GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.
Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.
In the room, just behind the governor’s main office, they cautioned that gold traditionally moved in decades-long cycles and that the price was likely to increase. They added that even if the sale were to go ahead, the timings and amounts should not be announced, as the gold price would plunge.
“The timing of the decision was ludicrous. We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.”
Martin Stokes, former vice-president at JP Morgan, who was also present, said: “I was surprised they had chosen the auction method. It indicated they did not have a real understanding of the gold market.”
According to other sources, however, Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told”. This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
Ian Plenderleith, the senior Bank executive hosting the meeting, is nevertheless understood to have compiled a note on the meeting for the Treasury. It is one of several key documents that are thought to disclose the warnings ignored by ministers.
Eight years on, the advice appears even more pertinent.
The price of gold has almost trebled and the loss to the taxpayer has been calculated by one leading firm of accountants at more than £2 billion.
The decision to sell 400 tons of gold is seen in City circles as a financial bungle on the scale of the Tories’ “Black Wednesday” that cost the taxpayer £3.3 billion, according to Treasury estimates.
Taken from: Goldfinger Brown’s £2 billion blunder in the bullion market
Rothschild to pull out of gold market after 200 years
By James Moore
Last Updated: 12:00PM BST 22 Sep 2005
The investment bank that has chaired the London meetings setting the world gold price since 1919 is quitting the market.
NM Rothschild will withdraw from all its commodity trading activities, which also include an oil trading business set up less than two years ago, as part of a strategic review.
The move brings to an end nearly 200 years of tradition. NM Rothschild was founded in London in 1810 by Nathan Mayer Rothschild, who helped finance the Duke of Wellington's army in the Napoleonic wars through gold trading.
The company hosts and chairs twice-daily meetings which effectively set the world's gold price. The meetings are held in a plush chamber in the bank's offices at St Swithin's Lane in the City. The other four firms involved are Deutsche Bank, HSBC, Canada's Scotia Bank and Societe Generale.
During the fixes, telephone lines are kept open to trading rooms where dealers are in touch with customers. Potential price movements are unlimited and the fix has been known to take up to two hours, although it is usually over in a matter of minutes.
The chairmanship of the meetings is likely to be rotated between the four remaining banks in future. Gold industry sources also predicted that the meetings would be replaced by telephone fixing.
NM Rothschild's withdrawal from the gold market is being seen as one of the first major strategic moves by Baron David de Rothschild.
He set in train the strategic review after taking control of the bank from his cousin, Sir Evelyn de Rothschild. Sir Evelyn has been a champion of Rothschild's gold trading although a spokesman for the bank said he understood that Sir Evelyn supported the decision.
The bank's finance director Andrew Didham, who conducted the review, said commodities now accounted for just 2.2pc of Rothschild's operating income from 8.8pc in 1999.
"There is always a sadness that a bit of history is over, but we decided that the commodities business did not really fit with our other businesses," he said.
While the gold price has surged, mining companies have become less interested in hedging and trading volumes have fallen. Observers also said rival banks tended to have better links with the hedge which now make up a sizeable proportion of the market.
Simon Weeks, chairman of the London Bullion Market Association, said: "It is very sad to lose such a long-established member of the gold market but we have lost participants before, such as Credit Suisse, and the market will continue."
Rothschild has yet to decide whether to sell or close its commodities business, which employs 40 people. The company hired a number of senior traders when it set up its oil business in 2003. The price of gold fell by $7 to $402 an ounce yesterday.
Taken from: Rothschild to pull out of gold market after 200 years
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