Hal Cook, senior investment analyst, Hargreaves Lansdown: “It was 7 May 1999 when Gordon Brown began selling down the UK’s gold reserves. Between then and 2002, he sold around 400 tonnes of gold, generating about $3.5bn from the sales. The price of gold was roughly $285 per troy ounce at the time he began his selling spree and $300 or so at the start of 2002. At the time of writing, one troy ounce of gold costs about $2,300. After allowing for currency movements between the dollar and the pound, the UK has missed out on a return of 980% in sterling terms on the gold that was sold. With Consumer Price Inflation (CPI) of only 85% over that time, that’s a lot of missed gains, even in real (after inflation) terms.
This is made worse by the fact that most other popular investments have not performed as strongly as gold over this period. The MSCI All Countries World Index is up just under 500%, the FTSE 100 210% and the MSCI USA index 670%. At the time, the proceeds from the gold sales were believed to have been invested into US Treasuries. The returns from these depends on exactly what was bought, but the range is from 170% - 300%, well below the return on gold.
That said, performance of indices doesn’t include the reinvestment of income received (dividends from shares and interest payments from bonds). This means the returns from the other assets will have been higher if all income received had been reinvested. So, it’s hard to give a full comparison, because of course gold doesn’t pay any income at all.
What could the proceeds have been invested in that could have generated a higher return? Shares in Apple. They’ve gone up 52,000% over the same period. But with the total company value of roughly $15.5bn at the end of 1999, the UK would have had to have taken around a 22% stake in the company. And as the iPhone wasn’t launched until 2007, that would have required some spectacular foresight. There are other individual shares that have had similarly ridiculous levels of return too – NVIDIA was first listed on the stock market in 1999, for example, but picking them would have likely been impossible.
There are some investment trusts that invest in shares which have seen remarkable returns over the period. Scottish Mortgage is one example, which has returned 1,377%. And JPMorgan Global Growth & Income has achieved 907%, which is lower than gold, but still represents a great return.
Some other long lasting investment trusts which are less adventurous and invest in different assets like shares, bonds and gold that have performed well include RIT Capital Partners and Capital Gearing Trust. They’ve returned 650% and 513% respectively.
Overall, it’s easy to say with hindsight that it was a bad decision to sell gold. But predicting its increase in value over the last 25 years would have been impressive, especially given it had only gone from $175 to $285 per troy ounce over the 25 years leading up to 1999.
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