itself and its member banks which pressed the then relatively new Chancellor to do something against the interest of his people, potentially with promises of further rank extension in the "public services" arena. So far, they have not disappointed.
As part of the FOIA, (Full document attached below) it becomes clear that Brown attempted at least 4 tried to persuade the BOE to proffer a joint proposal from the Treasury and the Bank Of England as pertains to English gold sales in the late 1998 period. And even as the FOIA submission is now making the round, there is still a critical redaction. To wit, from the Daily Mail:
Two days before Christmas 1998 - just a month before the sale was announced - a senior Treasury official wrote to the department's then permanent secretary Gus O'Donnell: 'The Chancellor is keen that officials at the Treasury and the Bank work together to produce a joint proposal. As I understand it the latest proposal is not a joint one.
'The Chancellor needs to know the status of the proposal, what the difficulties are in drawing up a joint proposal, how you think we can move forward in achieving a joint proposal.'
Three weeks later Mr Brown met the then Bank Governor Lord George for lunch to discuss the plan. But the outcome of the talks is unclear because the Treasury has blacked out a key section of the only note referring to it.
Lord George offered only the most lukewarm endorsement of the decision at the time, telling MPs it was a 'perfectly reasonable portfolio decision'.
If he had refused to agree to the sale he would almost certainly have had to resign.
Surely, Gordon Brown, facing with some very daunting poll numbers ahead of upcoming elections, will now have even more explaining to do.
Yet what mostly caught our attention was Annex #29 to a Bank Of England paper from September 28, 1998, in which the following was said:
The US treasury sold gold in two spells, two auctions of 23 and 15 tonnes in 1975, which were not continued in 1976 as the IMF auctions were announced and the spot price fell; a larger programme of 491 tonnes during 1978-1979 as the gold price rose sharply. Indeed the second programme was extended three times as demand for gold continued to push up the spot price. The US Treasury used a multi-price auction system initially with open bids, but switched to closed bigs by the end because open bids were causing market disruption [can't have a transparent market now, can we]. The auctions in 1979 offered two grades of gold: 995 fine and 900 fine. It is not clear whether this was a market-driven switch, or whether it reflected the US Treasury's preference.
Now correct us if we are wrong, but (London) Good Delivery standards by the LBMA have called for 995 and higher fineness since time immemorial. How is it that the US Treasury decided to dilute the content of its gold dispositions precisely at the time when gold prices were surging. And, more relevantly, why? Recall that in the period January 1979 - January 1980 gold price/toz went from $240 to $850! Did the US, for whatever reason forced to sell into the run up, need to dilute gold holdings due to a massive shortage of physical? By doing so, did the UST force buyer to sign "big boy" letters fully acknowledging that they were getting less than Good Delivery gold? Was this 10% dilution merely the first step in what Adrian Douglas recently highlighted would be the transition of gold claims holders into general unsecured creditors? If a 4x run up in gold forced the US Treasury to enact a 10% real dilution in gold, what would happen if gold surged 40x? Would the fineness of the adjusted "good delivery" drop to 100 or lower? Forget the LBMA and the threat of physical dilution - a much more relevant question is just how much of the alleged US gold holdings of 8133.5 tonnes is actually real. Surely, the question of just how much gold is there below the HSBC building in New York's Bryant Park, and below the FRBNY has never been more relevant.