Simply a must read on gold prices , with respect to the Telegraph article on why Gordon Brown sold the bottom in Gold. Courtesy Jessie.
Although this is nothing new, as I and several others have reported this several times in the past, with a very nice documentary on it having been done by Max Keiser, this is still a very important article for two reasons.
First, it lays out rather nicely the gold panic of 1999 and Brown’s Bottom, which is the low in the price of gold achieved by the dumping of 400 tons of gold into the world market at an artificially low price by the British government.
This was done apparently to bail out a bullion bank or two who were enormously and irretrievably caught short of gold by the carry trade.
Second, it provide a good description of the gold carry trade. When gold is leased out by a central bank, the bullion bank takes possession of it and sells it into the market, and invests the proceeds. At the end of the lease period, the bullion bank buys the gold bank in the open market and returns it to the central bank.
Although the gold likely never changes physical location in this process, the claim or title to the gold does change hands, although that change in claim may not be adequately reflected in the public records.
Although the author does not mention it here, there is some thought that the ‘sale’ of the centra l bank gold at private auction is in reality a paper transaction between the central bank and the bullion banks who are short leased gold from the bank, and are unable to return it without causing a price disruption in the world market.