Gold News

"Goldfinger Brown" Rides Again

Gordon Brown's at it again, selling gold he doesn't own with "genius" timing...

ALL THAT HOT AIR leaking out of the ExCel center in London's Docklands last week has – with the help of the breathless press – made its way across the Atlantic and lifted the Goldfinger Brown wind-sock atop our Casey Research headquarters here in Vermont, write the editors of Big Gold.

A little background...

Gordon "Goldfinger" Brown, now Britain's prime minister, became infamous for his off judgment when he was still serving as Chancellor of the Exchequer. Between 1999 and 2002, Brown managed to sell 400 tonnes of Gold Bullion – some 60% of the UK's gold reserves – at the very bottom of gold's 20-year bear market. The average price achieved at the 17 gold auctions was $275 an ounce, costing British taxpayers around $2.96 billion at today's prices.

Gordon Brown's Gold Sales proved a stroke of umm, genius...at least for gold investors...and was soon declared the "Bottom Brown". It marked the very lowest Gold Prices in 20 years, and sparked the break-out year for gold that began our current gold bull market.

A similar event in the bluster-sphere had the Alert sock flopping around again in early 2005. In February of that year, Brown was making the rounds on the press release circuit calling for a "revaluation" of the IMF's gold.

That's code for "Sell the barbarous relic!"

Spot Gold was trading around $415 an ounce at the time – and within months, the second leg of gold's bull run began. On May 11, 2006, gold peaked at an intraday high of $725 and remained in the $600 to $700 range for over a year in a consolidation that led to another sharp advance.

In January 2007, the potential for IMF Gold Sales was again in the spotlight. A committee was formed to advise the IMF Executive Board how to solve the organization's funding needs, and selling some of the IMF's gold was part of the committee's recommendations.

And we had something to say about it.

"Even if a sale does come about, will it matter?" asked Big Gold editor Doug Hornig, with an introductory comment by Casey Research Chairman Doug Casey.

"Many feel that the IMF's actions are not liable to have much impact on gold, arguing that the distortions of the CBGA, even at maximum 500-ton strength, have already been fully factored into the current price and its trend line.

"This is not to say that there couldn't be a short-term downdraught. Sure there could be, especially as the IMF sales are formally announced. Some holders of gold, maybe a significant number, can be expected to sell into the news.

"But with countries such as China, Russia and the nations of the Middle East itching to add to their reserves, even a large dump of physical metal onto the market is certain to be absorbed in short order.

"Nor will countries be the only buyers. Beverly Hills investments manager Kenneth Gerbino wrote in 2005 about a similar IMF sales speculation, saying that any additional supply 'would surely be snapped up by the bullion banks and mining companies that are short somewhere between 10,000 and 12,000 tonnes, according to some very savvy analysts.' There's no reason to think that's changed much in the interim..."

Gerbino could have been writing about the IMF when he concluded, "Central bankers will most likely continue, as usual, to scare the price of gold down from time to time by statements of gold sales. But they are all too keenly aware of the growing number of people who realize that the gold, not paper and ink, is the real stable monetary element."

Finally, it is important to keep the relatively miniscule amount of gold sales we are talking about in perspective. In an era where over $1 trillion in derivatives trade globally each day, $6.6 billion in sales is just not that much money when compared to potential investor demand once the US Dollar goes into the free fall that Doug Casey, among others, now believe is imminent.

In other words, if IMF sales do happen, and if they depress Gold Prices, that's a buying opportunity... for Gold Bullion as well as high-quality junior Gold Mining exploration stocks that can pack a real punch in a rising gold market.

This insight is as valid today as it was in 2007, to which we'll add that gold embarked on its third major up-leg of this bull market the following August, exploding from $650 to $1,000 in just seven months.

Fast forward to April 2009, and Goldfinger Brown is at it again, campaigning for IMF Gold Sales. What does it mean? Will he prove once again to be a contrarian indicator? We don't know. But it doesn't take a two-by-four to get our attention. In the meantime, we'll keep an eye on the old Alert sock.

Doug Casey is a world-renowned investor and author, whose book Crisis Investing was #1 on the New York Times bestseller list for 29 consecutive weeks, a record at the time.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, NBC News, and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People and the Washington Post.

His firm, Casey Research, LLC., publishes a variety of newsletters and web sites with a combined weekly audience in excess of 200,000, largely high net worth investors with an interest in resource development and international real estate.

See full archive of Doug Casey articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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