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Gordon Brown Dumped Britain’s Gold to Save Goldman Sachs & JP Morgan
The Telegraph’s Thomas Pascoe has released a riveting account of why Gordon Brown dumped 400 tonnes of Britain’s gold (which has been dubbed Brown’s Bottom) intentionally at the lowest price possible.
Pascoe’s sources have informed him that one globally significant US bank was short 2 tonnes of gold at the time of the 400 tonne gold dump.
Goldman Sachs reportedly approached Treasury Head of Commodities Gavyn Davies to explain its dire predicament, and the immediate global financial consequences should The Vampire Squid default on its gold delivery obligations.
Pascoe alleges that Gordon Brown used various mechanisms (telegraphing the sale, using an auction rather than the London fix, etc) to intentionally sell Britain’s gold reserves at the lowest possible price to save the necks of Goldman Sachs’ massive gold shorts (which likely included JP Morgan which was even more massively short gold at the time).
When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things…
It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.
One decision stands out as downright bizarre, however: the sale of the majority of Britain’s gold reserves for prices between $256 and $296 an ounce, only to watch it soar so far as $1,615 per ounce today.
When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things.
First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory.
Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon “fix” between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply.
The auction system again frequently achieved a lower price than the equivalent fix price. The first auction saw an auction price of $10c less per ounce than was achieved at the morning fix. It also acted to depress the price of the afternoon fix which fell by nearly $4.
It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was. …
This plan worked brilliantly when gold fell and the other asset – for the bank at the heart of this case, yen-backed securities – rose. When the prices moved the other way, the banks were in trouble.
This is what had happened on an enormous scale by early 1999. One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price.
Goldman Sachs, which is not understood to have been significantly short on gold itself, is rumoured to have approached the Treasury to explain the situation through its then head of commodities Gavyn Davies, later chairman of the BBC and married to Sue Nye who ran Brown’s private office.
Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations. Read more: